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IMF forum to address economic imbalances

Written by: Staff

BOSTON, Apr 5: International Monetary Fund chief Rodrigo Rato proposed a multilateral forum where developing and industrialized nations can address ways to rebalance the global economy, although he acknowledged the fund lacked tools to force multilateral action.

The Washington-based lender has so far been ''insufficiently persuasive'' in its advice to member countries on global imbalances, Rato said in prepared remarks at Harvard University.

The speech comes as the IMF conducts a strategic review to modernize itself and amid increasing pressure from its 184 member countries over its effectiveness in fixing imbalances.

Rato said yesterday the fund needed mechanisms that would allow it to address the issue of economic distortions with more than one member nation at a time. He said a coordinated effort would be politically easier and more effective because it would avoid finger pointing and recriminations.

''Global imbalances are the problem not of just one country but of many, and we need a multilateral format for consultations to address them, and to address other issues of systemic importance, as they arise,'' Rato said.

With the US Treasury Department pushing for the IMF to take on a global currency policy watchdog role, Rato said the IMF should beef up surveillance of the global economy and produce effective analysis of exchange rates.

''I think it would be useful for the fund to review the way we conduct surveillance of exchange rates more generally,'' he said.

The United States has been trying to convince China to loosen its relatively rigid currency regime, which US manufacturers complain keeps the yuan currency undervalued and gives Chinese manufacturers a trade advantage.

Rato had an upbeat take on the global economy, saying it was in prime health and set to grow at a healthy clip of more than 4 percent for the fourth straight year, helped by low inflation and interest rates.

''The problem is that good economic performance rests on a shaky foundation, because of large and continuing global imbalances,'' Rato said.

Economists remain uncertain how the massive shortfall in the US current account -- the broadest measure of trade because it includes investment flows -- will resolve itself.

The picture is further skewed by massive surpluses elsewhere, including emerging Asian nations, such as China, and oil exporters, including Russia and Saudi Arabia.

If these imbalances unwound quickly and chaotically, Rato warned, it could trigger financial crises and a global recession. Should financial markets force an adjustment, it could send the dollar sliding and push up US interest rates.

''I do not believe that the risk of a disorderly adjustment in the near future is high, but it is increasing as imbalances continue,'' he said.

Rato said there was concensus among policy-makers on steps needed to rebalance the global economic map, including budget restraint and measures to stimulate private savings in the United States, more exchange rate flexibility in emerging Asia and reforms to stimulate demand in Europe and Japan.

But some policy-makers, he added, believe global imbalances can either persist indefinitely or dissipate over time.

''I find these views optimistic to the point of willful blindness,'' Rato said, without elaborating.

To countries that have argued it was up to others to act first, Rato said: ''Be careful what you wish for.'' ''A disorderly adjustment of global imbalances could be produced not only inaction, but by unbalanced actions,'' he warned.


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