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00:00IN THIS IMAGINED MARKET ROUT. WE ARE SEEING MARKETS EMBROILED IN THIS TURMOIL. WHAT IS THE REASON BEHIND THEM? >> THINK BACK TO A MOMENT TO THE 1970'S, THE 1980'S. SINGAPORE AND SOUTH KOREA, MORE THAN 5% OF GDP EACH YEAR CAREER AT SOME POINT, MORE THAN 10% OF GDP. THE WORLD DID NOT LOOK AGHAST AT THAT. IT WAS ATTAINABLE. CAPITAL MARKETS, GLOBAL FINANCIAL INVESTORS HAD OPPORTUNITIES. WHAT HAS CHANGED? IT IS A VERY FUNDAMENTAL QUESTION. WHY DID THE MARCUS FOCUS ON NARROW METRICS OF SUSTAINABILITY? CASE IN POINT, INDONESIA. ARGENTINA, SEVERAL OTHER COUNTRIES. THE FUNDAMENTAL ISSUE HERE IS NOT ABOUT INDIVIDUAL POLICY WEAKNESSES. THE FACT THAT THE SYSTEM AS A WHOLE HAS LOST ITS RESILIENCE. TOO MUCH SHORT-TERM CAPITAL FLOWS. COUNTRIES HAVE RESPONDED BY TIGHTENING POLICY. IT IS NOT LIKE THE GLOBAL FINANCIAL CRISIS, WHERE YOU HAD A MAJOR FINANCIAL CRISIS THAT HIT EVERYONE AT THE SAME TIME. A RECESSION. THIS TIME AROUND, GROWTH IS BEING ERODED BY STILL. ONE COUNTRY AT A TIME. IF YOU ACCUMULATE IT, IT IS A NET REDUCTION OF GROWTH FOR BOTH COUNTRIES AND THE WORLD ECONOMY. WE ARE LUCKY BECAUSE THE U.S. ECONOMY IS HEALTHY. WE WILL FIND WE DO NOT HAVE OTHER ENGINES. WE ALL HAVE TO BE CONCERNED ABOUT THIS. >> WHAT POLICY NEEDS TO BE ADOPTED. >> WHEN CAPITAL FLOWS IN LARGE QUANTITIES INTO COUNTRIES, OR THE MOOD SHIFTS, LOTS OF MONEY FLOWS INTO EMERGING MARKETS, WE SHOULD NOT NECESSARILY BE CHEERING. GOVERNMENTS HAVE TO THINK HARD ABOUT WHAT IS CALLED MACRO CREDENTIAL POLICY. TO ENSURE FUNDS ARE FLOWING INTO PRODUCTIVE INVESTMENTS. THAT EXERCISE HAS HAPPENED. THE IMF, TOGETHER WITH AUTHORITIES, WHEN CAPITAL FLOWS IN, CAPITAL FLOWS ARE AT A RISK. IT CAN FLOW OUT. INVESTORS HAVE A GOOD UNDERSTANDING WHAT IS HAPPENING. WHEN CAN IT BE REVERSED? OTHERWISE WE KEEP MOVING IT. YOU HAVE TO SMOOTH IT. >> HOW DO YOU ASSESS THE RISK OF EMERGING -- VULNERABILITY IN EMERGING MARKETS? >> WE SHOULD BE LOOKING AT WHETHER A COUNTRY HAS AN OPEN AND INVITING BUSINESS ENVIRONMENT. LOOK AT THE REAL ECONOMY FUNDAMENTALS. THE QUALITY OF GOVERNANCE. DON'T LOOK AT ONE NARROW METRIC. IF YOU KEEP LOOKING AT THE NARROW METRIC, THERE IS GOING TO BE GROWTH. >> WHAT IS THE REASON FOR THE VOLATILITY IN EMERGING MARKETS? IS IT DEPENDENT ON THE U.S. DOLLAR? POSSIBLE ALTERNATIVES LIKE THE YUAN? IS IT A VIABLE OPTION? >> YOU ARE TALKING ABOUT THE COMPOSITION OF TRADE AND INVESTMENT INSTRUMENTS. YES, THERE IS AN OVERDEPENDENCE BUT IT IS GOING TO CHANGE. IT TAKES A LONG TIME FOR MARKETS TO CHANGE. THERE IS INERTIA, LEGACY, IF YOU TALK ABOUT 20 YEARS, 30 YEARS, CURRENCIES ARE LOW IN THEIR USAGE AND THAT IS WHAT IS HAPPENING. SHORT-TERM, THERE IS A NEED FOR DOLLAR LIQUIDITY. EACH TIME YOU GET FINANCIAL TREMORS. THIS IS A SERIOUS ISSUE. WE HAD THE FED PUMPING IN $500 MILLION OF LIQUIDITY. THE NEXT ROUND, THE STRENGTH OF THE GLOBAL FINANCIAL SAFETY NET, VERY IMPORTANT. ACTING IN CONCERT, A VERY SERIOUS ISSUE. WE DON'T YET HAVE THE SYSTEM OF COORDINATION, BUT IT CAN BE DEVELOPED. >> CHINA, AT RISK OF BEING CALLED A CURRENCY MANIPULATOR. WHAT IS YOUR TAKE ON THE PERCEPTION IN THE U.S.? >> IF YOU LOOK AT THE CHINESE FUNDAMENTALS, HOW THE CURRENCY HAS PERFORMED, IT IS PRETTY MUCH IN LINE WITH FUNDAMENTALS. FUNDAMENTALLY, IT IS AN ECONOMY WHERE YOU ARE HAVING GRADUAL LIBERALIZATION. THE CURRENCY IS BEING SET A MARKET FORCES. CHINA IS INCREASINGLY GOING TO BE A CAPITAL EXPORTER. THAT IS THE FUNDAMENTAL TREND. NO LONGER A CAPITAL IMPORTER. PEOPLE HAVING TO BUY THAT RMB. YOU ARE BECOMING AN EXPORTER. >> THEY TALKED ABOUT COMING TO THE GLOBAL ECONOMY. YOUR THOUGHTS ABOUT THAT. >> FINANCIAL CYCLES NEVER LAST. STABILITY BEGETS STABILITY. WE DON'T KNOW WHEN, WE DON'T KNOW WHERE IT WILL COME FROM. YOU HAVE GOT TO BE PREPARED FOR IT. ESPECIALLY OUTSIDE OF THE BANKING SECTOR. >> THANK YOU SO MUCH FOR JOINING US.

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Singapore's Deputy PM on EM Rout, U.S. Dollar Dependence, Global Economy

Singapore Deputy Prime Minister and Central Bank Chairman Tharman Shanmugaratnam discusses the emerging market rout, their dependence on the U.S. dollar, China being labeled as a currency manipulator and his outlook for the global economy. He speaks on "Bloomberg Markets: European Open" from the IMF-World Bank meetings in Bali. (Source: Bloomberg)

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