Protectionism Threatens Global Growth: IMF Chief

http://www.arabnews.com/?page=6§ion=0&article=86867&d=20&m=9&y=2006

Tang Li, Arab News

SINGAPORE, 20 September 2006 — A few days after British Chancellor of the Exchequer Gordon Brown called on the world to combat growing protectionist sentiments, the International Monetary Fund’s (IMF) Managing Director Rodrigo de Rato warned the world against abandoning the Doha round of trade talks and the general freeing up of trade.

De Rato, who was addressing the board of governors of the IMF at the joint annual discussion, said that the world was, “enjoying a period of rapid global growth and low inflation that has not been seen since the 1960s.”

De Rato told the board of governors that while the United States, the world’s largest economy, was expected to slow in the following years, this would be offset by expansion in the Euro Zone and Japan and that the growing economies of China and India would help to drive the global economy.

However, De Rato warned that the board of governors of the risk of high oil prices leading to higher inflationary pressures and the risk of global trade imbalances leading unwinding in a disorderly fashion.

He also mentioned that, “there is a growing risk that protectionist sentiment will overwhelm good sense.”

He warned that if the growing protectionist sentiments overwhelmed good sense, risk of the other dangers mentioned taking place would increase.

With regards to the sustained high prices of oil, De Rato praised the members of the oil producing Gulf Cooperation Council (GCC) for having increased planned investment to expand oil and gas output and refining capacity and he also praised Indonesia and Egypt for reducing fuel subsidies.

De Rato also mentioned that global trade imbalances were unsustainable, particularly amongst the world’s largest trading economies. He encouraged the United States to use its sustained economic growth to make sustainable reductions in its structural fiscal deficit. He also urged China to increase its currency flexibility and strengthen its domestic financial sector.

However, De Rato argued that the greatest threat to global prosperity was in the stalling of trade talks.

“Much of the recent strength of the global economy has been due to gains from free trade in goods and services,” he said. “Market-driven specialization, supported by the global deployment of investment, has boosted productivity, raised living standards around the world, and lifted millions of people out of poverty.” He used the Asian continent as an example of how the opening up of trade between nations had helped to reduce poverty.” He called the suspension of the Doha Round of trade talks “deeply disappointing and damaging.”

“It delays an agreement that would raise prosperity and support growth around the world,” he added.

De Rato told the board of governors that getting the Doha Round of trade talks back on track would send the world economy forward to greater growth and broader opportunities, but that failure would lead “backwards to narrow nationalism.”

“We should not fool ourselves that there is a comfortable middle ground,” he said.