IMF Urged To Keep A Closer Eye On Economy

Source : The Business Times, April 14, 2008

It’s also told to provide emergency aid to poor states if food crisis worsens

(WASHINGTON) World finance officials on Saturday urged the International Monetary Fund to keep closer tabs on the global economy in the hope future crises like the one currently shaking world markets can be prevented.








After one of its twice-yearly meetings, the IMF’s 24-nation steering committee said global financial instability had increased and inflation risks had risen due to a sharp run-up in the cost of food and other commodities.

‘Policy-makers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control,’ the International Monetary and Financial Committee said in a communique.

As rich countries struggle to get a handle on financial turmoil that has rocked markets for nine months and worry the US dollar may have fallen too far, emerging and developing nations wondered whether they would be spared from a crisis that may have already pushed the US economy into recession.

The IMFC said developing economies had shown resilience in the face of the crisis sparked by mounting US mortgage defaults, but cautioned that inflationary risks had picked up.

‘For many countries, containing inflation and addressing vulnerabilities remain key priorities,’ it said.

Concerns over rising prices for food and other commodities, and related shortages of key staples, has shaken developing economies worldwide, sparking often violent protests. Haiti’s government fell on Saturday after senators fired Prime Minister Jacques Edouard Alexis following a week of food riots.

Developing countries called on the IMF and World Bank to stand ready with emergency funding to help the poorer nations in case financial market woes spread to their economies and the food crisis worsened.

Just 12 months ago, finance ministers and central bank chiefs were basking in five consecutive years of strong world growth, unaware a US housing boom was about to go bust, triggering what may be the biggest financial shock since the Great Depression.

All of this has taken place at a time the IMF, traditionally a lender of last resort in times of crises, has sought a new role for itself amid a sharp decline in borrowing from emerging and developing economies.

It has also sought to boost its relevance by giving emerging economies China, India, Brazil, Mexico and South Korea more voting power in the institution.

While voting power changes and a new financial model aimed at putting the fund on sounder footing still need the approval of all of the IMF’s 185 member countries, they were endorsed by the IMFC. ‘The fact that the most relevant economic and financial multilateral institution in the world shows the capability to reform itself at this very moment, constitutes by itself a response to the crisis and an indication that a global crisis has to be addressed with a global view,’ IMFC chairman Tommaso Padoa-Schioppa told a news conference.

While emerging economies such as China, India, Mexico, South Korea and Brazil support the changes in their relative voting power, some nations that stand to lose from the shift - such as Russia, Argentina, Saudi Arabia, Iran and Egypt - oppose the move, saying it does not go far enough. The changes will be decided by April 28.

Meanwhile, advanced countries complained its growth forecasts for 2008 and 2009 were overly pessimistic. ‘I think it’s useful that the fund took a very dry and realistic view of the situation,’ Mr Padoa-Schioppa said in defence of the IMF.

IMF managing director Dominique Strauss-Kahn said forecasting growth was especially tough in the current environment. ‘I don’t think really that the difference between 0.1 or 0.2 has such an importance,’ he said.

There was widespread acknowledgment, however, that risks to global growth had risen with a sharp slowdown in the US economy.

“The risk that the US will fall into a recession in 2008 has increased and real GDP growth in the euro area is also slowing down,” European Monetary Affairs Commissioner Joaquin Almunia said. — Reuters