Paulson Addresses Global Impact Of Credit Crunch At IMF Summit

Addressing the IMF Global Summit, Treasury Secretary Henry Paulson discussed the impact of financial turbulence on the global economy, citing the “changing and challenging financial landscape and how imperative it is that we adapt ourselves and our institutions to meet these challenges.”

The growing interconnectivity of global capital markets has made the system as a whole stronger in terms of sustaining growth, Paulson said. However, he said nations need to be careful about the increased risks associated with interdependence.

“Global growth and financial soundness depend increasingly on dynamic emerging market economies, rather than overwhelmingly on industrial countries,” he stated.

“Accelerating globalization has heightened our awareness of the links between energy and environmental policies and longer-term global economic prospects,” he said.The ripple effect of problems in the subprime mortgage market in the United States growing into a global credit crunch are something that markets need to learn from, Paulson said.

“We need to continue to be vigilant, because all of our capital markets are not yet functioning normally,” Paulson cautioned.

He added that long-term changes need to take place in order to “prevent a repeat of recent excesses.”

The U.S. Treasury Secretary commented on China, India, and Russia's prominent role in global economic growth. The report on global economic growth released last week by the IMF stated those three countries accounted for more half of global growth.

“Emerging markets as a whole are growing more than twice as fast as industrial economies, and account for a rising share of global trade and investment,” Paulson said. “Such realities need to be reflected in international financial and economic institutions, both in the focus of their work, and in their governance structures.”

Energy policy was another issue addressed at the conference.

“Any long-term view of global economic prospects must take into account energy security, deal with the global challenge of climate change and address environmental impacts for future generations,” Paulson said.

He emphasized President Bush's proposal for an international clean technology fund and attempts to work with producers of greenhouse gas emissions.