The IMF has not gotten to the bottom of the problem of global economic imbalances at this year’s meeting, South Africa’s finance minister Trevor Manuel says.
“Global imbalances are a huge problem… in the case of the meetings they might not be getting sufficient attention,” he told Emerging Markets.
The IMF still struggles to achieve effective surveillance of the world’s biggest economy. A small country with the same imbalances would “face a lot more pressure”, Manuel said.
“The IMF talks to poor countries and they fall into line. The US talks to the IMF and the IMF falls into line. … some of that still obtains,” said Manuel, after a day of negotiations in the International Monetary and Finance Committee.
Manuel said that Fund chief economist Raghuram Rajan had “alluded to the nature of the difficulty” on imbalances in his speech.
However, the risk of a rapid unwinding is mitigated by the size and power of the countries involved. “Governor Zhou Xiaochuan of the People’s Bank of China, with $800 billion invested in US treasurie,s is unlikely to want to see a slowdown in the US economy,” he said.
Shifts in the pattern of demand for key commodities mean that not all prices will drop back to pre-boom levels in a slowdown. For example, platinum is increasingly used in vehicle manufacture, and China and India continue to consume copper as they expand their electricity grids.
The region will continue to grow, including South Africa, which is growing at 4.7%, and whose direct investment in the rest of Africa doubled to $3.7 billion between 2000 and 2004.
The economy was one of hardest hit when investors pulled out of emerging markets in May and June. The current account deficit surged to 6.4% of GDP in the first quarter of the year and the rand fell nearly 20% against the dollar to a three-year low in June
The IMF’s most recent Article IV was broadly supportive of prudent macroeconomic management and an improved fiscal position, while urging a tighter inflation target set at the midpoint of current broad band between 3 and 6%. Manuel repeated a previous statement that IMF advice “cannot be the last word.” Advice is drafted by economists rather than policymakers, and “risks being too textbook-ish,” he said.
He also sounded a warning to governments that depend on meeting IMF conditions to secure finance, a group that includes most African countries. Blaming their economic problems on the IMF was a way of “externalizing responsibility,” he said. “It weakens their stature within their country and it weakens the IMF.”
Manuel voted in favour of the proposed two-step change to country voting quotas in the IMF. He said he was “very close” to the position of Argentina, Brazil, Egypt and India in demanding more radical reform, but that South Africa took “an African view.” “We considered that we could do a lot better inside than outside,” he said.