- The International Monetary Fund yesterday warned that
the colossal United States trade deficit was a noose around the neck of
the economy, emphasising that the once mighty dollar could collapse at
any moment.
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- Arguing that the world's big economies were already too
dependent on the willingness of American consumers to live beyond their
means, the IMF said the US could not continue to run a current account
deficit of 5% of GDP.
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- The IMF's chief economist Kenneth Rogoff said that it
was just a matter of time before the gap closed, tipping the dollar into
a potentially steep fall.
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- "If we were looking at a poor developing country,
the world gives them just enough rope to hang themselves. A country like
the United States, they give them enough rope to tie the noose around their
neck several times. But it does happen in the end," he said.
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- In its twice yearly report on the world economy, the
Fund warns that even a controlled slide in the dollar's value is likely
to slow US growth and unless other countries picked up the slack, the global
economy would suffer.
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- Mr Rogoff said the collapse of world trade talks last
weekend in Cancun could spell disaster for a global economy already too
dependent on unbalanced growth in the US. Describing the breakdown as a
"tragedy", he said global poverty would rise if protectionism
took root in the world's biggest economies.
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- Wars in Iraq and Afghanistan and heightened geopolitical
tensions worldwide after the September 11 attacks on the US would "unquestionably"
hold back growth in the decades ahead, Mr Rogoff told reporters.
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- The report was highly critical of Europe's stagnating
economies, blaming governments for failing to embrace deep structural reforms
of their labour markets and welfare states.
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- "Reforms to improve the competitiveness of European
labour and product markets could yield significant dividends in terms of
regional output," the report said.
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- It also warned that an overrigid application of Europe's
fiscal rulebook could push the eurozone deeper into trouble.
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- Chancellor Gordon Brown echoed the IMF's criticisms of
the eurozone in an article in yesterday's Wall Street Journal, arguing
that the credibility of Europe was at stake.
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- Demanding wide-ranging change to policies "that
have held back our continent for too long", Mr Brown added: "Reform
is not just desirable, it is an urgent necessity."
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- The chancellor said: "Having created a single market
in theory, we should make it work in reality - and help it spread competition,
cut prices, increase consumer choice and deliver higher productivity."
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- The impact of the stalled trade talks in Mexico on the
fragile global recovery will dominate this weekend's annual meeting of
the IMF and the World Bank in Dubai.
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- Mervyn King, the governor of the Bank of England, said
yesterday: "The failure of the talks in Cancun will cast something
of a cloud over the meeting.
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- "That is not a happy background in which to assess
the durability of the recovery."
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- Misalignments between the world's biggest currencies
are also likely to feature on the agenda, with the US hoping other countries
will support its campaign to get China to strengthen its currency, the
yuan.
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- Following an upgrading of its growth prospects by the
fund, the US is expected to expand by 2.6% this year, the fastest of the
big seven economies.
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- Guardian Unlimited © Guardian Newspapers Limited
2003
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- http://www.guardian.co.uk/usa/story/0,12271,1045369,00.html
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