WASHINGTON, 30 September — World economic chiefs struggled to find a unified message as they wrapped up meetings here yesterday on a global economy that is still growing but at risk from stock market turmoil, a feared war in Iraq and crises in Latin America. “Our most immediate concern must be to strengthen the global economy,” IMF managing director Horst Koehler told finance ministers and central bankers of the 184-member International Monetary Fund and World Bank.
“There are clearly a number of risks and uncertainties. But we should beware of undue pessimism. There are still good reasons to expect that the recovery will continue,” he said. To ensure recovery the finance ministers and central bank governors called for:
• Japan to mop up the bad debts weighing on its banking system.
• Europe to reform its labor markets.
• The United States to clean up corporate boardrooms.
• Plans for new bankruptcy-style system to deal with countries in debt crises, such as Argentina.
Outside the meetings, security was heavy during a weekend of protests, in which several thousand anti-globalization protesters howled about the failure of the institutions to help the world’s poor.
Inside, policy-makers were befuddled about Japan’s plans to wipe off the bad loans strangling the banking system that have kept the world’s second-largest economy in a rut. An unprecedented plan announced by the Bank of Japan on Sept. 18 to buy shares from commercial banks remains a puzzle, some leaders said.
“I did not come away with an understanding of how these particular interventions are going to contribute to the change” in economic growth, US Treasury Secretary Paul O’Neill told reporters. From the US perspective, O’Neill said the US economy was strengthening but that the world needs a bottom-up movement to spark growth, with a limited role for international institutions. “We simply cannot bring about success from the outside,” O’Neill said.
Leaders called for the IMF to draw up a dramatic new bankruptcy-style plan for countries facing a debt crisis, even though the plan got a lukewarm response from some of the emerging markets it was designed to help. The controversial initiative would allow an official moratorium on a country’s debt while a restructuring plan is devised. But the committee said other mechanisms in bond contracts may also be used to avert a catastrophic default like the one in Argentina.
Mexican Finance Secretary Francisco Gil Diaz, speaking to bankers here on the sidelines of the meetings, noted that countries issuing sovereign bonds may have to pay higher interest rates if a bankruptcy-style mechanism were available. “We have to look for market solutions for these problems,” Gil said. (The Independent)
