The United States delivered a stern warning to Russia Thursday at the World Bank/IMF meetings in Washington amid worries that a spiralling Ukraine crisis could hurt the world economy. Treasury secretary Jacob Lew told his Russian counterpart finance minister Anton Siluanov that in addition to the actions following last month’s annexation of Crimea, ‘the United States is prepared to impose additional significant sanctions on Russia if it continues to escalate the situation in Ukraine,’ the treasury said.
US president Barack Obama echoed the threat hours later in a phone call with German chancellor Angela Merkel, as tensions in Eastern Europe threatened to overshadow the World Bank/IMF meetings on broader global economic challenges.
World Bank president Jim Yong Kim warned that the crisis would have far-reaching effects on Russia, forcing it into recession this year.
‘This is a very serious issue for Russia — a very serious issue for its growth prospects,’ Kim told reporters. ‘So we simply urge all of the parties to continue with negotiations and find a peaceful means of moving forward.’
G7 finance ministers and Central Bank governors later met briefly, with Ukraine, ‘its financing needs and the international response,’ again high on the agenda.
The spring meetings of the two global finance institutions started with IMF managing director Christine Lagarde calling for bold action to prevent risks in advanced and emerging economies from undermining a ‘subdued’ global rebound from the economic crisis.
Lagarde said the Ukraine question, slower growth in emerging economies, the threat of deflation in the eurozone, financial sector vulnerabilities in the two leading economies and market turbulence generally are serious hurdles to extending the global recovery.
‘The global economy is turning the corner, but the recovery is still too weak and too slow… Bold actions are needed,’ she said.
‘For some, despite the fact that growth is strengthening, they’re not feeling it. We still have 200 million people unemployed.’
The IMF laid out a detailed policy agenda for its meetings with finance ministers and central bank chiefs from around the world.
Advanced economies need to be sure not to mishandle the shift from easy-money regimes set during the 2008 financial crisis, and the Fund warns that tightening too fast could derail their recovery and hurt growth in other countries.
China, the world’s number two economy, needs to deftly handle its non-banking credit bubble and the United States needs to address new risks in corporate debt, margin lending and leveraged finance, the IMF warns.
Japan, which was usurped by China, has to push through on the ‘third arrow’ of its turnaround — structural reforms — while emerging markets must re-do policies to adjust to a world of tighter capital.
Lagarde reiterated the IMF’s advice to the European Central Bank, urging it to quickly embark on operations to fend off deflation which could reverse Europe’s recovery.
While saying the IMF respects the ECB’s judgment, she urged it to act ‘sooner rather than later’.
The IMF has forecast global growth at 3.6 per cent this year, and 3.9 per cent next year. But Lagarde noted that the G20 group of economic powers in February observed that with the right policies, growth could be higher by two percentage points over the next half-decade.
‘That is the kind of growth trajectory that would help create jobs,’ she said.
In response, Nicolas Mombrial, of the anti-poverty group Oxfam, said the IMF needed a plan that would address another part of the picture — inequality.
‘There’s no trade-off between growth and inequality. There will be no inclusive growth if economic inequality remains out of control.’
Also creating friction at the meetings is Washington’s continued failure to formally endorse an IMF reform programme and funding hike originally decided in 2010.
Because the United States is the Fund’s largest stakeholder, Washington’s ratification is essential to pass the measure, which would give more voice in the Fund to emerging market economies while spreading the funding burden.
The G24 group of developing and emerging economies said that the holdup ‘represents a significant impediment to the credibility, legitimacy, and effectiveness of the Fund’ and blocks further reforms needed.
Lagarde said the IMF was suffering from years of fighting between US Democrats and Republicans.
‘For some reason we’ve been a bit of collateral damage of that perennial difference that we see’ between the two political parties.
-With New Age input
