WB economist advises full convertibility in India

“But in the short term, there is a need to have a stabiliser. As there would be greater risks and instability, CAC in the short term is not the malady,” he added.

CAC on the short term, he said, depends on trade liberalisation, and enough checks and balances have to be in place in the form of a regulator, “which would not stop FDI flows but stabilise them”.

According to Stiglitz,who is also senior vice president (development economist) with the World Bank, India, with its sustained growth over a long period of time, has weathered the crises better than any other country. “These are the benefits of its global interface, domestic deregulation and market-based innovations. It is a success story, no doubt, and there is much more room for further growth.”

He further stated that effective work towards reducing poverty should move hand-in-hand with the reforms programme. According to Stiglitz, the East Asian economies would not bounce back immediately from the crisis, but the recovery would be gradual.

Painting an optimistic picture, Stiglitz, who is a member of US President Bill Clinton’s economic team, said, “economies have always recovered from downturn…But the question is whether the recovery graph would be a sharp V’ or a gradual U’. Experiences have shown that recovery is much slower in case of crisis, like the one witnessed in Asia.”

He further stated that in thefuture, the global economy is to continue to witness currency fluctuations. However, they will be less severe. “To emerge out of these, there is need for a strong exchange rate,” he said.

Over the past 25 years, the world witnessed around 80 to 100 currency crises, depicting an inherent weakness in the global economic system. The mismatch between capital market liberalisation and regulatory framework was also responsible for the same.

“The focus should, therefore, be on risk management and to move beyond traditional safety nets, which are not adequate in today’s scenario. They (the global economies) should aim at balancing their exposure to risk with their ability to absorb them.”

He also cautioned against managing exchange rates, saying the rates are “totally misaligned and managing them is an impossible task”. Citing the example of Russia and Brazil, Stiglitz said, “it is also a very expensive task if you mismanage it.” Brazil, he said, had invested $50 billion in six months to manage exchangerates. “This was a risky investment, doomed to fail and, as expected, did not work.”