IMF Tokyo
Meet Grapples with Global Slow Down
The protracted global financial crisis dominated the agenda
at last week’s International Monetary Fund (IMF) Annual Meeting in Tokyo,
Japan, as new data showed that economic growth is likely to be even lower than
anticipated this year and next. As officials debated how best to boost growth
while addressing macroeconomic imbalances, the controversial topic of rich
countries using further quantitative easing to boost their job markets - a
practice slammed by many emerging economies as putting their own exchange rates
and trade at risk - featured prominently during the high-level discussions.
Ahead of the Tokyo meetings, the IMF released more
pessimistic economic and trade growth forecasts for 2012 and 2013 than it had
projected in July. Economic growth is now slated to reach 3.3 percent this year, down from the earlier estimate of 3.5.
Next year, output is expected to expand by 3.6 percent,
down from the previous prediction of 3.9 percent.
Recently,
a new IMF pilot report indicated that various exchange rates are either under-
or overvalued compared to what would be considered desirable policies and
fundamentals, risking additional imbalances that could cause increased
vulnerability.
While current accounts are believed to be too strong and real
exchange rates undervalued in China, Germany, Indonesia, Malaysia, the
Netherlands, Singapore, South Korea, Sweden, and Thailand, these imbalances
“are fully offset,” the IMF said, given that current accounts are too weak and
real effective exchange rates overvalued in Australia, Brazil, Canada, Japan,
Turkey, Russia, South Africa, United States, the United Kingdom, and, within
the Euro area, Spain, Italy, and France.
Against this background, various emerging market members of
the IMFC argued that new rounds of quantitative easing, such as the ones
enacted by the US Federal Reserve, Bank of Japan, and European Central Bank
last month, would adversely affect their economies.
Brazilian Finance Minister Guido Mantega,
whose warnings of a global “currency war” when the US introduced its second
round of quantitative easing in 2010 made international headlines, cautioned on
Saturday that rich countries’ “lax” monetary policies have also proven less
than effective, and that they would instead prompt depreciations in developed
economy exchange rates and result in export increases.
Under
the Federal Reserve policy announced in September- nicknamed QE3 - the US will
buy an additional US$40 billion per month in mortgage-backed securities, along
with the current US$45 billion a month it buys via other asset purchase
programmes. The policy is set to continue until the US job market sees
substantial improvements.