G7 drive to boost IMF econ policy role loses speed

Washington Post
Feb 7, 2007
by By Brian Love, European Economics Correspondent

PARIS (Reuters) - Grand plans for the IMF to broker solutions to global economic imbalances have slowed to a crawl because the United States seems to have lost interest, European officials say.

As G7 finance ministers prepare to gather in Germany later this week,
there is scant evidence of progress in a mission they gave the International Monetary Fund almost a year ago, largely in response to a push by the U.S. administration.

European officials, speaking on condition of anonymity, told Reuters that recent meetings designed to advance a program of multilateral economic surveillance headed by the Washington-based IMF had been disappointing.

"There's a lack of clear policy commitment, and a certain lack of urgency,notably on the part of the United States," one official said.

The IMF has not said much on the matter either following two major
meetings in Singapore in September and last month in Paris. However
various IMF officials, mostly in private chats, have made clear that
things are moving at a snail's pace.

Those meetings involved top level finance officials from the United
States, China, Japan, the euro zone and Saudi Arabia -- a group that
reflects a world of current account imbalances that are linked to both
policy and currency exchange rates.

The loss of momentum appears to stem from what the Europeans see as a
foolhardy U.S. idea that global imbalances -- the huge U.S. current
account deficit on the one side and vast surpluses in China, Japan and
oil-producing states on the other -- are not as big a threat to global
economic stability as others think.

"FRAGILE"

An official from another European G7 country highlighted a major
difference of interpretation between the two sides, saying Washington was relying more on easing of world oil prices than on proactive policies to shrink its deficit.

"The situation remains fragile," that official said, noting the danger of what politicians and economists call a disorderly unwinding of imbalances-- jargon for abrupt currency movements that could do serious harm to broader global economic activity.

The multilateral surveillance work is intrinsically linked to the IMF's wider role in monitoring currencies, mainly because China is part of the deliberations, something the United States wanted as a means of pressing China to let the yuan rise.

In parallel, the IMF's role in monitoring currencies has widened to about 30 emerging market countries from what used to be just the Group of Seven (G7) club -- the United States, Japan, Canada, Germany, Italy, France and Britain.

However, Canadian Finance Minister Jim Flaherty said it was still possible for the IMF to be given a stronger foreign-exchange surveillance role, and it would be discussed on Saturday at the G7 meeting in Essen.

"I think there's a clear consensus that this is an issue that needs to be addressed globally and that it's a primary subject of discussion for the G7 participants," he told reporters in Ottawa.

IMF Managing Director Rodrigo Rato is due to join the G7 meeting, which begins on Friday. It appears he is caught between a rock and a hard place.

As emerging market economies led by China and India account for a rising share of overall economic growth, the IMF is less in demand as a public lender and is seeking a new role.

It appeared to have got one with the G7 decision to turn it into a referee in international policy and exchange rate strategy. But that commitment is at risk if, as the Europeans contend, Washington has gone off the boil.

The question of global imbalances, and the belief that they are a danger to the entire world economy ultimately, is one of several themes for discussion at the Essen G7.

The Europeans are calling for discussion of what they judge as an
excessive slide in the value of the yen, though they face U.S. reticence there too, in addition to a belief in Tokyo that Japan can do little about it.

However, one official said Europe was fully aware that the danger from
economic imbalances such as trade and current account deficits was not
something currency policy would solve.

"The preferred channel is not exchange rates, it's economic policies,"
said the official.

(Additional reporting by Randall Palmer in Ottawa)

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