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3.
from this morning's financial times, more information about the american proposal for revamping the imf and the horse trading to come with the european union over it:
Quote:
Geithner looks for a trade-off over IMF
By Alan Beattie in Washington
Published: March 12 2009 19:49 | Last updated: March 12 2009 22:57
Not even an understaffed US Treasury is afraid of doubling up its bets. This week, in the face of European scepticism of its demands for global fiscal stimulus, Tim Geithner, US Treasury secretary, upped the stakes by proposing a massive expansion of the International Monetary Fund and sweeping reforms to the global financial architecture.
But at the heart of Washington’s strategy, experts say, lurks an attempted trade-off. The emerging world gets more say over the running of the world economy, and Europe gets more IMF cash to bail out the crisis-hit countries on its eastern periphery. In return, the US is trying to recruit the IMF to its campaign to press the rest of the world – and particularly recalcitrant European finance ministers – to increase fiscal stimulus.
Arvind Subramanian at the Peterson Institute in Washington says: “The US is hoping that the need to help out eastern Europe will overcome the stand-off over fiscal policy.”
The fund has led large loan packages for Ukraine, Hungary and Latvia and has been negotiating with Romania and Turkey. While the EU seems likely to find its own funds to rescue any eurozone country that requires them, it has looked to the IMF to lead the response to crises in states further east. In return the US wants the IMF to act as a global fiscal cop, monitoring whether countries keep to a benchmark of spending 2 per cent of gross domestic product to boost demand.
But whether this will loosen European public purse strings seems doubtful. On Wednesday Mr Geithner sidestepped questions of whether the European countries were currently meeting that target, saying it was a matter for the IMF. Yet fund officials say that the 2 per cent figure was intended to be a global benchmark for discretionary fiscal action – new tax cuts and spending, as opposed to the “automatic stabilisers” that kick in when economies slow. It was not intended as a country-by-country target.
In a paper released last week, the IMF said: “Countries in which the automatic stabilisers are larger will need smaller discretionary stimulus.”
When automatic stabilisers are included, the US is still one of the most stimulative of the big economies, but the differences are much less stark between it and the welfare state economies of western Europe. Measured by discretionary stimulus, for example, UK fiscal policy will actually subtract from growth next year, with a contraction equivalent to 0.1 per cent of GDP, potentially earning it a reprimand from the IMF under the US plans. But its overall fiscal balance in 2010 is highly stimulative, projected to loosen by a massive 5.4 per cent of GDP relative to the pre-crisis situation, not much below the equivalent figure of 6.1 per cent for the US.
Early warning system
As G20 policymakers struggle to combat the immediate effects of the crisis with fiscal stimulus packages and financial bail-outs, their forthcoming summit will also look at designing early warning systems to spot new disasters
A French official said on Thursday that the real bargain was for more IMF resources, including from countries like China, in return for increased surveillance of financial markets, and that France had nothing to fear from scrutiny of its fiscal policy. The EU is already planning to lend about $100bn extra to the fund.
Kaoru Yosano, Japan’s finance minister, said that while fiscal stimulus was helpful, “I don’t want to force other people to follow this argument; every country has the freedom to choose their own way”.
The US has frequently been accused of using the IMF to further its own agenda. When George W. Bush was in the White House, his Treasury persuaded the fund to focus its economic surveillance on member countries’ exchange rates – widely seen as part of its campaign to make China let the renminbi float freely.
Raghuram Rajan, a former IMF chief economist, describes the exchange rate surveillance policy as “an unmitigated disaster” which made the fund look biased. He says that there are similar problems with it as the White House’s fiscal enforcer – not least because it has spent most of its previous six decades trying to get countries to tighten public finances, not loosen them. “I don’t think they seriously think the fund can censure countries on their fiscal policy being too tight,” he says. “This certainly would be a dramatic turnaround.”
Although emerging markets are pleased by US support for accelerating the review of “quotas” – countries’ contributions to the IMF, which determine their voting power – they are also suspicious of being corralled into a global campaign of fiscal stimulus. “The problem for many developing countries is not the intention or willingness to spend more,” says Sri Mulyani Indrawati, the Indonesian finance minister. “The problem is on the lack of reasonable deficit financing.”
“Clearly, the US does not want to be the demander of last resort,” Mr Rajan says. “But not all countries have the same fiscal room.
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FT.com / US & Canada - Geithner looks for a trade-off over IMF
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