Is IMF power of persuasion enough for G20?

By Lesley Wroughton - Analysis

PITTSBURGH (Reuters) - The International Monetary Fund will have to call on all its powers of persuasion to steer the world's heavyweight economies toward their goal of more balanced global growth.

The IMF is keenly aware of its failure in 2006 to get exporters like China to increase demand at home and slower-growing economies like the United States to save more.

The following year, the start of the financial meltdown underscored how interwoven the global system is and the increased role of emerging economies powers like China.

Last week, leaders from the Group of 20 rich and developing nations agreed at a summit in Pittsburgh that the group would take over from the rich country G7 as the premier forum for coordinating economic policies.

Officials stressed that the G20 could not tell countries how to run their economies.

Instead, it will assess national economic policies and rely on a new process of peer review.

Under the plan, the IMF will forecast the impact of policies and report back to the G20 with suggested changes.

However, big countries have not always listened to the IMF's advice and there's no guarantee they will this time.

The United States ignored the Fund's warnings about its housing sector in 2007, shortly before a property collapse that triggered the global credit crisis.

World Bank President Robert Zoellick said on Sunday the G20 leaders made a "good start" toward increased global cooperation but added: "Peer review will need to be peer pressure.

IMF officials acknowledge their big challenge will be to provide analysis strong enough to convince countries to adjust policies, even if the changes are politically unpalatable.

IMF Managing Director Dominique Strauss-Kahn was dismissive when a reporter at the summit last week suggested that the IMF might not be able to push for the G20 rebalancing goals.

"We can't? Why? As far as economic questions are concerned, my belief is that you have to convince people," he said, recalling how the Fund was quick to call on governments to fight the growing credit crisis with huge spending plans.

The injection of nearly $5 trillion helped prevent the recession from turning into a global depression.

"We had no regulatory or legal tool to oblige countries to implement the stimulus but it was the right policy to follow and everyone understood it, so that is the real role of the IMF," Strauss-Kahn said.