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More perils ahead for global economy

IMF, World Bank warn on high food prices, joblessness


WASHINGTON (AFP) ― Global finance chiefs warned Saturday that rising food prices, unanswered joblessness, Mideast turmoil and weak finances in advanced economies could still derail economic recovery.

“We are one shock away from a full-blown crisis,” said World Bank president Robert Zoellick about the surge in basic food prices.

“The financial crisis taught us that prevention is better than cure. We cannot afford to forget that lesson,” he said at the close of the annual spring meetings of the World Bank and International Monetary Fund.

The Bank also warned that a worsening of conditions in the Middle East and North Africa “could derail global growth.”

“If oil prices were to rise sharply and durably ... global growth could slow by between 0.3 and 1.2 percentage points in 2011 and 2012, respectively,” the development lender added in a statement.

Zoellick called for quick Bank action to support Middle East reforms and help shape new social contracts. “Waiting for the situation to stabilize will mean lost opportunities. In revolutionary moments, the status quo is not a winning hand.”

The world’s economic technocrats breathed a group sigh of relief during the week after two years battling severe stress on the global financial network, sparked by the U.S. housing and banking breakdown of 2008-2009.

But, repeatedly, IMF managing director Dominique Strauss-Kahn said it was not a time for complacency, that multiple ailments remained, and new ones ― like overheating in the emerging economies ― were coming.
World Bank President Robert Zoellick (left), IMF First Deputy Managing Director John Lipsky (center) and Development Committee Chairman Ahmed bin Mohammed Al Khalifa, minister of finance for the Kingdom of Bahrain, arrive for a briefing on work by the Development Committee at the IMF/World Bank meetings in Washington on Saturday. (AP-Yonhap News)
World Bank President Robert Zoellick (left), IMF First Deputy Managing Director John Lipsky (center) and Development Committee Chairman Ahmed bin Mohammed Al Khalifa, minister of finance for the Kingdom of Bahrain, arrive for a briefing on work by the Development Committee at the IMF/World Bank meetings in Washington on Saturday. (AP-Yonhap News)

“Recovery is underway, but unemployment in most countries still is too high,” he said at the close of the Washington meetings.

“The downside risks are still there, on the fiscal side, mostly in developed economies. In the financial sector, a lot of repair is still needed.”

“On emerging economies, (it is) more a question of overheating,” he said, citing both their high growth and the impact of rising food and fuel prices.

He said that finance chiefs from around the world had spoken to him of the phenomenon of a “jobless recovery” in economic growth.

“Growth is not enough, because the old pattern, following which if you had growth, the rest would follow, doesn’t work any more.”

“There was a sense around the table ... that we are still in a fairly fragile situation,” said Tharman Shanmugaratnam, chairman of the IMF’s policy-setting monetary and financial committee.

“We have to be extremely watchful, but we also need to develop the capabilities ... to anticipate scenarios that could turn out to be ugly, and require that countries, including especially systemically significant countries, take actions early to prevent another crisis.”

Strauss-Kahn reassured that the IMF was supporting debt-laden Greece, Ireland and Portugal, though he warned that European banks need more capital, and that global banking overall needed more cross-border supervision, especially of the most powerful banks.

There was still much concern about the most “systemically significant country” ― the United States ― which the IMF criticized Monday for its yawning budget deficit.

“The United States stands out as the only large advanced economy where the cyclically adjusted fiscal deficit is expected to increase in 2011 compared with 2010 despite the ongoing economic recovery,” the Fund said.

On the sidelines of the Bank-IMF meetings, the Group of 20 advanced and emerging economies moved to take on “imbalances” like European debt, Washington’s multiple deficits, and, on the other side, China’s huge trade surplus.

In a bold step, the G20 agreed on a new set of “indicative guidelines” that would, in a mechanical fashion, identify which of its members’ economies were getting off-balanced enough to endanger the rest.

Seven members ― not officially named but known to be the United States, Britain, Germany, France, Japan, China and India ― were immediately listed for systemically risky imbalances.

The plan was that they could face a browbeating and prescriptions from their brethren at the G20 summit in Cannes, France, in November.

Even so, there remained sniping, with the U.S. and Europeans knocking China’s undervalued yuan currency and huge trade surplus.

China sniped back. “At the current stage, the European sovereign debt crisis remains severe,” said Yi Gang, deputy governor of the People’s Bank of China.

“The various countries concerned need to seek political consensus, beef up fiscal consolidation efforts, and make intraregional cooperation mechanisms more effective so as to dispel market mistrust.”

Systemically important countries “need more rigorous fiscal consolidation targets due to their tremendous spillover effects,” Yi added, in a swipe at the U.S.
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