Credit tightening and market crisis top agenda

Business Materials 20 October 2007 04:19 (UTC +04:00)

Market risks arising out of the recent credit crisis and scope for reforms at the IMF and World Bank will dominate the agenda for this year's meetings, said IMF managing director Rodrigo de Rato.

De Rato said credit tightening and market turmoil over the summer will continue to have an impact for some time, but that the IMF does not expect growth to turn negative.

"Growth will decelerate, but certainly not in a dramatic way," he said, reminding the audience that the downside economic risks of the crisis are ever bigger than they were only a few months ago.

"The risks include the disorderly unwind of global trade imbalances, growing protectionism and higher oil prices. The current market turbulence also shows the risk of globalisation," de Rato said.

De Rato defended the IMF in the face of growing criticism from the world's developing and poor nations that the organisation has become more of a platform for the rich nations.

He rejected the suggestion that the IMF needs to find its relevancy, in the context that many developing nations have paid off their debts to it. De Rato said the IMF does not need a new role, but needs to evolve as the global situation evolves.

In comments relevant to GCC nations, the IMF managing director said that the sovereign wealth funds operated by many governments, especially by the oil exporting countries in the Middle East, are relevant international vehicles of investments and they have a key role to play in the international financial markets as far as global capital flows are concerned.

Regarding the transparency of these funds, De Rato echoed the views of the US administration and some G7 ministers.

"Sovereign wealth funds need to operate in a transparent way, so citizens of countries employing these funds know where their money is being invested," he said.

De Rato said the rise in oil prices has had little impact on global economic growth, particularly since the "energy intensity" of some countries has been reduced.

On the decline of the dollar, de Rato reiterated that the currency is likely to fall further as euro rises fully 'in line with its medium-term fundamentals. ( Gulf )