New Delhi, March 4, 2011 — Leaders of global finance today stated that world economic recovery is making progress, but they underscored a range of vulnerabilities – including geo-political concerns, rising inflation, high fiscal deficits, exchange rate issues, as well as uncertainties surrounding the impact of financial regulatory reforms. They called on the Group of 20 to forge globally coordinated approaches to secure sustainable growth and they stressed the need for official authorities to ensure clarity and consistency in determining and implementing financial regulatory reforms.

Key global economic and financial issues were at the center of discussions at the first major global membership meeting to be held in India by the Institute of International Finance (IIF), the leading association of banks and financial services firms representing more than 430 institutions from over 70 countries. More than 600 senior private financiers and public sector officials are attending the IIF’s Spring Membership Meeting.

Dr. Josef Ackermann, Chairman of the Board of Directors of the Institute of International Finance (IIF), Chairman of the Management Board and the Group Executive Committee of Deutsche Bank AG, noted, “Twenty years ago in 1991, India embarked on a journey to open its economy. The result has been a remarkable two decades of sustained strong growth. This is a great tribute to wise public policy leadership and to the exceptional entrepreneurship and innovation that is the hallmark of business in India today. And permit me to add in this budget week, that we welcome the steps taken in the budget to raise the limit on foreign investment in corporate infrastructure bonds and to further liberalize portfolio equity investment. These actions signal India’s commitment to openness and provide a guiding light to other emerging markets.”

IIF Managing Director Charles Dallara added, “Food price increases, plus the recent rise in global oil prices, are strengthening inflation concerns and casting a cloud over the pace of recovery in the leading industrial countries. The proposal by the Indian Finance Minister that the fiscal deficit will be reduced further in the new budget highlights the priority that is being given here to curbing inflation, reinforcing the prudent policies of the Reserve Bank. The Indian economy has, in fact, demonstrated exceptional resilience to the global crisis, which is a tribute to sound policy management.”

Economic Policy Coordination

Dr. Ackermann told a press conference that, “We are meeting at a time when the global economy is showing increasing evidence of recovery from the 2008-2009 crisis. Yet, we are all acutely aware of the vulnerabilities that abound. None, of course, is of greater concern than geo-political uncertainties and their economic implications, particularly those prompted in recent weeks by the events in North Africa and the Middle East. We also need to recognize that the economic recovery is uneven: some countries are growing rapidly, while others continue with sluggish growth. Then, there are a range of inflationary pressures in a number of countries – we are seeing rises in commodity prices and asset price inflation as well. And while current account imbalances have become smaller, there is no room for complacency on that front either.”

Dr. Ackermann said it is now important for “the G-20 to place still greater emphasis on forging globally coordinated approaches to secure sustainable growth. The IMF is uniquely placed to provide support to this process.”

Mr. Rick Waugh, a Vice Chairman of the IIF Board of Directors, President and Chief Executive Officer of Scotiabank of Canada, highlighted some of the key actions that the G-20 should promote. He said, “We consider it necessary for those countries with major deficits, including the reserve currency country, the United States, to commit as soon as possible to credible fiscal consolidation approaches, together, where needed, with necessary structural reforms. At the same time, countries with major payments surpluses should undertake policies to spur an appropriate growth of domestic consumption and support balanced global growth. This may in some cases call for greater exchange rate flexibility on the part of some major emerging markets.”

Global Financial Regulation

Dr. Ackermann stressed at the press conference, “Never before have so many regulatory reforms been determined or planned. We of course welcome the broad thrust of regulatory reform, nevertheless, I want to underscore the concern that is growing in the financial services industry. We are seeing actions by national authorities to develop their own regulatory approaches, or to add to, or modify the Basel capital agreements. This poses the risk of fragmenting the global financial system.”

He said, “There is merit now in taking stock of the regulatory requirements that are in train to ensure that there is clarity and consistency in all measures that are being determined and that there is a level playing field. Further, there needs to be a most careful assessment of how these requirements are implemented and the resulting impact on the financial system. It is also important to monitor the impact on economic recovery and on growth of the new financial regulatory requirements. Financial regulatory reforms will have significant economic costs and this needs to be a matter of continuing concern for the G-20.”

The IIF Chairman said, “We have reservations about a number of outstanding regulatory proposals and considerations. For example, as currently formulated, the Basel liquidity proposals could undermine banks’ ability to provide a range of basic services, such as back-up credit lines that are critical to corporations, as well funding for businesses in international trade, and a range of retail borrowers. Then as you know, the Financial Stability Board is developing approaches to systemically important financial institutions, which is a highly complex area. We believe that there should be no rush to judgment regarding capital surcharges on such firms. Rather, there should be an assessment of a full range of responses, especially the development of a globally coordinated approach to cross-border resolution.”

Mr. Waugh stressed that the financial crisis “showed that a sound and safe financial system calls for effective regulation, sound supervision and for prudent management by financial services firms themselves. What continues to be needed is finding the right balance between stronger regulation, sound management and growth policies. We have found that many firms have been strengthening risk management practices and many aspects of governance.”

Mr. Waugh pointed out that capital levels are improving and will continue to do so and attention is on funding, liquidity and all aspects of risk management. He emphasized that, “financial services firms are committed to an ongoing process of strengthening their institutions and to working with the official authorities to strengthen the international financial system.”

Emerging Markets

In welcoming the IIF to India, Mr. K. Vaman Kamath, a member of the IIF’s Board of Directors and Chairman of the Board, ICICI Bank Ltd., stressed the growing importance of leading emerging market economies in the world economy. He said, “The opening up of our economy and the modernization that we are seeing is producing significant benefits for our people. In India, millions of people have been lifted out of poverty in recent years, per capita incomes have doubled and a growing middle-class is very evident. Similar progress is also being registered in other leading emerging markets.”

Mr. Roberto E. Setúbal, a Vice Chairman of the IIF’s Board of Directors and a Co-Chairman of the IIF’s Emerging Markets Advisory Council (EMAC), President and CEO, Itaú Unibanco Banco S/A of Brazil, stated that, “We are acutely aware that the substantial capital flows into emerging markets that we are now experiencing creates opportunities but also challenges. Overall, the IIF projects that net private capital flows to emerging markets may reach one trillion US dollars this year. The longer-term foreign direct investment is welcome, indeed essential, to the development of our economies.”

He added, “At the same time, a number of emerging markets are seeing exceptional inflows of shorter-term funds that reflect a search for yield by international investors. This can provide needed capital, but may also pose difficulties for the desired path of stable and sustained economic growth in our economies.”

Mr. Setúbal noted that discussion at a meeting of the EMAC this week highlighted the increasing inflationary pressures facing emerging markets. He said, “Although rising food and energy prices are clearly a factor in many economies, we believe that national authorities are alert to these challenges and do appreciate that to be most effective the measures taken at the national level need to be coordinated on a global basis. And I want to underscore the comments that my colleagues have made on the essential need for the governments of the leading economies, including the emerging markets, to work towards globally coordinated G-20 agreements.”