WASHINGTON (AP) - Finance ministers and central bankers should remain vigilant to ensure the smooth functioning of financial markets that have been jarred by a global credit crisis, the International Monetary Fund's policy-making committee said Saturday.
The group also said in a statement that monetary policy of member governments should focus on achieving price stability while keeping a close eye on inflation in the light of rising food and oil prices, among other factors.
Problems in the global economy came to a boil when credit markets froze on Aug. 9 as fear overwhelmed many investors. Troubles that began in the market for subprime mortgages in the U.S. spread to many other kinds of debt on international markets.
In an attempt to soothe jittery markets, the IMF statement urged 'continued vigilance to maintain well-functioning financial markets.'
The ministers said they would continue 'to work together to analyze the nature of the disturbances and consider lessons to be learned and actions needed to prevent further turbulence.'
The statement said the disturbances in financial markets in advanced economies are expected to have a moderating effect on global economic growth, although troubling risks have increased.
Ministers said the financial innovation that led to the packaging of securities based on subprime mortgages, 'while having contributed to enhanced risk diversification and improved market efficiency, have also created some new challenges that need to be properly addressed.'
The statement recognized the growing importance of sovereign wealth funds -- huge pools of money controlled by governments -- in international financial markets.
'While recognizing their positive role in enhancing market liquidity and financial resource allocation,' the statement said, 'the committee welcomes the work by the IMF to analyze issues for investors and recipients of such flows, including a dialogue on identifying best practices.'
The IMF took up the issue because of growing concern that countries with these funds, ranging from China to Kuwait, might buy up companies, banks and real estate in the West.
The ministers paid tribute to the departing head of the IMF, Spain's Rodrigo de Rato, who is leaving at the end of the month. They said they looked forward to working with his successor, France's Dominique Strauss-Kahn.
Presiding over the session for the first time was Italy's Economy Minister Tommaso Padoa-Schioppa, who replaced Britain's former finance minister Gordon Brown. He held the post for nearly 10 years until he became British prime minister earlier this year.
The policy-setting committee post had been widely expected to go to Indian Finance Minister Palaniappan Chidambaram, a move that would have demonstrated rich countries were willing to cede some of their dominance of the IMF.
Based in Washington, the 185-member organization, which helps out countries in financial crisis and makes loans to poor nations, has been criticized for not allowing countries with fast-growing economies more of a say in IMF decisions.
Under an informal practice dating back to the founding of the IMF and its sister institution, the World Bank, 63 years ago, an American heads the bank and a European leads the fund.
Treasury Secretary Henry Paulson said the credit crisis increased risks to the global economy but it still remains strong overall.
'Fortunately, the global economy's underlying strengths should limit the negative effects that the turmoil might have on global activity,' he said. 'We need to learn from these events and take steps to address the policy issues that arise.'
He said the U.S. economy, the world's largest, would pay a price for the credit crisis 'but I expect continued growth.'
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