Economic risks that arose after the crisis in 2008 were better managed under Islamic finance models when compared to other schemes, as they offered additional financial instruments with shared risks and less uncertainty, Deputy Prime MinisterAli Babacan said in Washington on Friday.
Speaking on the sidelines of annual spring meetings held jointly by the International Monetary Fund (IMF) and the World Bank, Babacan stressed that Islamic finance models are compatible with other financial models used across the world.
Highlighting that Turkey, as the rotating chair of the G20 group, appreciates the virtues of the Islamic finance models, Babacan also pointed to the inclusiveness of these models, referring to the millions of people in Muslim countries who are sensitive to Islamic rules but who avoid entering the global financial system due to a lack of options.
Previewing the G-20 discussions, Babacan told reporters on Thursday that the G-20 countries needed to do more to carry out commitments they made last year to jumpstart growth by investing in infrastructure projects and removing barriers to trade. "Growth is there, but it is weak ... and uneven," he said.
The finance ministers will produce a plan of action to be discussed by US President Barack Obama and other G-20 leaders at a scheduled summit in Turkey in November, as they attempt to boost global economic output by more than $2 trillion over the next five years. These finance officials from the world's major economies are searching for a mix of policies that will bolster a still-weak global recovery, nearly six years after a recession, while confronting a range of new threats from a soaring US dollar to a big drop in oil prices. The financial officials from the group of 20 nations also expressed concerns regarding potential market instability once the US Federal Reserve starts increasing a key interest rate which has been at a record low, near zero, since late 2008.
The discussions were being held among finance ministers and central bank presidents representing traditional economic powers such as the United States, Japan and Germany, as well as emerging countries such as China, India and Brazil. Treasury Secretary Jacob Lew and Federal Reserve Chair Janet Yellen represented the United States at the meetings, which began with a dinner on Thursday night and concluded with a news conference on Friday afternoon. Ali Babacan will sum up the group's discussions.
The G-20 talks came ahead of the spring meetings of the 188-nation IMF and its sister lending organization, the World Bank.
In addition to concerns about boosting global growth, the meetings were also to address issues including a plea for more aid to fight the Ebola outbreak in the West African nations of Liberia, Guinea and Sierra Leone. The presidents of those three nations were scheduled to meet with World Bank President Jim Yong Kim and UN Secretary-General Ban Ki-moon on Friday.
The meetings took place when much of the global economy remains stuck in a prolonged period of sluggish growth following the 2008 financial crisis and a recession that was the worst in seven decades. IMF Managing Director Christine Lagarde told reporters on Thursday: "The good news is that the global recovery continues. The not-so-good news is that growth remains moderate and uneven." She said the goal of this week's talks was to produce a revamped plan of action that will "prevent this new mediocre [growth] from becoming the new reality.”
The IMF's latest economic forecast predicted only modest overall growth and downgraded the prospects for some nations, including the United States, forecasting US growth of just 3.1 percent this year, a half-point lower than its January estimate. The reason: IMF economists believe the sharp rise in the value of the dollar will hurt American companies trying to export goods overseas. Growth prospects in oil-exporting nations are being hurt by the big drop in oil prices over the past year, but those declines are expected to boost prospects in many oil-importing countries.
This week the IMF also raised new concerns that severe volatility in financial markets could be triggered if the Federal Reserve moves, as is widely expected, to start raising interest rates later this year. If the Fed's rate hikes after a prolonged period of ultra-low rates, causing investors to rush for the exits, it could cause stock prices to tumble and interest rates to rise sharply.