IMF plan to relieve global imbalances

The growing imbalances in the global economy risk triggering a financial crisis and a global recession unless the world's leading nations draw up a joint plan to relieve the pressure, the head of the world's financial watchdog said yesterday.

In a speech that hinted at the possibility of a 21st century version of the 1985 Plaza Accord that co-ordinated the managed fall in the dollar, Rodrigo de Rato, the managing director of the International Monetary Fund, called for "co-ordinated action".

"Global imbalances are large and in my view unsustainable," he told an audience at Harvard University. "If these imbalances are unwound in a disorderly way, the result could be financial crises and a global recession."

He said the global imbalance between record deficits in the US and mounting surpluses in Asia and the Opec states should be seen as a "shared responsibility". Mr de Rato said: "To tackle them we need global economic co-operation. The IMF is the only institution with a global membership and a mandate to engage with our members in policy discussion." He said the global imbalances should be seen as a "shared responsibility".

He said that as domestic demand in the US was restrained then Europe, Asia and the oil-producing states could ensure that theirs rose. At the same time Asia and the Opec states could reduce their financial flows into the US just as the US no longer needed them.

The US is running a record current account deficit that requires it to attract vast sums of capital inflows. These are being met by Asian nations building up record surpluses by buying US bonds.