THE INTERNATIONAL Monetary Fund (IMF) has warned global financial leaders not to repeat the mistakes of the Great Depression and choke off emergency support for their economies too quickly.
In a document prepared for a meeting of Group of 20 finance ministers and central bankers in Scotland, the IMF said the global recovery was still fragile and dependent on massive injections of public money around the world.
“One of the key lessons from the experience of similar crises (such as the Great Depression and Japan in the 1990s) is that withdrawing policy stimulus too early can be very costly,” the IMF paper said.
Officials say currencies are not on the formal agenda but tension over the weakness of the dollar and China’s managed exchange rate is clearly playing on delegates’ minds, with Japan saying it had never favoured a strong yen.
G20 meeting host and British finance minister Alistair Darling said policymakers would maintain their pledge to keep support in place until recovery was assured and also launch a new system of mutual checks to help rebalance world growth and prevent future crises. “I think we can reach agreement on firstly making sure we don’t remove support too early because the recovery is by no means established everywhere.”
Mr Darling is hosting the third meeting of G20 finance ministers and central bankers this year, aiming to put flesh on the bones of agreements made at a leaders’ summit in Pittsburgh in September. Since then there have been growing signs the world is finally coming out of the deepest downturn in decades after a crisis that wiped out some of the biggest financial institutions.
But the evidence has been mixed.
The US jobless rate jumped to a 26½-year high of 10.2 per cent last month, data released yesterday showed, as employers cut 190,000 jobs, more than the 175,000 markets had expected but fewer than the 219,000 lost in September. The total number of jobs lost in the US since the recession began is now 7.3 million.
In a televised statement, US president Barack Obama called the unemployment rate “a sobering number that underscores the economic challenge ahead”.
Mr Obama, who yesterday signed into law measures to extend unemployment benefit and tax credits for homebuyers, said his administration was looking at further measures to boost jobs. These include additional spending on roads and bridges, tax credits for businesses to create jobs, and aggressive export promotion.
The IMF is concerned the rich world is lagging behind the developed world in the recovery stakes.
“The pace of recovery is uneven, particularly in advanced economies, with consumer confidence remaining subdued. The waning of temporary fiscal measures such as the cash for clunkers programme in the US and similar programmes elsewhere is slowing production,” the paper said.
Officials say proposals on the table in Scotland include a system where countries put forward projections for their own economies for examination by the IMF to see if they are consistent with each other. If not, then alternatives can be looked at within the G20. – (Reuters)
