Emerging nations can learn from pitfalls of advanced economies: IMF

WASHINGTON: Observing that emerging economies can learn a lot from the pitfalls of advanced economies, IMF chief today said analysis on emerging markets shows that regulatory reforms can actually increase the benefits from financial development, while reducing the risks.

"Emerging economies can learn a lot from the valuable lessons, from the pitfalls of their advanced counterparts," the International Monetary Fund (IMF) Managing Director, Christine Lagarde, said during a conversation at the Institute for New Economic Thinking Conference on Finance and Society.

Responding to a question, Lagarde said IMF released a study a few days ago that reexamines financial deepening from the viewpoint of emerging markets.

"The key finding is that the gains from growth and stability from financial deepening remain large for most emerging markets, but there are limits on size and speed," she said.

"When financial sector development outpaces the strength of the supervisory framework, there is excessive risk-taking and instability. The experience in many countries, including in the United States, has exposed the dangers of financial systems that have grown too big, too fast," she added.

"Our analysis on emerging markets shows that regulatory reforms can actually increase the benefits from financial development, while reducing the risks," Lagarde said.

"I'm sure many of you have heard, and some may have said, excessive regulatory is going to refrain from good financial innovation," she said adding that as the finance minister of France, she had heard that many times a few years ago.

"But based on the studies, the fears that change to the regulatory frameworks would curtail credit, hamper financial development and innovation, and stifle growth -- may very well be misplaced," Lagarde said.

On the whole, the same set of principles that increases financial depth also contributes to greater stability. Better regulation leads to greater possibilities for development and stability," she added.