Slow growth dangerous for both developed, developing nations

Indian central bank governor Raghuram Govinda Rajan said that the current era of slow economic growth was still dangerous for both developed and developing nations.

Raghuram Rajan, the governor of the Reserve Bank of India, said, ‘The current non-system in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector.’
It is not an industrial country problem, nor an emerging market problem, it is a problem of collective action, Rajan said.
‘We are being pushed towards competitive monetary easing and musical crises. I use Depression Era terminology because I fear that in a world with weak aggregate demand, we may be engaged in a risky competition for a greater share of it. We are thereby also creating financial sector risks when unconventional policies end’, he said, while delivering a public lecture on ‘Going Bust for Growth: Policies after the Global Financial Crisis’ on Thursday at Le Méridien Hotel in Dhaka.
Bangladesh Bank organised the public lecture ahead of the 30th SAARC Finance Governor’s Symposium, and the 44th meeting of the governors of the Asian Clearing Union, which began in Dhaka on Friday.
A large number of audiences, including academics, economists, bankers and policy-makers, attended the programme.
BB governor Atiur Rahman made introductory speech on the RBI governor’s lecture.
Rajan became the 23rd governor of RBI, taking charge on September 4, 2013.
‘We need stronger well-capitalised multilateral institutions with widespread legitimacy, some of which can provide patient capital and others that can monitor new rules of the game.’ Rajan said.
‘We also need better international safety nets. And each one of us has to work hard in our own countries to develop a consensus for free trade, open markets, and responsible global citizenry’, he said.
‘If we can achieve all this even as recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need’, he said.
Despite importance of investing in physical infrastructure for economic growth, unwise investment may turn the infrastructure into burdensome one, especially for the developing countries, Rajan expressed his cautions for the developing countries.
The RBI governor also expressed anxiety over income inequality in both the developed and the developing countries.
‘The middle-class is vanishing in the West, as their opportunity for job is gradually squeezing,’ he said.
‘Given that we do not live in such a world, and given that social security commitments, over-indebtedness, and poverty are not going to disappear, it is probably wiser to look for ways to enhance sustainable growth.’
Clearly, the long run response to weak global growth should be policies that promote innovation as well as structural reforms that enhance efficiency, he said.
‘Given that growth within countries is poorly distributed, policies that improve the domestic distribution of capabilities and opportunities without significantly dampening incentives for innovation and efficiency are also needed’, Rajan said.
‘We still need to understand how to improve project selection and finance — too much public sector involvement results in sloth and rent-seeking, whereas too much private sector involvement leads to risk intolerance and profiteering,’ he said.
‘Going forward, well-designed public private partnerships, drawing on successful experiences elsewhere, should complement private initiative,’ he added.
Among others, economists Rehman Sobhan, MA Taslim, Ahsan H Mansur, Sajjad Zohir, Nazneen Ahmed and former finance secretary Motiul Islam attended the public lecture delivered by the RBI governor.