Latest update: 23/04/2010
- banking - financial crisis - IMF - taxes
IMF chief calls for coordinated reform ahead of G20 summit
International Monetary Fund chief Dominique Strauss-Kahn urged member countries to work together to reform the financial sector ahead of a G20 meeting in Washington on Friday, warning that acting separately could be counterproductive.
By NEWS WIRES (text)
REUTERS - The IMF sought to maintain unity within the Group of 20 economic powers on Thursday, urging countries not to go separate ways in reforming the financial sector, as frictions emerged over a controversial plan to tax banks.
At the start of four days of meetings in Washington, International Monetary Fund chief Dominique Strauss-Kahn said countries need to ensure they are moving in the same direction on regulatory reform if they are to curb the risky practices blamed for the global financial crisis.
"Our main concern is to have everyone working together and to maintain the cooperation momentum," he said.
Finance ministers and central bankers will assess progress toward repairing recession-torn economies and building a more stable platform for growth, there were signs of divisions, particularly between countries hard hit by the banking troubles and those that largely escaped the pain.
The IMF this week proposed two new taxes on banks to help prevent a repeat of the kind of risk-taking that contributed to the global credit crisis. Britain and other countries welcomed the idea, but Canada is firmly opposed to such a tax.
"We're a sovereign country," said Canadian Finance Minister Jim Flaherty.
"We can regulate our banks and our other financial institutions as we see fit. As the finance minister of Canada, I'm not going to impose a tax on our banks that performed well during the financial crisis. It seems to me a very odd thing to do."
G20 finance ministers are expected to discuss the IMF's bank tax proposals on Friday, and a final report will be presented at June meetings of G20 heads of state in Toronto.
Strauss-Kahn also urged the G20 to cooperate on measures to rebalance the global economy so that huge surpluses in countries such as China and massive deficits across the rich world don't trigger another crisis.
The IMF has grown more vocal this week in calling for rich countries to allow their currencies to weaken while China's yuan strengthens, but the G20 has said little about foreign exchange matters.
The IMF has been careful not to lay all of the blame on China, saying that advanced countries need to let their currencies, the euro and dollar, weaken to promote exports.
Strauss-Kahn said while it was in the interest of China's economy to allow its currency to rise, he did not expect Beijing to revalue the yuan overnight.
He expects China to "contemplate over time some revaluation of the currency."
He said rebalancing the global economy should be a global effort and not only a discussion between two countries.
The IMF and World Bank face their own rebalancing act as they try to reallocate internal voting power to give major emerging economies greater representation. World Bank President Robert Zoellick urged member countries to put aside differences over how votes ought to be split and reach an equitable deal.
No silver bullet for greece
While the financial crisis has waned, policymakers are now intensely focused on sovereign debt as Greece's troubles intensify and threaten to spill over into other European countries, such as Portugal.
With an IMF mission currently in Athens, Strauss-Kahn said the talks over rescue plans for Greece will take "some days." He said an upward revision in Greece's budget deficit "doesn't help."
He said, "If the problem has to start a little worse than we expected, we will take that into account, that will be part of the discussion we have with Greek authorities in the coming days," he said. "There is no silver bullet to solve it in an easy manner."
Asked whether he was concerned about sovereign debt among countries in the euro zone, the former French economy minister said there were other countries where debt was much larger.
"The sovereign debt in the euro zone taken as a whole is rather lower than in many other parts of the world, so if you consider the euro zone as a whole it has no specific problem with debt," he said.
Moody's Investors Service cut Greece's sovereign debt to A3 on Thursday and said it was likely to reduce the rating further unless the deficit-burdened government was able to restore market confidence.
For now, he said, he did not expect other countries in the euro zone to need IMF help. "We don't see a need these days to focus on any other countries but Greece," Strauss-Kahn added.