Sunday, April 23, 2006

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An interesting weekend for global economic governance

The Financial Times has a few stories on the ups and downs of global economic negotiations. Negotiations about trade barriers appear to be going in one direction, while negotiations about global imbalances seem to be going forward.

Frances Williams reports on the backtacking on Doha:

Pascal Lamy, director-general of the World Trade Organisation, will on Monday ask WTO members to work for a crucial deal on farm and industrial goods by early summer, after key trading powers acknowledged their self-imposed April 30 deadline was out of reach.

The meeting on Friday, attended by about 25 rich and poor WTO members agreed to call off plans for ministerial talks this week.

The US and European Union blamed each other for the setback. Peter Mandelson, EU trade commissioner, accused the US of lacking realism on agriculture, while the US trade representative’s office said it wished the EU would put the same energy into the negotiations as it did in finger-pointing.

In Geneva, diplomats said failure to agree detailed guidelines for cutting farm subsidies and agricultural and industrial tariffs was disappointing but not “the end of the world”.

On the other hand, the spring meeting of the IMF and World Bank seems to have produced a small breakthrough, according to Chris Giles and Krishna Guha:
Leading countries secured a breakthrough in the governance of the global economy at the weekend, transforming the role of the International Monetary Fund and putting it at the centre of a more co-operative effort to resolve trade imbalances.

The IMF was given a mandate to start immediate negotiations between the countries with the largest trade imbalances. Its goal will be to secure agreements to reform economic and exchange rate policies to close trade gaps and prevent a global financial crisis. If successful, it could lead to big changes in economic policies, including an appreciation of China’s renminbi.

Causes of global imbalances will come under the spotlight in the first IMF “multilateral consultation”, including low levels of US savings, the inflexibility of the Chinese exchange rate and surpluses in Japan, Germany and among oil producers. Participating nations will use the IMF as a forum to seek solutions to these problems.

Rodrigo Rato, IMF managing director, said the IMF’s analysis would be published, putting additional pressure on countries to agree, since it would not have any tools to force policy changes.

All IMF members, including China, supported the new procedures. IMF members also agreed that some emerging countries should be given greater ownership and voting rights.

Mr Rato said the changes to the fund’s purpose in addressing global imbalances was “a very important step in the role of the fund in tackling global imbalances but also in producing an encouraging, co-operative response to global issues”.

The US, in particular, is pleased at the growing recognition that its record trade deficit is the product of global forces, not just its own government deficit, and has to be resolved in a way that sustains global growth.

A senior US official said: “I think that surplus countries are beginning to understand that there will be no adjustment unless they are a part of it.”

Even senior G7 officials sceptical about the chances of progress were delighted.

Click on this companion story by Giles and Guha, which seems devoted to explaining why the deal is so great.

I need to look into the nature of the agreement a bit longer, but to indicate the daunting nature of what's involved here, consider this paragraph from the IMF communiqué:

Following the discussion at the Global Imbalances Conference held at the IMF on April 21, the Committee confirms that the agreed policy strategy to address imbalances remains valid. Key elements include raising national saving in the United States—with measures to reduce the budget deficit and spur private saving; implementing structural reforms to sustain growth potential and boost domestic demand in the euro area and several other countries; further structural reforms, including fiscal consolidation, in Japan; allowing greater exchange rate flexibility in a number of surplus countries in emerging Asia; and promoting efficient absorption of higher oil revenues in oil-exporting countries with strong macroeconomic policies. Given economic interlinkages, all countries and regions will have a role to play by increasing the flexibility of their economies and adapting to changing global demand patterns.
Accomplishing this kind of integrated policy outcome will require a minor miracle considerable international policy skills.

posted by Dan on 04.23.06 at 09:08 PM


I would call it a major miracle.

posted by: dave on 04.23.06 at 09:08 PM [permalink]

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