UPDATE 2-Global rebalancing policies need coordination-IMF

(Adds IMF quotes on yuan and bank levy)

By David Lawder and James Pomfret

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

Coordinated policies to encourage savings and cut budget
deficits in wealthy countries such as the United States and to
spur domestic demand in developing economies like China could
boost growth substantially.

Speaking at the end of a G20 summit for finance ministers and
central bank governors in the Southern Korean port city of Busan,
the IMF’s managing director Dominique Strauss-Kahn said he was
also “totally comfortable” with a final communique calling for
troubled euro zone countries to accelerate fiscal consolidation.

“They have to consolidate strongly even if it has some bad
effect on growth,” he said, referring to Greece and other
southern European countries saddled with huge debts.

“Some countries have to go back rapidly to normalcy. Some
others may go on with letting the stimulus expire by its own.”

An IMF report presented at the G20 meeting earlier 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.

Strauss-Kahn said 30 million extra jobs could be created
with these policy moves.

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

Strauss-Kahn said Europe’s woes were a global problem and it
was important that Asia, through its currencies, help with the
vital global economic rebalancing.

“The IMF still believes the renminbi (yuan) is till
substantially undervalued … (but) even a revaluation of 20-25
percent doesn’t solve all the imbalances and you have more to do,
so it’s only part of the problem and you still have other

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 suffer in both. The wealthy countries would see more
growth in the longer term as a result of an improved fiscal
footing, but 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 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 premiums.

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.

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 no reference
bank levies.

“I won’t say it’s the end of this idea,” said Strauss-Kahn,
while conceding countries might end up doing different things.

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.”

Stock Market

(Additional reporting by David Milliken; Editing by Jonathan

UPDATE 2-Global rebalancing policies need coordination-IMF