Washington: The United States will urge world leaders this week to launch a new push in November to rebalance the world economy, but there are doubts national governments will bow to external advice.
A document outlining the US position ahead of the 24-25 September Group of 20 summit in Pittsburgh said exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings.
“The world will face anemic growth if adjustments in one part of the global economy are not matched by offsetting adjustments in other parts,” said the document, which was obtained by Reuters on Monday.
The framework drafted by US policy makers foresaw analysis of G-20 members’ economic policies by the International Monetary Fund to figure out if they were consistent with better balanced growth.
“We call on our finance ministers to launch the new framework by November,” the document said, signalling a determined effort to maintain momentum for change created by last year’s global financial crisis.
The United States envisages the IMF playing a central role in a process of “mutual assessment” by making policy recommendations to the G-20 every six months.
Finance ministers and central bankers from the G-20 countries are due to meet 7-8 November in Scotland.
European Central Bank president Jean-Claude Trichet said persuading Europe, the United States and China to accept IMF advice on economic policy may be difficult. In the past, many countries have ignored suggestions the IMF dished out in regular reviews.
Trichet told French newspaper Le Monde the G-20 had made progress on reforms to make the financial system more stable after the crisis.
“The most difficult question is still open: Europe, America, China, are they ready to modify their macroeconomic policies in the future—by following the advice of the IMF and under pressure from their peers, for the common good, and world economic stability?” he said in the piece on Monday.
G-7 sources told Reuters there was a renewed determination to cooperate because the crisis had driven home the interconnected nature of the global system. That said, governments would not allow themselves to be told what to do.
“We can’t get to a situation where any country is giving up its own decision-making,” said one source, who spoke on the condition of anonymity.
Germany, a major exporter to the United States, was singled out on Sunday by US President Barack Obama as a country that, like China, exports a lot but does not buy much back.
But a top European Union official said that the euro zone, where 16 countries share a common currency, had to act as a collective.
“It is difficult to think about one country without taking into consideration what is the impact in the euro area,” European Commission president Jose Manuel Barroso told reporters in New York.
Taxpayer money to the tune of $5 trillion has been pumped into the world economy to keep it from seizing up since the beginning of the crisis last September.
G-20 leaders will maintain that pace of stimulus while acknowledging that at some point it will have to be wound down, the document said.
But, mindful of how a disorderly rush to raise interest rates could roil world markets again, they will also ask finance ministers to thrash out a “transparent and credible” exit strategy.
There were no details of how to achieve this in practice, but the document echoed the caution of G20 finance ministers at their meeting in London earlier this month acknowledging the pace of change would vary by country.
Simon Johnson, a former chief economist at the IMF, warned there was a risk the Pittsburgh summit would be an empty public relations exercise.
“The point of the meetings is to try to reassure themselves and everyone else that they’re broadly on track and have a round of applause and some back patting,” he said.
But John Bruton, the EU ambassador to Washington, said it was important not to ignore the summit’s symbolic power.
“I think we’re seeing the beginning of a conversation between world leaders,” he told Reuters in an interview.