-->IMF Says Japan, Germany Must Help U.S. Boost Growth
By Mark Drajem
Washington, Sept. 24 (Bloomberg) -- The U.S. economy, beset with corporate scandals, a rising budget deficit and an overvalued dollar, needs help from Europe and Japan to power a world economic recovery, the International Monetary Fund's top official said.
Horst Koehler, the IMF's managing director, said that help won't come unless Japan and Germany tackle their biggest obstacles to growth: Japan's lenders have to shed bad loans, and Germany must make it easier for companies to hire and fire workers.
``If the recovery were to stall in the U.S. then we'd have a problem,'' Koehler said in an interview last night in Washington. ``Rich governments must work on confidence building. If this happens, then growth will pick up.''
Koehler said the dollar is overvalued and that an ``orderly depreciation'' would help the economy. He voiced skepticism about a plan by the Bank of Japan to buy some of the $200 billion in shares held by banks to help them avert losses from falling stock prices. And he said there's no sign that deflation is spreading.
``We certainly have deflation in Japan, but I don't see it yet in the global economy and the big regions, the U.S. and Europe,'' he said.
Lower Forecast Seen
Koehler spoke two days before the IMF releases its World Economic Outlook, in which the fund has signaled it will lower its growth forecast for the coming year. His comments underscore the risks facing the economy as the finance ministers and central bankers from the IMF's 184 member states travel to Washington for the fund's annual meetings this weekend.
Economic growth among 30 of the world's most industrialized nations slowed to 0.5 percent in the second three months of the year because of the slowdown in the U.S. economy, the Organization for Economic Cooperation and Development said last week. The U.S. economy expanded 0.3 percent in April through June, a quarter of the pace of the previous three months.
The Conference Board said today that U.S. consumer confidence fell to a 10-month low in September damaged by the decline in the stock market and a feeble job market.
Argentina
The slowdown in the industrialized world is having a crippling effect on emerging market nations, whose economies are the main focus of the IMF's annual meetings because their governments borrow from the fund.
Argentina is struggling to emerge from its $95 billion default in December, the largest failure in history. Brazil's markets have barely responded to the IMF's promise of $30 billion in loans, the biggest aid package the fund has ever pledged.
Koehler said the IMF is trying to reach an interim agreement with the administration of Argentine President Eduardo Duhalde to tide the country over until elections in March. Even a stopgap accord won't be easy because of the ``disarray'' in the Argentine political system, he said.
``Nearly every day has new surprises or initiatives'' by the congress or the courts in Argentina, he said.
He said Brazil's failure to inspire confidence among investors wasn't surprising since markets are jittery because of the presidential election next month. Still, South America's largest economy is strong enough to avoid a default, he said.
U.S. Shocks
Koehler praised the U.S. economy for its flexibility in responding to shocks in the past year. Still, he said the dollar needs to decline in value, although without central banks trying to manipulate the price of the currency, or the yen and euro.
``An orderly depreciation of the dollar is nothing which should concern us,'' Koehler said. ``In a situation like now where there is not a particular concern of disorderly development, then intervention will not work. It's misleading.''
With the independent U.S. Congressional Budget Office last month predicting a budget deficit of $157 billion in this fiscal year, Koehler called for spending cuts by U.S. policy makers to make sure those deficits don't become chronic.
U.S. Treasury Secretary Paul O'Neill echoed his view in a speech today. ``Overspending in Washington burdens our economy with higher debts and taxes,'' O'Neill said. ``Wasteful spending'' must be avoided, he said.
Japan's `Unusual' Decision
The risks facing the world's largest economy mean that other countries must improve their efforts to drive the world economy.
In Japan, Koehler, who visited Tokyo earlier this month, labeled ``unusual'' the central bank move last week to buy stocks held by Mizuho Holdings Inc., UFJ Holdings Inc. and other banks after the Nikkei 225 stock average slid to a 19-year low this month.
He said the plan would only work if it's part of a comprehensive program to clean up the banks' bad loans.
The plan may briefly boost equity markets ``but if there is not the perception of fundamental improvement in the financial sector then this decision may be seen as very temporary,'' Koehler said. ``They need to tackle the underlying problems.''
Even with new measures on the banks, Japan's economy is in no position to take off.
``I can't see a strong recovery,'' Koehler said. ``At least for another year or two, (there will be) anemic growth.''
Up to Schroeder
Europe is also struggling.
``Germany, France and Italy are behind on reforms, and if they are not going to improve then I see more difficulties,'' said Koehler, a former German finance ministry official.
German Chancellor Gerhard Schroeder, who won a second term Sunday, now has to tackle the issues that almost lost him the election: rising unemployment and a faltering economy, he said. ``The German economy is weak,'' said Koehler. ``I hope the new government as soon as possible takes the appropriate action because that is crucial all over Europe.''
Koehler, who had pushed the European Central Bank to cut interest rates in early 2001, said it was not time for the central bank to reduce rates again now.
``There is still the higher probability the recovery will continue,'' he said. ``The ECB will be mature enough to assess the whole situation, including the prospect for stability to take a decision at the appropriate time.''
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und nochmals: if panic, panic first!
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