Global trade imbalances worry IMF

WASHINGTON – The International Monetary Fund convened a first-of-its-kind meeting Friday with top economic officials from more than 20 nations to discuss global trade imbalances, a tentative step toward persuading policy-makers to join a coordinated effort against a serious potential threat to the world economy.

Following that meeting, top officials from Group of Seven major industrial nations also met and issued a statement hailing the “strong global economic expansion” but highlighting the need for reducing the imbalances, which “requires participation by all regions.” In a special statement on the imbalances the G-7 appended a list of necessary actions, ranging from shrinking the budget deficit in the United States to allowing China’s currency to rise to increasing investment in energy-related infrastructure in oil-producing countries.

The meetings and statements reflected a growing sense of urgency among some policy-makers to develop an international strategy for dealing with the enormous trade gaps and corresponding flows of money across borders. The IMF has drawn intense criticism from many economists and some prominent officials for being too timid in addressing the problem.

The critics contend that the U.S. trade deficit, which soared to $723.6 billion last year, and the huge surpluses in Asia and many oil-producing nations, could lead to an international financial crisis of the sort that the IMF was supposed to prevent when it was created more than 60 years ago. The fear is that as foreigners accumulate vast holdings of dollars from the goods they are selling to Americans, a sudden loss of confidence in the U.S. economy might spark a crash of the dollar and financial markets worldwide.

Friday’s IMF gathering, which coincided with this weekend’s spring meetings of the IMF and World Bank, showed that the fund’s managing director, Rodrigo de Rato, is starting to play a more active role on the issue. Besides de Rato, attendees included U.S. Treasury Secretary John Snow and his counterparts from a couple of dozen nations in Europe, Asia and the Middle East, plus several academic economists.

The meeting was intended to be a useful discussion rather than a negotiating session; it was a far cry from the gatherings among the G-7 in the 1980s and 1990s that produced coordinated moves aimed at affecting the value of the dollar and other major currencies. (The G-7 consists of the United States, Japan, Britain, Germany, France, Canada and Italy.)

But participants said the IMF meeting helped drive home an important point – that shrinking the imbalances in a smooth manner will require action by countries in nearly all regions of the world.

Blame for the problem is often aimed at the United States for running large budget deficits that have fueled a consumption boom, and at China for keeping its currency pegged to the dollar at a low level that gives its exporters an unfair competitive advantage. But at a news conference Friday evening, Snow said there was recognition that “all of us in the global economy have a role to play, and no one of us individually can deal with the problem.”

The simple reason for that conclusion, he said, is that if consumers in the United States stop buying so much from abroad, other countries will have to step up their growth to keep the global economy from falling into a slump.