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IMF Meeting in Tokyo calls for quick effective action to buoy growth

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IMF Meeting in Tokyo calls for quick effective action to buoy growth

Post  Panda on Sat 13 Oct - 9:08

Oct 13, 2:28 AM EDT
IMF urges quick, effective moves to buoy growth

AP Business Writer

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TOKYO (AP) -- Global financial ministers called Saturday for quick and effective action to safeguard faltering economic growth and rebuild shaken confidence as they ended an annual meeting of the International Monetary Fund.

The IMF's International Monetary and Financial Committee also urged emerging economies to adapt their own policies to help counter slowing growth in Europe and the United States.

The IMFC said decisive action was needed to "break negative feedback loops and restore the global economy to a path of strong, sustainable and balanced growth."

The annual meeting of the IMF and World Bank, convened in Tokyo this year, has highlighted frustrations among many countries over drag on growth from the lingering debt crisis in Europe, and alarm over a possible blow to the world's largest economy if the U.S. fails to resolve an impasse over its budget deficit.

"Global growth has decelerated and substantial uncertainties and downside risks remain," the IMFC said in a communique. It exhorted advanced economies to carry through with needed structural reforms and "credible fiscal plans."

In her "Global Policy Agenda," Christine Lagarde, the IMF's managing director, struck a relatively gloomy tone.

"A lot has been done, but - with limited progress in addressing legacy issues such as debt overhangs and weak financial systems and continued uncertainty on key policies - confidence still has yet to be restored," the agenda says.

While most of the attention during the meeting was focused on the crises facing the biggest economies, the IMF and World Bank - whose mission is to fight poverty - have also emphasized the need to help protect the poor from the spillover of slowdowns in richer nations.

The IMF announced it would devote $1.1 billion in funds from windfall sales of gold to help fortify funds for low-cost loans for low-income countries.

The risk of the U.S, the world's biggest economy, running into a "fiscal cliff" of tax increases and deep spending cuts next year unless the Obama administration and Congress resolve a deadlock over the budget has overshadowed the gathering of top financial officials. Such a prospect would deal a heavy blow to the economy, eroding progress made since the 2008 global crisis.

Despite making progress on getting its fiscal house in order, the United States still has much work to do, Treasury Secretary Timothy Geithner told fellow financial leaders at the gathering Saturday. The comment came just hours after the U.S. government announced that the budget deficit had topped $1 trillion for a fourth straight year despite a modest improvement thanks to stronger economic growth.

"It is important that we in the U.S. enact a balanced framework to bring down our fiscal deficit and debt over several years, while continuing to provide support for jobs and growth in the short term," Geithner said.

The Treasury Department said Friday that the deficit for the 2012 budget year totaled $1.1 trillion, though a 6.4 percent increase in tax revenues thanks to stronger growth helped contain the deficit.

The overwhelming emphasis of the Tokyo gathering has been on coddling fragile growth around the globe.

At Saturday's meeting of the IMFC, which advises the IMF and monitors the world financial system, officials from developing and emerging economies urged the U.S. and European nations to prevent malaise in their regions from slowing global growth.

"Advanced countries should rethink their macroeconomic strategies and avoid simultaneous fiscal contractions and the consequent overburdening of monetary policies," Guido Mantega, Brazil's finance minister, told the committee.

"In many advanced economies, fiscal and structural policies are severely hampered by political paralysis," Mantega said. He urged that spending be focused on areas that can have a maximum impact and on social safety nets to protect the poor.

He and other finance ministers expressed concern over monetary easing in the U.S. and other countries that is meant to encourage more bank lending, but that some worry could destabilize markets while failing to stave off recession.

During the meetings in Japan, Lagarde urged countries to not sacrifice growth for the sake of austerity, saying they should temper spending cuts to help create jobs and support future growth.

Balancing those sometimes competing priorities is the central puzzle facing policymakers as the world economy slows further, even in dynamic Asia.

Slower growth elsewhere is sapping the potential in the poorest countries, many of which depend on exports of minerals, oil and other commodities to the industrial countries.

