WASHINGTON - Finance officials expressed satisfaction Saturday with the robust expansion of the global economy but said more must be done to correct trade imbalances.
Meeting at the International Monetary Fund, finance ministers and central bankers said in a policy statement growth is expected to remain strong this year and in 2008, underpinned by solid economic foundations.
In their communique, the ministers said continued vigilance of the world economy was required in case there was a sharper than expected downturn in the U.S. economy, the world's largest, and a revival of inflationary pressures if oil prices rebound.
In a separate statement, four governments - including the United States and China - renewed promises to enact policies aimed at rebalancing global trade.
They said an orderly reduction in the U.S. trade deficit and trade surpluses in Asia would benefit the world by defusing protectionist trade action.
For the past year representatives of the United States, China, the euro currency zone, Japan and Saudi Arabia have been meeting regularly to discuss trade imbalances in a formal consultation organized by the IMF.
"It was agreed that a rebalancing of domestic demand growth across economies would be key to reducing imbalances while sustaining the robust global expansion," said the statement, issued on behalf of the group by the IMF.
China pledged to take steps to increase domestic demand, deepen financial reforms and increase the flexibility of its currency, a step long demanded by the United States and other industrialized nations.
Critics of the Bush administration policies contend the White House must take a tougher approach against unfair practices such as China's currency system, which keeps the yuan artificially low against the dollar, giving Chinese companies price advantages over U.S. producers.
The statement said China's exchange rate mechanism "will be improved in a gradual and controllable manner. "Exchange rate flexibility will gradually increase with attention paid to the value of a basket of currencies."
The U.S. trade deficit with China declined by 13.3 percent to $18.4 billion in February, the smallest gap since last May. Still, it is 25 percent above the pace set at the beginning of 2006, when the imbalance for the entire year was $232.5 billion. That was the largest deficit the U.S. has ever recorded with a single country.
Speaking to reporters at the conclusion of their meeting, Britain's finance minister, Gordon Brown, chairman of the IMF's policy-steering committee, said participants in the meeting agreed "that resolving imbalances in the global economy in a way that is compatible with sustained growth is a shared responsibility."
He said the consultations held by the four nations and the euro zone "is an example of the IMF reform process at work, where the emphasis is on crisis prevention and the focus is on surveillance."
The spring meetings of the finance ministers were shadowed by a controversy involving World Bank President Paul Wolfowitz and his involvement in a large pay raise awarded to a close female friend.
A demonstration by bank employees calling for Wolfowitz to resign failed to materialize, but advocacy groups marched outside the bank headquarters calling for his ouster. The White House says President Bush has confidence in Wolfowitz and Treasury Secretary Henry Paulson has called him a dedicated public servant. Some African officials attending the meetings also expressed support, saying Wolfowitz has made the continent a greater priority at the bank. "We have seen visionary leadership, steadfast progress under Mr. Wolfowitz," said Liberia's finance minister, Antoinette Sayeh. "We can only say that we look forward to that continuing. While seeking new ways to pressure Beijing, Paulson also advocated "bold action" to overhaul the IMF. The organization founded 62 years ago to foster economic stability "no longer looks like the economic world in which we live," he said. Finance ministers from Latin America and Europe endorsed Paulson's position on currency surveillance at the IMF meeting "Let us be clear: exercising firm surveillance over members' exchange rate policies is a core function of the institution," Paulson said. He said the IMF is working on revising its guidelines on foreign exchange monitoring. Any changes, he added, should clarify the IMF's role but not create new obligations for members. "This should enable firmer surveillance in areas where market forces are not the prevailing paradigm, such as insufficiently flexible exchange rate regimes, or areas where macroeconomic policies and performance are poor even if the exchange rate freely floats," Paulson said.comments powered by Disqus