SINGAPORE – Policy-makers will face more challenging global economic dynamics in coming months as the U.S. economy slows and inflationary pressures likely persist, IMF chief Rodrigo de Rato said Friday.
While the global economy has proved resilient in the face of surging oil prices and higher interest rates in major economies, but “one important question … is how the world will adapt to a less buoyant U.S. economy,” he said.
The collapse of World Trade Organization talks in July was a major setback, he added.
“Policy-makers need to be ready to adapt to a more difficult environment” in the coming year, de Rato said as delegates gathered for the annual meetings of the International Monetary Fund and World Bank in this Asian city-state.
The IMF projects that U.S. economic growth will slow to 2.9 percent next year from 3.4 percent this year, largely due to a cooling housing market and monetary tightening.
“Domestic policies in the U.S. will play a very important role” in influencing global growth, he said.
The global economic outlook will be among key topics to be addressed by Group of Seven finance ministers and central bankers gathering Saturday on the sidelines of the IMF-World Bank conference.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke were representing the world’s largest economy at the meeting, joined by their counterparts from Britain, Canada, France, Germany, Italy and Japan.
Some 16,000 participants are expected for the IMF-World Bank meetings, which culminate Tuesday and Wednesday. Normally held in Washington, the gathering is held every third year outside the U.S. capital.
This is the biggest international conference that Singapore has ever hosted, and the city-state has undergone elaborate preparations, particularly in regards to security. The Suntec convention center is surrounded by 8-foot fences topped with razor wire, and armed Gurkha guards stand at attention at key sites throughout the city.
Singapore has banned outdoor protests during the meetings, saying they could lead to violence and damage to property.
It also came under fire from the World Bank and IMF for barring 27 activists allegedly involved in violent anti-globalization protests in other countries. World Bank President Paul Wolfowitz harshly criticized the move, calling it “unacceptable.”
Late Friday, Singapore reversed its decision, saying it would allow 22 of the blacklisted activists into the country in an apparent effort to diffuse tension with the two institutions.
The World Bank, whose aim is to reduce poverty through providing development loans, will be focusing on fighting corruption and seeking ways to help development in Africa during its meetings here.
Earlier Friday, Wolfowitz said the bank can’t tolerate the misuse of the funds it lends out as part of its mission to reduce global poverty.
“If we’re going to get out of poverty, the money has to go where it’s supposed to go and not line the bank accounts of government officials,” he said.
Wolfowitz, who has championed fighting corruption since becoming head of the bank last year, has blocked more than $1 billion in loans from the bank to a range of countries for illegal practices.
Those moves have sparked criticism from Britain, whose international development secretary, Hilary Benn, told BBC Radio in an interview that the World Bank should not refuse to help those in poverty despite the actions of their governments.
The British government threatened Thursday to withhold a 50 million pound ($94 million) contribution to the bank to protest the conditions the bank places on aid to poor countries.
Wolfowitz said the World Bank was aware of the concerns expressed by some members over the conditions for its loans.
“Hilary Benn and I are in complete agreement that the World Bank in the past has been … too full of prescriptions for countries about what they had to do and too inclined to force those prescriptions on them,” he said. “But I think we’ve learned a lot from experience and I think we agree the whole approach has to be much more one of helping countries find what works.”
Some aid agencies, including Oxfam, say the World Bank needs not only to reduce the number of conditions attached to its loans, but also to work to stop tying economic policy reforms such as liberalization and privatization to its aid on poor countries.
A key agenda item for the IMF, established in 1945 to foster economic and financial stability, is a proposed reform in the fund’s voting structure to reflect the growing economic power of China and other developing countries.
De Rato declined to predict whether the proposal would be passed next week by member nations.
Its executive board already has approved a two-step plan that would first boost the voice of four countries – China, South Korea, Mexico and Turkey – it considers most underrepresented by increasing their quotas, or financial commitments, to the fund. Within two years, the IMF plans to rework the voting shares of all 184 member countries.
“What is clear is that there was a very clear majority on the board to endorse the resolution,” said de Rato.
To pass, the proposal must win 85 percent of votes from member nations. Each country’s vote, however, is determined by its quota. The U.S. vote, for example, counts for about 17 percent of the total, and Japan counts for 6.1 percent. The Pacific Island nation of Palau has voting share of 0.013 percent.