"We should all be committed in our resolve to avoid a worst case scenario where strains in the euro area deepen, fiscal cliff and debt ceiling problems in the U.S. are not resolved, and growth in emerging market economies continues to decline," Pravin J. Gordhan, South Africa's finance minister, told the meeting on Saturday.

To fortify a "safety net" for crises while supporting improvements to make farming more efficient and sustainable, ministers also have pledged new funds for the Global Agriculture and Food Security Program, a trust fund set up in 2010.


Associated Press writer Malcolm Foster contributed to this report.

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Re: IMF Meeting in Tokyo calls for quick effective action to buoy growth

Post  Panda on Mon 15 Oct - 7:26

The global economy is facing its third major brake on expansion in five years as emerging markets slow from China to Brazil, provoking debate about how much policy makers should respond.

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Global Services Weaken as Europe Slides Into Recession

Chris Ratcliffe/Bloomberg

A passenger passes automated check-in machines inside Terminal 1 at Heathrow airport, in London.

A passenger passes automated check-in machines inside Terminal 1 at Heathrow airport, in London. Photographer: Chris Ratcliffe/Bloomberg

Three years after industrializing nations led the world out of the U.S. mortgage meltdown-induced recession, the reliability of the power source is waning as Europe’s debt crisis persists. The International Monetary Fund sees them growing an average 5.8 percent in the half-decade through 2016, almost two percentage points less than the five years before the 2009 slump.

Finance chiefs at the IMF and World Bank annual meetings left Tokyo this weekend at odds over how to address the issue, with South Korea’s central bank chief urging Asia to add stimulus as Russia and Brazil called on rich nations to fix their own challenges. At stake is a world economy Bank of Israel Governor Stanley Fischer calls “awfully close” to recession.

“There is a concern that in the near term the engine of growth that provided such a great support seems to be slowing,” said Jacob Frenkel, chairman of JPMorgan Chase International and Fischer’s predecessor in Israel. “They still continue to grow, but we’re seeing a slower pace than anticipated all over the world.”

Europe’s Steps

The IMF meetings ended yesterday with both expressions of optimism that Europe now has a policy infrastructure to quell its turmoil, and a clash between Germany and the fund over what lies next for cash-strapped nations such as Greece.

Developed economies including Switzerland and Japan joined Brazil in sounding the alert on excess currency strength, while delegates disagreed over the right degree of budget austerity as they pushed the U.S. to avoid tumbling over its fiscal cliff.

“Ministers discussed a short-term response for the global economy, but their opinions weren’t harmonized in one direction,” South Korean Finance Minister Bahk Jae Wan told reporters in Tokyo. “The world has a leadership problem.”

Investors may still not be fully tuned into the risks, said Barry Eichengreen, an economics professor at the University of California, Berkeley. While U.S. stock benchmarks last week fell the most since June, the Standard & Poor’s 500 Index (SPX) is still up 19 percent from a year ago. By contrast, the MSCI Emerging Markets Index has risen less than 6 percent the past 12 months.

“I’m worried that stock markets in the United States in particular have gotten ahead of economic growth,” Eichengreen said in an interview in Tokyo.

China Growth

The size of the latest shock may be underscored this week, when China will report its economy probably grew 7.4 percent last quarter, according to the median estimate in a Bloomberg News survey. Such a pace would be the slowest in three years.

If unchecked, the fading could deal a blow to already-weak rich nations, warn economists. Slackening Chinese demand led Alcoa Inc. (AA), the largest American aluminum producer, to last week cut its forecast for worldwide consumption of the metal by 1 percentage point. The U.S. last week reported a widening trade gap for August as diminished global demand caused exports to fall to the lowest level since February.

China, the world’s second-largest economy, alone accounts for 65 percent of seaborne iron ore demand and 40 percent of copper consumption, leaving producers such as Australia, Brazil and Chile vulnerable, Gustavo Reis, a Bank of America Merrill Lynch economist in New York, said in an Oct. 5 report.

Global Impact

A 1 percentage point drop in China’s growth rate often leads to a 1.5 point decline in commodity prices over a couple of quarters, threatening resource-rich nations such as Canada, while about 80 percent of its imported inputs come from Japan, South Korea and Taiwan, Reis said. Germany may also suffer from weaker demand for its capital goods.

