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Saturday, November 20, 2010

WB official charts challenges for world economy, calls for more coordination

World Band senior vice president Vinod Thomas Friday called for more coordination between governments to ensure global economic recovery, and warned against quantitative easing (QE), currency wars and fiscal deficit expansion.

In an interview with Xinhua, Thomas said deficit and debt-laden countries, especially OECD industrial sates, had little room to expand fiscally.

Thomas said QE had limits because it created a lot of money that tried to move to other countries for better interest rates, including Brazil and China.

"You cannot use it as a way to increasing growth," he said.

Earlier this month, the U.S. Federal Reserve started a controversial plan to buy 600 billion U.S. dollars in Treasury bonds, known as the QE2 monetary policy, to jumpstart the sluggish U.S. economic growth.

Thomas, also director general of the WB's Independent Evaluation Group, told Xinhua that if all countries tried to make their exchange rates lower, the effect would be canceled.

He said the growth of emerging economies was critical to reestablish global economic prosperity and for that purpose trade openness is important.

He said the recovery of growth in the United States, Europe and Japan, depended on not only trade remaining open, but improvements in domestic demand.

He also warned about a possible food and agriculture crisis, which would be major concern for emerging and low-income countries amid global climate change.

He said the world needed to find a way to generate more productivity, reduce energy waste, improve infrastructure or improve quality education.

"Policies to generate productivity and growth would seem to be the best way," he said.

Thomas said China's macroeconomic picture had tightened, but it was still robust compared with other countries.

He said the fundamental question for China was the quality of growth and it was critical to keep the growth inclusive and to avoid increasing wealth gaps.

Source: Xinhua
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