Coun­tries must avoid pro­tec­tion­ist poli­cies at all costs: says IMF

Muscat Daily - - BUSINESS -

Wash­ing­ton, US - The In­ter­na­tional Mon­e­tary Fund (IMF) warned world lead­ers on Fri­day to avoid re­sort­ing to pro­tec­tion­ist mea­sures ‘at all costs’ due to the dam­age it would cause to their own and the global econ­omy.

At a time when US Pres­i­dent Don­ald Trump has re­peat­edly blamed trade for US eco­nomic woes, and threat­ened to im­pose bar­ri­ers to im­ports, the IMF said such poli­cies would not work.

In its sixth edi­tion of an an­nual re­port analysing im­bal­ances in the global econ­omy, the Wash­ing­ton-based fund said while to­tal trade and in­vest­ment im­bal­ances have nar­rowed since the cri­sis, there has been an in­creased buildup of ex­cess sur­pluses and deficits in ad­vanced economies.

About a third of the to­tal are con­sid­ered un­de­sir­ably large im­bal­ances, and coun­tries should put in place poli­cies to re­duce these, whether they are sur­pluses or deficits, the Ex­ter­nal Sec­tor Re­port urged.

But it is the deficit coun­tries most at risk of a ‘back­lash’ that could lead to anti-trade poli­cies, IMF re­search chief Luis Cubeddu told re­porters.

“A key point of the re­port is that pro­tec­tion­ist poli­cies should be avoided at all costs,” Cubeddu said.

Such poli­cies are ‘un­likely to mean­ing­fully ad­dress ex­ter­nal im­bal­ances and they would be ex­tremely harm­ful for do­mes­tic growth and global growth’, he added.

Even if there is a short-term im­pact on a coun­try’s trade deficit when a bar­rier is erected to im­ports, IMF re­search shows ‘global GDP losses in­crease with the du­ra­tion of pro­tec­tion­ist poli­cies, while the im­pact on global im­bal­ances lessens’ and cur­ren­cies ad­just to com­pen­sate.

The IMF in re­cent weeks has is­sued an­nual re­ports scru­ti­n­is­ing key economies in­clud­ing the United States and Ger­many, in which it rec­om­mended in­creased fo­cus on re­duc­ing the im­bal­ances.

And while the Trump ad­min­is­tra­tion has ac­cused Ger­many of tak­ing un­fair ad­van­tage of a rel­a­tively weaker euro cur­rency value to boost its ex­ports, Cubeddu said the IMF is ‘look­ing for ac­tions from both sides, not just coun­tries with sur­pluses’.

In Ger­many’s case, that means poli­cies to boost do­mes­tic con­sump­tion, and for the United States re­duc­ing the gov­ern­ment deficit and in­creas­ing pro­duc­tiv­ity through things like ed­u­ca­tion and in­fra­struc­ture in­vest­ment.

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