Finger-pointing doesn't help rectify imbalance
2005-04-18 05:56
After the global GDP soared by 5.1 per cent last year, according to the latest International Monetary Fund (IMF) report, it is time to examine what stands in the way of future robust growth of the world economy.
The weekend meetings of the IMF and the World Bank in Washington offered a platform to sort out what we need to do to propel the global economy.
Yet loud voices from some rich countries blaming other countries have undermined the chance to reach a consensus on identifying the challenges, not to mention the odds of taking action on such challenges.
Rocketing oil prices are an obvious cause for concern and the international community is justified in being worried about the impact they have made and will continue to exert upon the world economy.
In a recent forecast about global growth this year, the IMF attributed one-third of the 0.8-percentage-point reduction in global GDP growth to higher oil prices.
However, more expensive oil was rather a consequence of robust global economic growth than a root cause of the difficulties facing the world economy.
The fundamental problem in the global financial system, as more and more people recognize, lies in the huge US trade and budget deficits.
As the world's largest economy, any serious fluctuation in the United States rocks the boat more vehemently than any other country does. If the United States keeps turning a blind eye to its twin deficits or rushes too quickly to fix them, the outcome could be serious.
Last week, fears that the world's biggest economy might be entering a new soft patch sent Wall Street to a new low for the year while pulling down other major stock markets around the world.
Obviously, no one would like to see the US economy stop humming when the world needs to cement growth momentum.
Nevertheless, instead of looking seriously at these problems subject to domestic policies, some US politicians are pointing the finger at other countries, China in particular.
A recent vote by the US Senate to consider imposing a 27.5 per cent tariff on all Chinese imports was telling evidence. It betrayed not only ignorance of the global economy but also a reluctance to tackle thorny domestic problems at the expense of political capital.
Flying in the face of China's trade deficits with much of the rest of the world, the United States insisted that the bilateral trade surplus China registered resulted from the advantage of a manipulated currency.
In fact, the outdated restrictive controls of high-tech US exports to China have contributed significantly to the widening trade gap between the two countries.
More importantly, many foreign companies have moved their manufacturing bases to China with the United States as the target market.
It is the accelerated integration of China into the global production system that helps render the country a major locomotive underpinning the world's solid growth in recent years.
Top Chinese leaders have repeated many times that the country is resolved to introduce more flexibility in exchange rates. Numerous steps have been taken over the last few years to prepare for this.
Mounting foreign exchange reserves also add to a sense of urgency. The country's foreign exchanges reached US$659.1 billion by the end of March this year, up 49.9 per cent on the same period of last year. Such a fast expanding reserve has been a drag on China's monetary policy.
Chinese policy-makers have been weighing carefully the timing and approach to this critical reform in line with both domestic and international economic conditions.
Pressurizing China will be futile, if not even complicating the situation.
Worse, it will distract the United States from attending to the domestic causes of its problems.
Thus, to correct the emerging imbalance in the world economy, it is vital each country shoulders its responsibility given their actual economic positions.
(China Daily 04/18/2005 page6)
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