A senior economist at the Organization for Economic Cooperation and Development on Tuesday expressed support for the Group of 20’s push for a global financial safety net to fend off risky capital flows.
Randall Jones, head of Korea/Japan Desk at the OECD, said a range of global financial safeguards, discussed by the leading 20 economies under the initiative of Korea, this year’s G20 chair, would help stabilize the world economy.
“Korea’s capital market is very vulnerable to outflows and the swap arrangements in October were very important to help Korea overcome the 2008 crisis,” Randall Jones, head of Korea/Japan Desk at the OECD, told The Korea Herald, before a press briefing on the OECD Economic Survey of Korea.
“We didn’t take a stand on it (global financial safety net) officially, but I do encourage the G20 to have a successful meeting (regarding the matter).”
Such multinational credit lines will especially help countries whose currencies are not reserve currencies, he added.
His comments came as Asia’s fourth-largest economy recently received broad G20 support for its global financial safety net proposal.
“We encouraged progress on financial safety nets and acknowledged a need for national, regional and multilateral efforts to deal with capital volatility and prevent crisis contagion, as demonstrated by the recent events, and agreed to explore policy options to improve global financial safety nets, based on sound incentives,” said G20 officials in their communiqué, after the G20 ministerial meeting in Busan on June 5.
“In line with this effort, we called on the IMF to make rapid progress in reviewing its lending instruments, with a view to developing and upgrading them, as appropriate.”
The Korean government believes that combining regional initiatives and bank liquidity with the International Monetary Fund could prevent sudden capital outflows and buffer external shocks, according to the Ministry of Strategy and Finance.
However, major economies including the United States, Europe, China and Brazil who have large reserve currencies are said to be still cautious about establishing a global financial safety net.
The major concern is that some advanced nations worry that such a facility could trigger moral hazard, observers said.
By Kim Yoon-mi (yoonmi@heraldm.com)
