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IMF, World Bank meet as financial crisis bites
WASHINGTON
Petroleumworld.com, April 14, 2008The International Monetary Fund and the World Bank met here Saturday facing the challenges of a financial crisis battering the global economy and rising inflation hurting the poor.
Sharply higher energy and food prices have complicated the problems confronting the twin 185-nation institutions, leading to social unrest.
Economic chiefs are under pressure to take concrete steps to alleviate the financial turmoil and stimulate a global economy the IMF warns is slowing so rapidly it could slide effectively into recession this year and next.
The global economy faces "considerable challenges" in the wake of the US home loan crisis after years of strong growth, US Treasury Secretary Henry Paulson said.
"2008 will be a more difficult year, with headwinds coming from adjustments in the US economy, financial market stress, higher commodity prices, and higher than desirable inflation," Paulson told the meeting.
"No economy is entirely immune from global forces," he added
In response to the worst financial shock in decades, the Group of Seven industrialized nations -- Britain, Canada, France, Germany, Italy, Japan and the United States -- approved Friday a package to improve the resilience and transparency of the financial system in hopes of restoring confidence.
"The turmoil in global financial markets remains challenging and more protracted than we had anticipated," the G7 finance ministers and central bankers said after their own meeting here Friday.
"While economic conditions differ in our countries, downside risks to the outlook persist in view of the ongoing weakness in US residential housing markets, stressed global financial market conditions, the international impact of high oil and commodity prices, and consequent inflation pressures."
The spreading turbulence led the IMF to forecast global growth slowing sharply to 3.7 percent in 2008 in its latest World Economic Outlook report published Wednesday.
IMF managing director Dominique Strauss-Kahn pledged that his organization, charged with promoting global financial stability, has the expertise and reach to have a major role in responding to what he says is the worst financial crisis since the Great Depression of the 1930s.
Analysts said the G7 statement was a welcome recognition of the seriousness of the problems, especially with regard to the banks and getting some transparency back into the system.
"We say, unequivocally, bravo to the Financial Services Forum for its call to action on this set of issues!" said Brian Bethune, chief US financial economist at Global Insight.
The G7 also noted that since their last meeting in February, there have been "sharp fluctuations" in major currencies and members "continue to monitor exchange markets closely and cooperate as appropriate."
The European Union monetary policy commissioner, Jaoquin Almunia, said Saturday the euro has risen too high against the dollar to the point it is getting out of line with economic fundamentals.
"The euro's real effective exchange rate is approaching a level where it would clearly no longer be in line with economic fundamentals," Almunia told the International Monetary and Financial Committee.
"Excess volatility and disorderly movements in exchange rates are undesirable for economic growth," he said.
Story by Veronica Smith from AFP
AFP 12 1935 GMT 04 08
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