IMF warns countries to work together or face wars

Strauss-Kahn tells ministers and bankers that their failure to co-operate threatens global stability

Sean O'Grady
Sunday 10 October 2010 00:00 BST

The world's central bankers and finance ministers left the IMF conference in Washington having failed to reach an accord on the most urgent problems facing the global economy.

And they went with a bleak warning ringing in their ears: that their failure represents a threat to democracy and international peace.

In a sharp escalation of the rhetoric that Dominique Strauss-Kahn, the IMF's managing director, has used to try to persuade the US, China and other economic powers to work together, he declared: "During this crisis, the global economy lost about 30 million jobs. On top of that, in the coming decades, 450 million people are going to enter the labour market, so we really face the risk of a lost generation.

"When you lose your job, your health is likely to be worse. When you lose your job, the education of your children is likely to be worse. When you lose your job, social stability is likely to be worse, with a threat to democracy and even peace."

With talk of "currency wars" heatting up, the fund failed to reach agreement on the most fundamental currency misalignment, that between the undervalued Chinese yuan and the US dollar. Defying calls from America to allow the yuan to be moved up to help US exporters, the governor of the People's Bank of China, Zhou Xiaochuan, said that it was not prepared to risk "disaster" by revaluing the currency. "China's exchange-rate policy is based on the market supply and demand relation to move gradually to the equilibrium point. We do that in a gradual way, rather than a shock therapy," he said.

Mr Zhou said policymakers will conduct a "careful review". But few in the West place much hope on the Chinese altering their policy substantially, and fears are growing that the US response to such intransigence will be tariffs, which in turn could trigger a renewed wave of global protectionism. The US House of Representatives has already passed laws to allow firms to impose import duties.

Progress on securing reform of the IMF's governance – granting a louder voice to emerging economies such as Brazil, India and China – has also proved painfully slow. As so often with IMF conferences, many decisions have been deferred to the G20 summit in Seoul in a fortnight, though even the presence there of leaders such as President Barack Obama and Chinese Premier Wen Jiabao, seems unlikely to break the log jam. The so-called "global imbalances" which caused the financial crisis and the subsequent recession – the deepest in three quarters of a century – remain almost as acute as in the boom years.

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