Global rebalancing policies need coordination-IMF

BUSAN, South Korea, June 5 (BestGrowthStock) – The International
Monetary Fund believes global growth will be hurt if the Group of
20 rich and developing economies fail to coordinate efforts to
rebalance global demand, an IMF official said on Saturday.

But coordinated adoption of policies to encourage savings and
cut budget deficits in wealthy countries like the United States
and to spur domestic demand in developing economies like China
could boost growth substantially.

An IMF report presented at the G20 finance ministers and
central bank governors meeting here estimates that coherent
adoption of the adjustment policies could increase global growth
by as much as 2.5 percent annually over a medium-term five year
period.

“The result would be a substantial increase in employment —
tens of millions of jobs created additional to what would be the
case without these policy moves,” the IMF official told a
background briefing.

Last September, the G20 leaders pledged to take steps to
rebalance global growth to eliminate huge trade surpluses in Asia
and a massive buildup of debt in wealthier countries. They asked
the IMF to study effects of differing speeds of implementing such
policies.

It found that if the wealthy countries cut deficits and
increased savings without complementary actions by developing
export-oriented economies to boost domestic demand, short term
growth would be cut for both. The wealthy countries would see
more growth in the longer term as a result of an improved fiscal
footing, but the developing countries would see lower growth in
both the short term and long term.

The paper was one of three presented by the IMF to G20
meetings in the South Korean port city of Busan. In a final draft
of its study of bank taxes to pay for bailouts, it recommended
that financial institutions pay levies similar to insurance
premia.

These would be based on risk-weighted liabilities. “The more
risk you create, the more you should pay,” the official said.

The IMF favours collecting the levies before a financial
crisis hits because this would spread costs of banking failures
evenly — to both survivors and failed institutions. An
alternative

The bank tax recommendations, however, may fall on deaf ears,
as there was little agreement at Busan on bank levies, with some
countries steadfastly against them, and differing views on their
methods. The final communique by the ministers made reference
bank levies.

The IMF’s other briefing paper reaffirmed its global economic
forecasts issued in April, which predicted global economic growth
at 4.2 percent for 2010.

The IMF official said the financial turbulence emanating from
Europe has “added to the realism of the downside risks that were
already described in the World Economic Outlook.”
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(Reporting by David Lawder, editing by Jonathan Thatcher)

Global rebalancing policies need coordination-IMF