By Joel Havemann
The Los Angeles Times
Thursday 20 April 2006
Source Bush officials are less than pleased with the global organization's economic outlook.Washington - Clearly irritating U.S. economic officials, the International Monetary Fund faulted the United States on Wednesday for its budget and trade deficits and its failure to provide universal health insurance, predicting that the dollar would inevitably decline in value against the world's other currencies.
In its semiannual report on the world economic outlook, the IMF painted a generally rosy picture, with the global economy growing by 4.9% in 2006.
But the IMF, which was established in 1944 to come to the aid of distressed national economies, said "global imbalances" loomed as risks to that scenario. Among the imbalances, it singled out U.S. budget and trade deficits.
U.S. officials generally declined to get into an argument with the IMF. But Timothy D. Adams, undersecretary of the Treasury for international affairs, defended the administration's budget policy, saying it was in line with the rest of the world's, and he blamed other countries, particularly China, for America's large - and growing - trade deficit.
The IMF forecast a considerably more robust global economy than it did six months ago, with global economic growth running 0.6 percentage points ahead of the 4.3% it estimated in September. China, with projected growth of 9.5%, and India, with 7.3%, led the way.
Almost uniformly, the IMF forecast above-average growth for developing economies and below-average growth for the industrial world. The United States, with a projected 3.4% growth, was the leader among the seven largest industrial economies.
Raghuram G. Rajan, the IMF's economic counselor, said the bright outlook provided ideal conditions for addressing the world's looming economic risks. Instead, he said, political leaders were taking the easy way out by putting off dealing with economic problems that, if allowed to fester, would become more acute.
"If progress cannot be made now," the IMF said in its economic outlook, "it will surely be even more difficult later on."
The world's greatest economic imbalance is in trade. The current U.S. account deficit, which measures the flow of goods, services and investments, has grown in nine of the last 10 years - from $114 billion in 1995 to $805 billion last year. Other countries, notably China, have developed gigantic surpluses, and their economies depend on the U.S. market to buy what they produce.
The United States blames China for keeping the value of its currency, the yuan, artificially low, making its products cheaper in the United States than they would be if China allowed currency markets to set the value.
China's president, Hu Jintao, visiting Seattle on Wednesday, said at a Boeing plant in suburban Everett, Wash., that China would not let its currency float on world markets.
"Our goal is to keep the … exchange rate basically stable at adaptive and equilibrium levels," Hu said.
Rajan said the law of supply and demand dictated that the rapid accumulation of dollars abroad would eventually push the dollar's value down. "That is just plain, simple economics," he told reporters.
To prevent a sharp decline in the dollar, he prescribed greater savings in the United States, which is not only running record federal budget deficits but is spending more than it earns at the household level. He also called for greater flexibility by China toward its currency's value and pumped-up consumer spending in China, Japan and Europe.
Addressing the U.S. budget outlook, the IMF report described the Bush administration's goal of cutting the 2004 deficit in half by 2009 as "unambitious."
Rajan said the world economy would benefit more if the United States could reduce its deficit to zero by 2010, in anticipation of the pressure that Social Security, Medicare and other programs for the elderly will put on spending as the baby boom generation retires.
Adams, speaking at a news briefing, said balancing the budget would depress U.S. economic growth and damage all the countries whose economies depended on the U.S. market. "Anything more aggressive [than cutting the deficit in half] puts global growth in peril," he said.
Rajan said the United States should guarantee health insurance to all Americans as a way of stabilizing its workforce.
Adams, all but saying that Rajan should mind his own business, said health insurance in individual nations should not be high on the IMF's agenda.
He said the United States would advocate "fundamental reform" of the IMF at this weekend's annual meetings of officials from the IMF and the World Bank.