Volcker Urges China to Keep Economy Open
BEIJING (AP) _ Former U.S. Federal Reserve Board Chairman Paul A. Volcker urged China on Wednesday to keep its economy open to the world.
Volcker, guest speaker at a three-day conference on central banking, said he hoped China’s open-door policy would continue because international cooperation in monetary matters was ″irrelevant if you have a closed society.″
The conference, sponsored by the U.N. Development Program, the International Monetary Fund and the People’s Bank of China, focused on such areas as the role of monetary policy and the functions of the central bank.
Chen Yuan, deputy governor of the People’s Bank, China’s central bank, told a news conference that one thing learned from Volcker and other participants was ″how to resist strong demand for funds from local governments and enterprises.″
Volcker, head of the Fed from 1979 to 1987, was known for sticking to a tight money policy in the face of strong political pressure in a winning battle against inflation.
In late 1988, China began restricting credit and took other austerity measures in a drive to bring inflation under control.
The government succeeded by late 1989 in bringing the inflation rate under 10 percent, compared to 30 percent a year earlier, but at a cost of rising unemployment and thousands of factories having to shut down or reduce production because of lack of operating funds.
″In the long run, inflation is destructive for growth and unemployment,″ said Volcker, who now teaches economic policy at Princeton University. ″There’s a great deal to be said for giving priority to stabilizing prices.″
Chen acknowledged that under the current ″retrenchment″ policies, the government has given priority to price stability rather than the pricing reforms Western economists say are crucial for a modern, market-oriented economy.
″But that doesn’t mean we have stopped price reform,″ Chen said, pointing to new pricing systems in the coal and transport industries.
Richard D. Erb, deputy managing director of the IMF, also praised China for its ability to rein in inflation, saying there were very few nations that have achieved China’s level of growth ″without having severe deterioration in terms of inflation.″
Erb said the speakers at the conference, including Central Bank of Mexico Governor Miguel Macera and former National Bank of Belgium Governor Jean Godeaux, stressed the need for a central bank with autonomy and accountability and a commitment to competition among financial markets and price and wage flexibility.