'Economic nationalism' is damaging us all, warns IMF chief

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The International Monetary Fund yesterday accused politicians across the world of "pandering" to the growing hostility towards immigration and the rise in protectionism.

In what will be seen as a scathing attack on rich countries, it said governments were increasingly pursuing an attitude of "me, my, mine".

It came as Gordon Brown unveiled a $750m (£397) bid to break the logjam in the stalled trade talks, whose collapse has been blamed on the protectionist stance taken by the US and continental Europe.

Raghuram Rajan, the financial watchdog's chief economist, said that governments were failing to sustain the benefits of the technological revolution that helped to combat poverty.

In his valedictory briefing before he stands down later this year, he said: "Strong political forces strengthened by rising inequality are gathering to combat the influence of technology and global competition, and far too many politicians are pandering to the discontents."

He said: "The rising tide of economic nationalism [and] the strengthening resistance to immigration are all signals pointing in the same direction. In terms of national advantage - an attitude of me, my, mine - politicians are once again ensuring collective disadvantage."

He urged political leaders to find a way of reducing poverty and to lessen inequalities of wealth and income that could fuel social tensions. "For the good times to continue, today's leaders should focus from spending the dividend to reinvesting for the future," he said.

He highlighted the US where he said there was evidence that income inequality was rising, especially when pensions and healthcare payments were taken into account.

"The question is, does this increase social tensions especially if [wages at] the low end are completely flat. I think it does. People don't just look at absolute incomes but at relative incomes and they feel they are being left behind."

His comments will be seen as an attack on governments in Washington and European capitals that have blocked cross-border take-overs to protect their national champions. The US blocked a Dubai firm from buying six US ports while France moved to keep the yoghurt giant Danone French. Even the UK, one of the world's most free trade-oriented countries, has recently become lukewarm over the prospect of thousands more eastern European workers coming to Britain when Bulgaria and Romania join the EU next year.

"Europe's leaders need to find the will to take on vested interests in both labour and in the corporate sector," he said. "This necessary but difficult domestic battle is constantly postponed till after the next election - but the next election will never come."

He also criticised Latin American leaders for adopting "populist" policies such as nationalising foreign-owned energy concessions.

He highlighted the collapse of the world trade talks - known as the Doha round - which poverty campaigners have blamed on the refusal of Europe and the US to make cuts in the agricultural subsidies that would benefit farmers in the developing nations.

"This could not be more serious," he said. "For the medium-term health of the world economy, we need continuous improvement on the trade front and therefore the breakdown of the Doha round is clearly a problem."

It is understood that Washington is anxious to rekindle negotiations and will use the opportunity of the annual meetings of the IMF and the World Bank to explore how it might do so.

Today, Gordon Brown and Hilary Benn will announce a major new commitment to the "aid for trade" initiative that boosts the capacity of poor countries to benefit from international trade.

Support for Aid for Trade, including backing for infrastructure - such as roads, ports, power and telecommunications - will reach $750m by 2010. This includes the £100m a year Mr Benn has already announced the Department for International Development will spend by 2010 on the institutions and people needed to facilitate trade in activities like simplifying export procedures, strengthening customs agencies and training staff.

Speaking before he leaves for Singapore for this weekend's IMF/World Bank meetings, the Chancellor said: "Singapore is a critical opportunity for the developed world to show leadership and regain momentum to unblock the stalled trade talks and reach out for the trade deal that offers the world its best hope for long-term prosperity and the only path out of poverty for the developing world.

"But in addition to providing countries with the access to trade, we must demonstrate our commitment to provide the practical support to reduce their transport and other costs which are in some countries a greater barrier than tariffs."