The risks to the world economy today are less than they were six months ago, International Monetary Fund managing director Rodrigo Rato said on Monday.
Rato told the Peterson Institute economic think-tank that there was „greater consciousness of the uncertainties and paradoxes that lie behind our current prosperity” following the recent turbulence in global financial markets. But he added that overall, „I do not think that the risks are greater than they were six months ago. Actually, they are a little lower.” At the same time, Rato urged political leaders to take the tough steps needed to make progress on global economic imbalances and financial market stability. „We are living in a dry forest,” he said.
„If market developments have produced increased awareness of the dangers of playing with fire, that is no bad thing.” He pointed out that it was necessary to „translate that awareness into constructive action”. Rato warned that „complacency” was also a threat to the IMF’s agenda of institutional reform, which included proposals to shake up its shareholding structure and reform its finances. Although each of the 185 members of the IMF had their own priorities and objectives, he warned that it was „essential that members or groups of members do not treat this as an opportunity to press for their own preferred approaches at the expense of the consensus that is needed to make any changes at all”.
The speech comes ahead of the spring meeting of the IMF’s governing council of finance ministers and central bank governors in Washington this weekend, which will examine the state of the world economy and the IMF reform proposals. Rato said work on the IMF’s multilateral consultation on global economic imbalances was „well advanced”, although he played down any expectation that the report to be presented to finance ministers would propose radical new initiatives. Instead, he said it would „solidify agreement on an approach that will tend to produce a gradual reduction of global imbalances.” Rato said the IMF had „made some progress in agreeing on a set of underlying principles for the new quota formula” that defined each country’s shareholding in the IMF.
Members agreed the formula should be „simple and transparent”, and that it should result in changes „broadly acceptable to the membership” – in other words, giving developing countries a bigger say. Rato hailed the work of the Crockett commission, which proposed a new income model for the IMF that would make it much less dependent on profit margins on loans to crisis-hit countries. He also promised to „focus on what we do best” in low-income countries. But Rato hinted that he may not accept all the recommendations of the Malan report, which urged the IMF to pull back from several activities in low-income countries, noting, for instance, that the balance of payments needs in many countries were „long-term and intractable”. (FT.com)