Gordon Brown yesterday urged Japan, Europe and the US to speed key economic reforms as the best means of underpinning the fragile and risk-fraught recovery.
Speaking ahead of a meeting of finance ministers of the G7 industrial countries, the Chancellor indicated that little more could be expected from interest rate cuts to spur growth. "Last year monetary activism had made a difference to growth prospects. This year we need activism in economic reform," he declared.
The faltering recovery, threatened by falling stock markets, debt crises in Latin America and a looming war in Iraq, overshadows every other issue at this year's International Monetary Fund and World Bank meetings here, with the IMF scaling back growth forecasts for all three major economic areas.
"Europe must step up its reform programme," Mr Brown said, referring to the repeated calls for labour market reforms in Germany in particular. Japan had to deal once and for all with the bad loans that have crippled its financial sector, while the US had to see through its reforms of corporate governance and accounting practices.
Typically, Paul O'Neill, the US Treasury Secretary, was even blunter. Contradicting Fund predictions of barely 2 per cent growth this year, Mr O'Neill insisted the US economy would be expanding at 3 to 3.5 per cent by the year's end. "I want to know from the rest, what they intend to do to spur their economies," he said.
His sharpest words, however, were for Japan, and its central bank's latest moves to sort out the country's financial problems – which have baffled many and convinced few. When he met the Japanese finance minister, he said, "One of my questions will be; exactly what is it you're doing?"
The Japanese crisis, and the difficulties of Argentina and Brazil, were expected to feature in the G7 ministers communique. Though the statement would not explicitly refer to the risk of a relapse into recession, it will warn that as well as flagging business and consumer confidence, worries about a war with Iraq – were also weighing on growth prospects.
As the finance ministers sought to prop up confidence in the global economy, police made more than 500 arrests when thousands of anti-globalisation demonstrators took to the streets to protest IMF and World Bank policies. But despite some scuffles, the protests were mostly non-violent.
The criticisms, however, were echoed within the heavily guarded Bank and Fund headquarters in downtown Washington. "We cannot leave things as they are," Mr Brown said of the crisis-handling mechanisms of the Fund and World Bank. "We've absolutely got to get a better system."
The IMF has vowed to improve its ability to spot a crisis in the making sooner, and to lend less money to countries whose positions are unsustainable.
The Chancellor was confident, however, that the world's richest countries would agree to make up the $1bn shortfall in the HIPC trust fund for debt relief for the world's poorest countries. Such a move would be a small step towards meeting a major grievance of aid groups and anti-globalisation activists.
But the rich countries did not escape blame. Nicholas Stern, the chief economist of the World Bank, said yesterday: "Improving market access for developing countries is one of the most important steps that the rich countries could take to help fight global poverty."
It was "hypocrisy" to encourage poor countries to open their markets while imposing protectionist measures that cater to powerful special interests, he said. "Rich countries should lead by example," Mr Stern said, in a reference to measures such as export subsidies and import tariffs adopted this year by the US to help its domestic farm and steel industries.
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