IMF Expands Role in Seeking to Reduce Trade Imbalances

The International Monetary Fund has focused attention a new concern – massive global imbalances. Of particular concern are the burgeoning US budget deficit; China’s currency, which some claim is undervalued; and increasing investment in the energy-related infrastructure of oil-producing countries. The IMF was created 60 years ago to deflect international crisis. But some economists suggest that trade gaps and uneven monetary flow across international borders poses challenges. One troubling scenario: Foreigners continue to sell goods to the US, building large reserves of dollars, but a drop in confidence for the US economy leads to the dollar crashing along with worldwide financial markets. Or, if US consumers drastically reduce their buying rate of international goods, other countries would have to compensate by increasing growth rates to keep the global economy from slumping. The meeting was designed to be a “useful discussion session rather than a negotiating session,” And IMF officials stress that the problems are global in nature, requiring all countries to contribute to reducing glaring imbalances in a responsible way. Some policymakers call for an aggressive approach from the IMF, but others suggest the agency should continue to serve as advisor rather than umpire. – YaleGlobal