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Protectionism would hamper growth: IMF
April 26, 2004 12:18 IST
Amid the outcry in the US over outsourcing of jobs, the International Monetary Fund has said the worldwide slide back to protectionism would harm prospects for economic growth in all countries and could undermine what has already been achieved.
Voicing its concern over recent anti-outsourcing protests, especially in countries like the US, IMF acting managing director Anne Krueger said, "It would be a setback nobody wants to contemplate."
"In completing the Doha Round, countries must not lower their sights in striving for an ambitious agreement. A weaker multilateral agenda risks further boosting regional and bilateral initiatives which, over time, can fragment the global trading system and reduce its transparency," she said addressing the spring meeting of International Monetary and Financial Committee in Washington.
She said the continued huge US current account deficit -- now matched by a fiscal deficit of similar size -- and surplus elsewhere, notably in Asia, "remains a serious concern."
Global interest rates are very low and will have to rise eventually, but the timing and speed of future moves remain subject to considerable uncertainty, she said, adding the medium-term fiscal positions across the globe remain very difficult.
Finally, while the Doha Round of trade negotiations appear to be regaining some momentum, differences among the negotiating parties remain large, and there are risks of further delay, which may disappoint expectations of healthy and sustained medium-term growth in global trade," she said.
On the emergence of Asia as an economic giant, Krueger said, "The strong growth momentum has been underpinned by accommodative macroeconomic policies, competitive exchange rates and recovery in the global IT sector.
"Rapid growth in China has provided important support to activity in countries within and outside the region, while GDP growth in India has also exceeded expectations, aided by favourable rainfall and low domestic interest rates."
Looking forward, she said, "There is the risk that further substantial reserve accumulation could exacerbate inflationary pressures in countries with the strongest cyclical upturns. "In China, rapid growth of credit and of investment remains a particular concern."
Addressing the committee, US Treasury Secretary John Snow urged the IMF to "stand ready to provide financial assistance to its poor country members with balance of payment needs."
But, he said, "Where assistance is required for ongoing development needs, that assistance should come from the development banks and bilateral donors, not the IMF."
"The IMF should marshal grants to support strong performers and to assist those facing macroeconomic setbacks. On the other hand, low-income countries with strong fundamentals in place should move beyond PRGF (Poverty Reduction Growth Facility) borrowing and look instead to non-borrowing engagement."
He said the IMF needs to play a greater role in ensuring that lending to poor countries, includingconcessional lending, does not exceed the country's capacity to repay. The IMF should be clear when additional grants or increased concessions are required.