A global association of commercial banks warned Tuesday that the unwinding of the global imbalances of huge trade surplU.S.es in Asia and even bigger deficits in the United States could be negative for the world economy.
The Washington-based Institute of International Finance says the greatest risk to global growth could be a disorderly unwinding of global imbalances. The principal imbalance is the $700 billion U.S. trade deficit and corresponding surplU.S.es in Japan and China that exceed $300 billion. Experts generally say that currency revaluations in Asia combined with a U.S. dollar devaluation is the preferred method of adjustment.
Institute chief economist Yosuki Horiguchi describes what he calls a nasty unwinding scenario that could be triggered by a U.S. growth and import slowdown. [in that case] "Emerging markets (especially China and developing country Asia) will have a higher interest rate, lower export growth and lower growth, which are not very nice. And when you combine all of them you can see the dynamic impact," [of this unwinding].
The finance institute wants the International Monetary Fund to create a fast disbursing credit line that could be U.S.ed by developing countries that experience sudden financial crises. Institute director Charles Dallara says such a financing facility would make the IMF more relevant.
"This is probably central to a restoration of IMF effectiveness. And I think the IMF has it clearly within its capability-with strong support from its members-to be the standards setter [for the world economy]," he said.
The IMF and the World Bank hold their semi-annual policy setting meetings here in Washington on Saturday and Sunday.