Divisions appeared within the International Monetary Fund (IMF) at the weekend as it emerged that four members of the 24-strong board refused to approve its controversial $12,55-billion bailout of Argentina.
News that the three-year rescue deal did not have unanimous support came amid forecasts at the IMF and World Bank meetings of a recovery in the global economy.
Senior finance figures, however, warned that approval of the Argentine package, designed to shore up confidence in the country that last year defaulted on $90-billion of debts, may increase the risk of other states overstretching themselves in the belief that they will be bailed out.
A senior G7 official described the bailout as ”deeply disappointing”, adding ”it’s a mess, frankly”.
Concerns about the bailout, approved on Saturday, centre on the fact that Argentina has fulfilled only one of the four criteria laid down by the IMF for rescue. There has also as yet been little movement in negotiations to restructure the country’s outstanding bank debt.
The worry is that other countries will increase their borrowings in the belief that the IMF is the equivalent of a global piggy bank. Any increase in interest rates could create a rash of financing problems, one official in Dubai warned.
Predictions for the global economy as a whole were generally positive at the weekend meetings.
Speaking after a session of the international monetary and financial committee, IMF managing director Horst Köhler said: ”This was a very successful meeting, successful because we got a better understanding of where we stand in the global economy, and that understanding is that there is a good prospect of a recovery and that the recovery will lead to sustained growth.”
With this positive assessment came a wider acceptance that structural reform is needed, he added. Countries now accept that ”we are now sitting in one boat and structural reforms are in the interests of all”.
On Saturday finance ministers and central bank governors from the G7 announced a wide-ranging action plan to boost growth, including legal reform in the United States and changes to the pensions market in Germany.
The chancellor, Gordon Brown, said his pre-budget report would include details of what Britain intends to do as part of this ”agenda for growth”, such as introducing reform of the labour market.
”If we do not address the structural economic reform agenda, then the potential for long-term growth in Europe is less than it should be — and all economies and the whole world suffers.
”In all the years that I have been coming to G7 meetings we have never had an agreement like this that concentrates on structural reform.”
The G7 meeting was also used by US treasury secretary John Snow for some domestic grandstanding designed to obscure his failure to secure any meaningful pledge from the Chinese authorities to float their currency during his recent flying visit to Beijing.
American officials blame the low level of the yuan for a flood of cheap Chinese goods which has seen US exports drop and its trade gap widen. — Guardian Unlimited Â