Friday, October 2, 2009

IMF, World Bank warn global cooperation could falter

ISTANBUL (Reuters) - The International Monetary Fund and the World Bank warned on Friday that the global economic recovery might falter as complacent policymakers lost their will to cooperate.

"The danger today is no longer, fortunately, one of a collapsing world economy," World Bank President Robert Zoellick told a news conference. "The danger today is one of complacency.

"There will be a natural tendency to return to business as usual, and it will become harder to convince countries to cooperate in order to address many of the problems that led to this crisis, that put millions of livelihoods of people at risk."

IMF Managing Director Dominique Strauss-Kahn, speaking as top financial officials from across the globe arrived in Istanbul for semiannual IMF and World Bank meetings, also used the word "complacency" in describing the risk of policy errors.

He said governments might be tempted too early to unwind expensive rescue measures for their economies, such as fiscal stimulus programs and injections of huge amounts of money into their banking systems.

"My worry is governments say, 'That's it, we're out of the crisis, it's time to go back to normal' -- that would be the real error and it's one of the risks we must be sure to ward off."


The warnings by both the world's premier multilateral lending organizations reflected concern that governments might not make the difficult policy choices and compromises needed to tackle the root causes of the financial crisis.

The IMF declared on Thursday a global recovery had begun, raising its forecast for growth next year to 3.1 percent from the 2.5 percent that it had projected in July.

Last month, the Group of 20 major nations agreed in principle to cooperate in reducing the trade imbalances that contributed to the financial crisis, and to set tougher rules for the banking system.

But there are signs that as the recovery of the global financial system reduces the urgency of such reforms, the political will to press them is fading among many governments.

IMF chief economist Olivier Blanchard said on Thursday that rebalancing the world economy would not be possible without the appreciation of some Asian currencies. But China is still resisting pressure to appreciate its tightly controlled yuan, which could help to cut its trade surplus.

Reform of the banking sector has been held up by disputes among governments over issues such as how to regulate bankers' bonuses and how to monitor system-wide risks. Major financial centers fear losing business to other centers.

"I am very concerned that as financial markets recover, complacency is setting in. Also, a clear vision for the future of financial system regulation is needed urgently to reduce uncertainty and boost confidence," Strauss-Kahn said.

Perhaps most worryingly, central banks and governments in some countries have started talking about winding down monetary and fiscal stimulus steps well before others. This could leave some countries carrying heavy fiscal burdens and prompt destabilizing fund flows between economies.


1 comment:

  1. You clearly understand this materfial.

    Thanks for following Politics Plus. You're on the blog roll there.