* IMF should consider spillover effects of country policy
By Huw Jones
OXFORD, England Feb 4 Turmoil in some emerging
markets reflects a failure of advanced and developing economies
to learn from the financial crisis and coordinate policies more
effectively, a senior Bank of England official said on Tuesday.
Investors have been retreating rapidly from emerging markets
as the U.S. Federal Reserve unwinds an economic stimulus policy
that had made such high-yielding assets attractive, sending
currencies skidding and forcing policymakers to hike interest
Andy Haldane, the BoE's executive director for financial
stability, said there was a central role for the International
Monetary Fund to raise a flag about the spillover effects from
"Individual countries act in their own best interests
without taking into account the broader best interest of the
financial system as a whole," Haldane said, adding the agenda
for improving coordination should be as radical as that pursued
in financial regulation after the banking crisis.
India's central bank chief has led criticism of the Fed's
handling of its policy reversal, saying Americans should be more
attuned to the global impact of their policies.
The IMF has also called for vigilance given strains in
Advanced economies were blaming emerging markets for being
fragile, while emerging markets were telling the advanced
economies to take care over monetary policy because of its
effects elsewhere, Haldane said in a speech at the University of
Oxford's Oxford Martin School.
"What is going on with the head-to-head combat is people
pursuing policies of individual countries," Haldane
"What is at stake is the system as a whole," he added.
Advanced and emerging markets were acting with good
intentions, he told an audience of students.
The Fed's actions were reshaping emerging markets and
emerging market actions reshaping advanced economies and a
recognition of that would help start a dialogue, he said.
"This is absolutely two ways... Right now there is denial on
both sides," Haldane said.
The IMF largely focuses on individual countries when it
assesses their economies, but it can and should take into
account the cross-border spillovers of a given national policy
despite the sensitivities, he added.
"This problem of capturing spillovers is pretty acute when
you are the IMF and the advice you are giving is to a big
country rather than to a small country," Haldane said.
"Yes, much more is needed if we are to monitor the system as
a system. If the IMF is not doing that who is?" he added.
One example of better coordination would be on capital
controls that 40 countries have introduced unilaterally.
"We are not managing these policies as a system. That is one
of the many missing links we should forge in the years ahead."
Another solution could be to extend the permanent, bilateral
currency swap lines among six leading economies to include
emerging market countries, he said.
There were also spillover effects within emerging markets.
China, for example, was part of the recent spillover story
with South Africa suffering not just because of Fed tapering but
also because of developments in China, he said.