Emerging markets need to rethink export-reliant growth models and pivot to domestic drivers, Morgan Stanley analysts say. Demographics don’t help, with half the emerging world’s populations, including China’s, getting older, Morgan Stanley’s Manoj Pradhan and Patryk Drozdzik said in a Sept. 24 study.

A rebalancing may already be under way, yet the transition could mean a period of fragility. India is opening up to foreign investment, and Finance Minister Palaniappan Chidambaram plans to build on that with steps for capital markets, insurance, banking and infrastructure. Brazil is paring payroll taxes and enabling companies to build and operate roads and railways.

Holding Back

The debate centers on how much further emerging markets want to spur growth. While South Korea and Brazil both cut interest rates last week, Singapore joined India and China in resisting monetary stimulus as they guard against inflation and asset-price risks.

China has refrained from lowering borrowing costs since July, seeking to rein in housing costs as it prepares for a once-in-a-decade leadership change next month. The country has “relatively large room” for use of monetary and fiscal policies compared with some nations, said Yi Gang, a deputy governor of China’s central bank who came to Tokyo in lieu of Governor Zhou Xiaochuan, the official Xinhua News Agency reported.

“Some were growing too fast and suffering inflationary pressures so they’ve put the brakes on,” said Mario Blejer, former governor of Argentina’s central bank and now vice chairman of Banco Hipotecario SA. “In a sense that’s a good thing, but they don’t want to overdo it.

‘Ample Room’

Bank of Korea Governor Kim Choong Soo said there is “ample room for promoting domestic demand-driven growth, especially in Asia.” He said “further fiscal and monetary stimulus should help boost domestic demand and ultimately the world recovery.”

Requests for expansionary policies in Tokyo still ran into resistance from several emerging-market officials. The views of China were limited by its decision not to send top officials to Japan amid a spat over islands that both nations claim.

“This call by some of our colleagues that we should go ahead and increase our budget deficits to stimulate economic growth is probably unrealizable,” Russian Finance Minister Anton Siluanov said in an interview, adding that rich countries should focus on addressing their debt challenges.

Refighting the so-called currency wars of 2010, Brazilian Finance Minister Guido Mantega blamed “selfish” western monetary policies for undermining economies such as his with inflationary hot money. “Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers,” he said.

IMF Voting

Mantega and Siluanov were among those to signal irritation with the U.S. for failing to ratify a 2010 deal that gave emerging markets more power at the IMF and would make China the third-largest member. Negotiations over a 2014 shift in voting rights are already subject to disagreement over how to calculate the reshuffle.

Federal Reserve Chairman Ben S. Bernanke sought to refute arguments that the Fed’s record stimulus, including a $40 billion-a-month mortgage-securities purchase program, is causing destabilizing flows to emerging-market economies. “It is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies,” he said yesterday in prepared remarks for a seminar in Tokyo.

So-called QE3, or the third round of quantitative easing, won plaudits from Fischer, who was Bernanke’s thesis adviser. The IMF’s former No. 2 official said tying the program to reducing unemployment “adds to the credibility” of Fed measures.

China Trade

Not all data signal gloom. A Chinese release two days ago showed exports grew at the fastest pace in three months in September. Retail sales in Brazil exceeded economists’ estimates in August, and advanced for a third straight month.

“Perhaps we’re seeing a bottoming out of the slowdown,” said Guillermo Ortiz, a former governor of Mexico’s central bank and now chairman of Grupo Financiero Banorte SAB.

U.S. Treasury Secretary Timothy F. Geithner said improvements in incomes, policy and technology all indicated a “long period of growth in the emerging world on average over time that’s a significant multiple of the average of developed countries.”

Unlike the U.S. or Europe, monetary policy in the developing world still has potency and there’s scope to use it if needed, said Philip Suttle, chief economist at the Institute of International Finance.

JPMorgan Chase & Co. economists calculate the average interest across emerging markets to be 5.56 percent compared to 0.51 percent in the developed world. IMF estimates show emerging market budgets to be in deficit by an average 1.9 percent of output, about a third of the shortfall in advanced countries.

“Keep your fingers crossed,” said Suttle.

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