The Hindu Business Line : ‘Euro area drawing FDI from emerging markets’

Speaking here today at the Tenth L. K. Jha memorial lecture organised by the Reserve Bank of India here today, European Central Bank President, Mr Jean-Claude Trichet, said that foreign direct investments from Brazil, Russia, India and China were Euro 12 billion in 2005, three times more than in 1999. Mr. Trichet said, “ This is good news, as these investments represent a new source of capital, with potentially beneficial effects on Euro area growth. Moreover, they might help European firms access emerging markets more easily than on their own.” He said that since the introduction of the Euro in 1999, emerging market share in Euro area trade was more than 40 per cent.

Growth engines

He said that emerging markets have become one of the main engines of world growth. Emerging markets currently contribute about 40 per cent of world gross domestic product in purchasing power parity terms, though only 20 per cent at market value. Emerging markets were growing at 7 per cent. As a result, he said, “The world economy may better able to rely on the dynamism of these economies, in particular should growth in other regions lose some momentum".

Mr Trichet said that large current account imbalances were no longer an issue for mature economies, but was a global issue. Such flows go “hand in hand with sizeable cross border capital flows”. “India has been confronted by these problems. This is why addressing imbalances is in interest of the international community as a whole,” he said

He said that the three guiding principles for reforming such imbalances were transparency, good practices and dialogue. Transparency, he said, was essential for allowing investors, lenders, economic agents and borrowers to take decision. Easy access to information, he said, allowed investors to better differentiate across economies and less the herding behaviour and contagion effects during market volatility.

Referring to good practices, he said a large array of standards -- codes for macroeconomic and data stability, banking supervision, corporate governance, accounting and payment & settlement systems were now subject to international agreements. The IMF and the Financial Stability Forum, the only forum for cooperation among national and international entities in change of supervision, have singled out 12 standards as being important for stable economic and financial system. He said that there was also a constant need to maintain dialogue between the public and private sectors for reforming the international financial architecture.

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