The International Monetary Fund (IMF) and the World Bank warned on Friday that the global economic recovery might falter as complacent policymakers lost their will to cooperate.
“The danger today is no longer, fortunately, one of a collapsing world economy,” World Bank President Robert Zoellick told a news conference. “The danger today is one of complacency. There will be a natural tendency to return to business as usual, and it will become harder to convince countries to cooperate in order to address many of the problems that led to this crisis, that put millions of livelihoods of people at risk.”
IMF Managing Director Dominique Strauss-Kahn, speaking as top financial officials from across the globe arrived in Istanbul for semiannual IMF and World Bank meetings, also used the word “complacency” in describing the risk of policy errors. The warnings by both the world’s premier multilateral lending organisations reflected concern that governments might not make the difficult policy choices and compromises needed to tackle the root causes of the financial crisis. But there are signs that as the recovery of the global financial system reduces the urgency of such reforms, the political will to press them is fading among many governments.
The European Central bank urged the European Union on Thursday to start withdrawing fiscal stimulus in 2011 at the latest, but the region’s finance ministers were noncommittal. The Norwegian central bank said on Wednesday that its interest rates might soon start rising.
“Each nation’s own pace of economic recovery and financial sector repair, as well as their available policy space, will matter,” Strauss-Kahn said.
“However, I do consider it important for countries to adopt common principles for the unwinding of crisis-related support measures.”
Asked about the idea of placing a “Tobin tax” on financial transactions to curb excessive risk-taking, Strauss-Kahn said a “simplistic” tax would not be a good idea.