Wednesday, August 03, 2005

Is the IMF about to go medieval on us?


WASHINGTON, Aug 3 (Reuters) - The global economy's watchdog is growing nervous.

For years, the International Monetary Fund has warned that swelling budget deficits in the United States -- its biggest and most influential shareholder -- were feeding global economic imbalances that threaten world growth.

Now, worried that Washington is turning a deaf ear to its warnings, the IMF plans to lean harder on the world's rich nations to help fix the U.S. trade deficit as well as slow growth in Europe and Japan.

In April, the fund complained in its semi-annual World Economic Outlook that politicians around the globe were not keeping their promises to tackle these imbalances.

The IMF will seek to buttress its case in a September report on why the world's economic powers need bolder action...

U.S. officials also disagreed on the need for a more ambitious effort to cut the deficit, the report said, and argued this would not necessarily do much to help rebalance the global economy.

"More significant differences of view have emerged on the size and speed of fiscal consolidation and global current account imbalances," the report said in a highlighted box calling attention to points of contention.

"The (U.S.) authorities have disagreed that the large U.S. current account deficit -- which they see as largely reflecting weak demand growth in key partners -- poses a significant risk of 'disorderly adjustment,' or that it argues for more aggressive fiscal adjustment," it said...

The Bush administration, in a recent updated forecast that takes into account an unexpected surge in revenue, estimates the gap will shrink to $333 billion, or 2.7 percent of GDP, in the current fiscal year, which ends on Sept. 30.

"We have a pretty good handle on what the strategy is to accomplish those goals," Treasury's Fratto said. "We don't see a reason to change that tack."

However, many economists -- as well as the IMF -- warn the deficit narrowing is likely to prove short-lived.

If foreign investors decided to pull their money out, the dollar could tumble and U.S. interest rates could surge, damaging both the U.S. and global economies, the IMF says.

Iraq costs money...empires cost money...

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