World

Trump rule poses new challenge for IMF

WASHINGTON: The International Monetary Fund (IMF) is no stranger to financial crises and policy disputes, but it now faces a new challenge: A US administration opposed to its most important positions.

With its 189 members due to meet in Washington this week, there has been no shortage of divergences with the White House.

The Trump administration has vowed to dismantle much of the financial regulation put in place after the 2008 financial crisis. But the IMF warns darkly that excessive deregulation could "increase the likelihood" of another meltdown.

The IMF warns of the economic dangers of climate change. But the White House casts doubt on its existence and seeks to revive the coal industry while threatening to withdraw from the 2015 Paris Agreement on emissions.

GLOBAL TRADE

It is nevertheless the volatile question of global trade that holds the greatest potential for friction between the IMF and its largest shareholder.

The IMF has repeatedly warned about the dangers of "inward-looking" protectionist measures.

It is hard to see this as anything but an implicit counter-argument to US President Donald Trump, who has vowed to raise trade barriers and restrict immigration, and on Tuesday signed an executive action to promote US firms over foreign ones in federal contract awards.

The IMF has so far escaped the President's barbs. Not so in the case of the US Commerce Secretary.

"Every time we do anything to defend ourselves... they call that protectionism," Mr Wilbur Ross told The Financial Times. "It's rubbish."

Washington, meanwhile, is calling on the IMF to pay closer attention to member countries' efforts to affect currency exchange rates and other imbalances, particularly in trade, that harm the United States.

For now, the IMF is holding its anti-protectionist line but also striking a conciliatory tone by hailing Mr Trump's plans to invest in infrastructure and cut corporate taxes.

"As a result of an expected US fiscal stimulus and an expected tax reform, there has been optimism, some unleashing of 'animal spirits,'" IMF managing director Christine Lagarde said.

Just before Mr Trump took office, the IMF also revised its US growth forecasts upwards, expecting 2.3 per cent growth this year. It reaffirmed this figure in an outlook published on Tuesday despite what it said was uncertainty surrounding future US economic policies.

The IMF is faced with a delicate balancing act: maintaining its independence without alienating its financial backer.

The US does not have the legal means to cut off the IMF's livelihood. But it can make things difficult by slowing the IMF's efforts to become more active on social and environmental issues and to give greater weight to China or Russia. The thorny case of Greece could also be affected. - AFP

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