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Posts Tagged ‘Exchange rate’

Global imbalances returning, could fuel unrest – IMF chief

Posted by Admin on February 4, 2011

http://in.finance.yahoo.com/news/Global-imbalances-returning-reuters-1199879621.html

Dominique Strauss-Kahn, Managing Director, International Monetary Fund (IMF) smiles during a Thomson Reuters Newsmaker event at the Newseum in Washington, December 16, 2010. REUTERS/Molly Riley/Files
On Tuesday 1 February 2011, 12:44 PM

 

By Kevin Lim

SINGAPORE (Reuters) – The world economy has begun improving but is beset by problems such as high unemployment and rising prices which could fuel crippling trade protectionism or even lead to war within nations, the head of the International Monetary Fund warned on Tuesday.

Rising food and fuel prices in recent months have already hit poorer countries and are one of the factors behind massive anti-government protests in Egypt and in Tunisia, whose president was ousted last month.

The United Nations ‘ food agency (FAO) said last month that global food prices hit a record high in December, above 2008 levels when riots broke out in countries as far afield as Egypt , Cameroon and Haiti.

“The pre-crisis pattern of global imbalances is re-emerging,” Dominique Strauss-Kahn said in a speech in Singapore.

“Growth in economies with large external deficits, like the U.S., is still being driven by domestic demand. And growth in economies with large external surpluses, like China and Germany, is still being powered by exports,” he said.

“As tensions between countries increase, we could see rising protectionism — of trade and of finance. And as tensions within countries increase, we could see rising social and political instability within nations — even war.”

Over the next decade, 400 million young people would join the global labour force, posing a daunting challenge for governments, he added.

“We face the prospect of a ‘lost generation’ of young people, destined to suffer their whole lives from worse unemployment and social conditions. Creating jobs must be a top priority not only in the advanced economies, but also in many poorer countries.”

Unemployment stands at 9.4 percent in the United States while a number of European countries are also struggling to create jobs in a global economy where much of the growth is coming from emerging market countries.

DEVELOPED COUNTRIES ALSO AT RISK

Concerns about rising debt in developed countries, meanwhile, have increased in recent months.

Ireland was engulfed by Europe’s debt crisis late last year, Greece continues to struggle despite a rescue package and many market watchers fear Portugal and Spain may be next.

Last week Standard & Poor’s cut Japan ‘s credit rating and Moody’s warned it may place a negative outlook on the United States unless it can reduce its gaping budget deficit.

In Asia, the worries centre around inflation and analysts say central banks in countries such as Indonesia need to respond faster to contain rising prices.

Strauss-Kahn also said foreign exchange rate adjustments have an important role to play in addressing global economic imbalances and should not be resisted.

“Holding back such adjustment in one country also makes it harder, and more costly, for other countries to let their exchange rate adjust,” he said.

“For this adjustment to take place, time is of the essence, but asking for time only makes sense if there is a significant and regular move in the right direction.”

Chinese policymakers were moving in the right direction by taking steps to bolster domestic demand, he noted, though the United States and many other Western countries continue to push Beijing to let its yuan currency appreciate faster.

Strauss-Kahn said the IMF expected subdued growth of 2.5 percent for advanced economies this year as high unemployment and household debt weighed on domestic demand.

“Without jobs and income security, there can be no rebound in domestic demand — and ultimately, no sustainable recovery,” he said.

Emerging markets would grow at a faster pace of 6.5 percent, with Asia excluding Japan expanding by 8.5 percent, he said.

“Monetary policy in the advanced economies should remain supportive as long as inflation expectations are well anchored and unemployment stays high,” while Asia may need to do more to address the threat of overheating and a possible hard landing, he said.

(Editing by Kim Coghill)

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Group of 20 vows to avoid currency devaluations

Posted by Admin on October 23, 2010

Foto Oficial de Líderes del G-20

G - 20

GYEONGJU, South Korea – The world’s leading advanced and emerging countries vowed Saturday to avoid potentially debilitating currency devaluations, aiming to quell trade tensions that could threaten the global recovery.

The Group of 20 also agreed to give developing nations more say at the International Monetary Fund, part of what it described as an ambitious set of proposals to reform the IMF governance.

The grouping, which accounts for about 85 percent of the global economy, said in a statement that it will “move towards more market determined exchange rate systems” and “refrain from competitive devaluation of currencies.”

The agreement comes amid fears that nations were on the verge of a so-called currency war in which they would devalue currencies to gain an export advantage over competitors — causing a rise in protectionism and damaging the global economy.

“Our cooperation is essential,” the statement said. “We are all committed to play our part in achieving strong, sustainable and balanced growth in a collaborative and coordinated way.”

The agreement, which includes no specific numerical commitments, appeared to be a step forward from a similar meeting two weeks ago in Washington when finance officials failed to resolve differences.

U.S. Treasury Secretary Timothy Geithner had pushed in a letter to G-20 members for a commitment to polices that would reduce current account and trade imbalances “below a specified share” of gross domestic product “over the next few years.”

The statement said that large imbalances — such as China’s vast trade surplus with the rest of the world — would be “assessed against indicative guidelines to be agreed.” Geithner’s proposal had drawn resistance from export-reliant countries such as Japan which called it “unrealistic.”

The G-20 statement came at the end of a meeting of G-20 finance ministers and central bank governors held ahead of a summit of leaders next month.

South Korean Minister of Strategy and Finance Yoon Jeung-hyun expressed satisfaction with the accord.

“A lot of people raise questions with respect to the effectiveness of the G20 framework,” he told reporters. But he emphasized that the G-20 is making a “significant contribution” by achieving its goals for bolstering theworld economy.

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