IMF, World Bank Warn of Imbalances
October 3, 2004
The recovering global economy offers little time for celebrations, said leaders from the International Monetary Fund and World Bank as they concluded their meetings on Sunday with an appeal to governments to act boldly to preserve the worldwide gains.
"The world economy is strengthening, but the recovery has been uneven," British Chancellor of the Exchequer Gordon Brown said after a meeting of the IMF's policymaking International Monetary and Financial Committee, of which he is chairman.
"And with oil prices doubling and imbalances worsening, we agreed that action must be taken to address risks to the recovery," he said.
World Bank President James Wolfensohn cited "persistent global imbalances, which require, in particular, readjustment of monetary and fiscal policies in the US, and structural reforms to boost growth in Japan, Europe and elsewhere."
He noted that heavily indebted and oil-importing developing countries "are vulnerable to the combination or rising oil prices and interest rates. Mitigating and managing these risks remain important challenges for us all."
Britain sets the example for debt relief
Following on the heels of the G7 meeting, the IMF steering committee also addressed the need to improve debt relief for the world's poorest nations. As in the meeting two days earlier between financial leaders from the world's wealthiest nations, the IMF was full of pledges and affirmations, but failed to endorse specific measures which would write-off the debts owed to the World Bank by poor countries.
Instead Gordon Brown described the commitment expressed by the G7 as "very significant progress," and pointed out that the group was preparing a progress report addressing the sustainability of debt relief for the neediest countries. "There is a growing consensus that multilateral debt relief has to be dealt with as soon as possible," he said.
"The UK will lead the way in relieving those countries still under the burden of this debt by paying our share -- 10 percent -- of their payments to the World Bank and the African Development Bank," Brown announced, adding: "And we urge other governments to follow us in this."
Increasing development aid
Meanwhile the IMF and World Bank appealed to industrialized countries to uphold their pledge of spending 0.7 percent of their Gross Domestic Product to support developing countries, particularly those in sub-Saharan Africa. Agreed to in 1969 during a UN conference, only a handful of countries have met the target, including Norway and Sweden.
The United States, one of the world's strongest economies, currently spends less than 0.2 percent of its GDP on development aid. France put 0.4 percent of its GDP towards aid programs in Africa, and in Germany, the goal is to reach 0.33 percent by 2006.
No agreement on Iraq
On the issue of Iraq, the support for debt relief was even less resounding. Whereas the US has lobbied for forgiving 90 percent of the Arab nation's $120 billion (€97 billion) in foreign debt, other nations are more critical. Germany and France reject such a high percentage, saying 50 percent is more appropriate. Citing its extensive oil reserves, France has argued that Iraq should not be treated any better than considerably poorer nations.
On Friday, members of the G7 had concluded their meeting with the goal of agreeing to the framework for a debt reduction plan for Iraq by the end of the year.