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IMF focus on US-Europe recovery

world Updated: Oct 10, 2012 23:37 IST

There is a wait-and-see approach among top officials the IMF. Wait and see what happens next in Europe and wait and see how the US tackles its so-called fiscal cliff.

Optimists at the top of the organisation believe an agreement on closer co-operation and debt sharing in Europe, alongside a congressional deal in the US to limit the impact of tax rises and spending cuts due in January, is possible and will put the world economy back on a path to growth and recovery.

Olivier Blanchard, the IMF's chief economist, singled out Europe and the US for criticism during the conference in Tokyo, though as an optimist, he said there were signs that both were edging towards deals that would end the current uncertainty.

The focus on Europe and the US is understandable. Despite talk of a globalised world, the crux of the dilemma faced by the US-based bank is that without growth in Europe and the US, every other country suffers.

China is the prime loser from a slowdown in the west for the simple reason that it remains dependent on exports. While it has made efforts to develop a more rounded economy and bigger welfare state, Beijing depends on foreign buyers for its income.

Yet the debts run up by Europe and the US since the financial crash leave them in a position where conventional wisdom says they must favour government spending cuts over measures to spur growth.

IMF is unrepentant in its view that governments cut spending even though, for the worst hit nations like Britain, there is a direct impact on growth.

Aid for emerging economies
Finding ways to boost the global economy and helping poor nations fend off financial shocks will be on the agenda of the IMF and World Bank meetings. Tokyo meetings were supposed to usher in governance reforms passed two years ago, amid calls from emerging nations, including India, for a greater say in the IMF's affairs.