Jolted by the U.S. subprime housing market, IMF’s head Rodrigo Rato has warned that global investment and growth prospects were at risk from a dramatic rise in private equity buy-outs.
There are risks associated with the recent dramatic growth in large private equity buy-outs as such deals financed by huge debt could trigger risk to the market when they turn sour.
Rodrigo Rato said:
This in turn could adversely affect investment and growth prospects, not just in the countries where the problems occur but worldwide. I would urge regulators to remain vigilant about these deals, and pay especially close attention to deals whose failure could have systemic implications
The menace of financial globalization can trigger the inflation and devalue the currency, which can be hazardous to all economies.
With increasing cooperation and open market, all economies have become interdependent, and disturbance in one strong economy can easily affect others, especially developing economies, which need support from the developed economies.
In the resent time, moneylenders have shown their interest to invest in developing economies, where they find huge opportunity to strengthen their base. Asian economies are biggest gainers from the strong capital inflows, but IMF warned that it could be hurt by an abrupt reversal of flows in the case of financial shocks.
Asian growing economies like China and India, which are considered as the new engines of the world economic growth, will replace the United States and other developed countries in the coming time, but IMF suggested that to keep the pace of growth, policymakers should caution for financial globalization and take necessary steps in time.
Via: Reuters
