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Zeng forecasts a 'long and bumpy' ride

THE world will experience a long and bumpy process riding out the global financial crisis and developing countries may become the biggest victims of the economic meltdown, said China's former Vice Premier Zeng Peiyan today.
The world should build up a stable, predictable and diversified international currency system, Zeng urged at the Global Think Tank Summit, which was hosted by the China Center for International Economic Exchanges.
The center, headed by Zeng and joined by economic heavyweights, was established in March this year and aims to become an important think tank for the Chinese government.
More than 100 economists, former national leaders, Nobel laureates and executives of world top 500 companies attended the summit.
"The world economy is at a low right now and its recovery will not be reached overnight. The huge bubble in the world financial system has not disappeared and many bad loans are waiting to be treated," said Zeng. "The world has seen overcapacity in many production sectors and new demand for consumption needs to be cultivated."
He said nearly every government had carried out emergency plans to rescue the economy but there was a little room left for stronger fiscal policies to stimulate the economy.
More evidence has shown that developing countries may become the biggest victims in the deepest crisis since the 1930s while previous achievements in bridging the gap between the rich countries and the poor may disappear in the crisis, said Zeng.
"Developed countries should contribute more to improve the external economic environment for poor countries and keep their promises to provide aid and investment, preventing further deterioration in less developed nations," said Zeng.
The World Bank cut its 2009 global growth forecast last week to a reduction of 2.9 percent from a March prediction of 1.7 percent contraction. The Washington-based bank also warned that a drop in investment in developing countries would increase poverty.
Foreign direct investment in developing countries plunged by an estimated 39 percent last year to US$707 billion. It may drop by 30 percent this year to US$385 billion, the bank said.
Zeng also stressed the importance of the establishment of a mechanism to keep the world reserve currency stable in value.
"It is hard to change the current international currency framework in a short time and your currency is likely to become my problem," said Zeng. "In East Asia, we should accelerate the process of having a regional reserve currency to reduce the exposure to financial risks."
For China, the biggest obstacle was how to stabilize falling exports, said Zeng.
"The expansion of domestic demand is limited and can't make up the loss of diving exports. The measures to stabilize exports can only have small influence in the short time," said Zeng.
China's exports in May fell 26.4 percent from a year earlier, a record low in at least 14 years and further sliding from the decreases of 22.6 percent in April and 17.1 percent in March.
A lagging service industry, the lack of financial services catering to the demand of small and medium-sized enterprises, development at the cost of environment and huge consumption of natural resources were cited as other big obstacles to China's economic recovery.


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