The Washington-based Institute of International Finance says the greatest risk to global growth could be a disorderly unwinding of global imbalances. The principal imbalance is the $700 billion U.S. trade deficit and corresponding surplU.S.es in Japan and China that exceed $300 billion. Experts generally say that currency revaluations in Asia combined with a U.S. dollar devaluation is the preferred method of adjustment.
Institute chief economist Yosuki Horiguchi describes what he calls a nasty unwinding scenario that could be triggered by a U.S. growth and import slowdown. [in that case] "Emerging markets (especially China and developing country Asia) will have a higher interest rate, lower export growth and lower growth, which are not very nice. And when you combine all of them you can see the dynamic impact," [of this unwinding].
The finance institute wants the International Monetary Fund to create a fast disbursing credit line that could be U.S.ed by developing countries that experience sudden financial crises. Institute director Charles Dallara says such a financing facility would make the IMF more relevant.
"This is probably central to a restoration of IMF effectiveness. And I think the IMF has it clearly within its capability-with strong support from its members-to be the standards setter [for the world economy]," he said.
The IMF and the World Bank hold their semi-annual policy setting meetings here in Washington on Saturday and Sunday.