Wednesday, October 12, 2005


Economic and financial stability

Do nations still accept that "the world needs a strong and effective IMF as the principal multilateral institution responsible for international economic and financial stability"?

This is question one in last month's paper from the Institute for International Economics, referred to below.

The IIE's question is addressed here. Brad Setser suggests the IMF is impotent at present: "IMF efforts to get China to allow its exchange rate to appreciate significantly would have exactly as much impact over Chinese policy as IMF efforts to get the US to reduce its budget deficit. Zero."

Nevertheless, he thinks the IMF must be more aggressive if it is to have global credibility.

But other events are moving the focus. Today's FT reports that Hungary's "central bank. . . has blown the whistle on its own government's attempt to mask the country's deficit. So Hungary's estimated public deficit for this year has now been revised sharply upwards from 3.6 to 6.1 per cent of gross domestic product."

Protect the independence of central banks? Difficult, but it's a way forward for economic stability in the global economy.
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