BUSAN, South Korea, June 5 (Reuters) - The International Monetary Fund believes global growth will be hurt if the Group of 20 rich and developing economies fail to coordinate efforts to rebalance global demand, an IMF official said on Saturday.
But coordinated adoption of policies to encourage savings and cut budget deficits in wealthy countries like the United States and to spur domestic demand in developing economies like China could boost growth substantially.
An IMF report presented at the G20 finance ministers and central bank governors meeting here estimates that coherent adoption of the adjustment policies could increase global growth by as much as 2.5 percent annually over a medium-term five year period.
“The result would be a substantial increase in employment — tens of millions of jobs created additional to what would be the case without these policy moves,” the IMF official told a background briefing.
Last September, the G20 leaders pledged to take steps to rebalance global growth to eliminate huge trade surpluses in Asia and a massive buildup of debt in wealthier countries. They asked the IMF to study effects of differing speeds of implementing such policies.
It found that if the wealthy countries cut deficits and increased savings without complementary actions by developing export-oriented economies to boost domestic demand, short term growth would be cut for both. The wealthy countries would see more growth in the longer term as a result of an improved fiscal footing, but the developing countries would see lower growth in both the short term and long term.
The paper was one of three presented by the IMF to G20 meetings in the South Korean port city of Busan. In a final draft of its study of bank taxes to pay for bailouts, it recommended that financial institutions pay levies similar to insurance premia.
These would be based on risk-weighted liabilities. “The more risk you create, the more you should pay,” the official said.
The IMF favours collecting the levies before a financial crisis hits because this would spread costs of banking failures evenly — to both survivors and failed institutions. An alternative
The bank tax recommendations, however, may fall on deaf ears, as there was little agreement at Busan on bank levies, with some countries steadfastly against them, and differing views on their methods. The final communique by the ministers made reference bank levies.
The IMF’s other briefing paper reaffirmed its global economic forecasts issued in April, which predicted global economic growth at 4.2 percent for 2010.
The IMF official said the financial turbulence emanating from Europe has “added to the realism of the downside risks that were already described in the World Economic Outlook.” (Reporting by David Lawder, editing by Jonathan Thatcher)