IMF urges crackdown on hedge funds

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The Independent Online

The International Monetary Fund unveiled plans to target hedge funds yesterday amid concern among world leaders that speculation is driving up energy prices and increasing the risk of a financial crisis.

The International Monetary Fund unveiled plans to target hedge funds yesterday amid concern among world leaders that speculation is driving up energy prices and increasing the risk of a financial crisis.

The IMF, which is the world's primary financial watchdog, pledged to focus on the work of high-risk funds in an attempt to beef up its role of identifying and preventing crises in the financial markets.

Oil prices closed above $50 a barrel for the first time in New York on Friday and traders are expected to test new levels when markets reopen today after the weekend. Opec, the oil producers' cartel, has accused speculators such as hedge funds of driving prices up.

In its communiqué at the end of the four-day meetings, the IMF's monetary and financial committee said: "Improving information and transparency in markets, including the role of hedge funds, would help strengthen market surveillance." In its keynote global financial stability report published before the meetings, the IMF said: "The increased participation of investment banks, hedge funds and other institutional investors in the energy markets implies that they now have greater exposure to energy risks." It said there was an urgent need to increase its efforts in broader energy trading. "Hedge funds can contribute to or may adversely impact financial stability," it said. "We still do not know what we do not know about hedge funds and efforts to support our surveillance and understanding of their market activities should be supported."

Rodrigo de Rato, the fund's managing director, said yesterday that the IMF should no longer rely on simply making early warnings but needed to take "prompt early action", adding: "A prerequisite for effective surveillance is that our analysis and arguments should be convincing and expressed candidly."

Oil has been at the top of the agenda for the entire IMF and Group of Seven (G7) meetings. In its communiqué, the G7, which includes the US, the world's largest consumer, warned that oil prices "remain high and are a risk".

It adopted a UK proposal to call on oil producers to increase production and, along with the major oil giants, to provide more information on their reserves and investment plans.

Yesterday the IMF's monetary and financial committee said that "market dynamics" were to blame for volatility in oil prices, along with geopolitical tensions and strong global demand. "The committee stresses the importance of dialogue between consumers and producers and of further progress to improve oil market information and technology."

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