WASHINGTON The jarring credit crisis has increased risks to the global economy, which nonetheless remains strong overall, Treasury Secretary Henry Paulson said Saturday.
He said the stress in the financial markets is a reminder of the need for continued vigilance by governments.
"Fortunately, the global economy's underlying strengths should limit the negative effects that the turmoil might have on global activity," Paulson said at the annual meeting of the International Monetary Fund's policy-setting committee. "We need to learn from these events and take steps to address the policy issues that arise."
He said real growth is expected once again to be near 5 percent this year and next, with emerging markets such as China, India and Brazil providing over half that gain.
Presiding over the session for the first time was Italy's economy minister, Tommaso Padoa-Schioppa. He succeeded Britain's former finance minister, Gordon Brown, who held the post for nearly 10 years until he became prime minister this year.
The IMF job was widely expected to go to India's finance minister, Palaniappan Chidambaram, a move that would have demonstrated that rich countries were willing to cede some of their dominance of the IMF.
The 185-member Washington-based organization aids countries in financial crisis and makes loans to poor nations. It has been criticized for not allowing countries with fast-growing economies to have more of a say in IMF decisions.
Under an informal practice dating to the founding 63 years ago of the IMF and its sister institution, the World Bank, an American heads the bank and a European leads the fund.
Paulson said the credit crisis will impose some penalty on the U.S. economy, the world's largest. "But I expect continued growth," he said.
He urged the IMF to take a leading role in establishing sound practices for sovereign wealth funds, which are huge pools of capital controlled by governments ranging from China to Kuwait.
"The IMF is uniquely positioned to identify best practices for sovereign wealth funds, building on existing guidelines for foreign exchange management," Paulson said.
These funds have attracted the attention of policymakers as the size of the funds' assets estimated at $2.5 trillion has exploded and their activity in financial markets has increased.
Developed countries, the recipients of much of the investment from the wealth funds, worry that growing cross-border investment could feed protectionism. They want the funds to be more open about their holdings and operations.
"Best practices would provide multilateral guidance to new funds on how to make sound investments on how to structure themselves, mitigate any potential systemic risk and help demonstrate to critics that sovereign wealth funds can be constructive, responsible participants in the international financial system," Paulson said.
Officials from China, South Korea, Kuwait, Norway, Russia, Saudi Arabia, Singapore and the United Arab Emirates all of which operate such funds took part in a dinner Paulson hosted Friday night at the conclusion of the Group of Seven meeting of finance ministers and central bank governors from wealthy industrialized nations.