I.M.F. warns wealthy nations on debt

The global economic crisis has left “deep
scars” in the fiscal balances of the world’s advanced economies, which should
begin to rein in spending next year as the recovery continues the No.2 official
at the International Monetary Fund said Sunday in Beijing.

In a speech at
the China Development Forum in Beijing, the I.M.F. official, John Lipsky, who
is the deputy managing director, offered a grim prognosis for the world’s
wealthiest countries, which are at a level of indebtedness not seen since the
aftermath of World War II.

For the United
States, “a higher public savings rate will be required to ensure long-term
fiscal sustainability,” Mr. Lipsky said.

The United
States and other industrialised countries, as well as some developing
countries, have been putting pressure on the I.M.F. to criticize China for its
large-scale intervention in currency markets to hold down the value of the
renminbi against the dollar. But Mr. Lipsky refrained from chastising China in
his speech, which Chinese officials would have found particularly offensive if
he had done so in Beijing.

The I.M.F.’s
staff concluded in a report last summer that the renminbi was “substantially
undervalued,” and that this was contributing to China’s large trade surpluses
in recent years. But China has blocked the release of that report, a
prerogative of the I.M.F.’s member countries, although most allow the release
of the I.M.F. staff’s reports on their economies.

The Chinese commerce
minister, Chen Deming, said Sunday at the same conference that China might run
a trade deficit in March, after years of surpluses, said Xinhua, the official
news agency.

A trade
deficit for the current month would be a public relations bonanza for Chinese
officials in pushing back against U.S. pressures for revaluation of the
renminbi. China typically announces its monthly trade during the 9th to 12th
day of the next month. If it follows that schedule next month, the trade
surplus will be released shortly before the April 15 deadline mandated by the
U.S. Congress to declare whether any foreign country, including China,
manipulates the value of its currency.

economists have predicted that most, if not all, of China’s trade surplus would
evaporate in March, but they have described this as a fluke of the calendar.
Virtually all Chinese export factories closed for the last two weeks of
February in observance of the Lunar New Year, which was unusually late this
year, and many struggled to reopen at full capacity because many migrant
workers were slow to return after the holidays.

The flow of
goods to export ports slowed in March as a result, even as imports continued.

Mr. Chen also
said that China would not sit back if the United States declared China a
currency manipulator and imposed sanctions, Xinhua reported.

The Commerce
Ministry tends to represent the views of exporters. Like the Commerce
Department in the United States, the ministry does not have the authority to
engage in international currency negotiations. But unlike Commerce Department
officials in the United States, who have a strict policy of not commenting on
currency issues, Commerce Ministry officials in China have been outspoken to
the domestic Chinese media in recent months in condemning any appreciation of
the currency.

This has
limited the room to manoeuver for officials at the central bank and other
agencies in charge of currency issues.

Mr. Lipsky
said the average ratio of debt to gross domestic product in advanced economies
was expected this year to reach the level that prevailed in 1950. Even assuming
that fiscal stimulus programmes are withdrawn in the next few years, that ratio
is projected to rise to 110 per cent by the end of 2014, from 75 percent at the
end of 2007.

The ratio is
expected to be close to or to exceed 100 percent for five members of the Group
of 7 countries — Britain, France, Italy, Japan and the United States — by 2014.
Canada and Germany are the other G-7 members.

this fiscal challenge is a key near-term priority, as concerns about fiscal
sustainability could undermine confidence in the economic recovery,” Mr. Lipsky
said. Maintaining public debt at post-crisis levels could reduce potential
growth in advanced economies by as much as half a percentage point annually,
compared with projections before the crisis, he said.

To reduce debt
ratios to the pre-crisis average of 60 percent by 2030, he said, would require
an 8 percentage point swing — to a surplus of about 4 per cent of G.D.P. in
2020 from a structural deficit of about 4 percent of G.D.P. in 2010.

The I.M.F.
estimates that the discretionary stimulus spending accounts for just 1.5 per cent
of G.D.P. Mr. Lipsky said advanced economies would have to take other steps,
like changes in pensions and health care programs, other cutbacks in spending
and higher tax revenues.

While it makes
sense for the world’s largest economies to continue stimulus spending through
the end of this year, “fiscal consolidation should begin in 2011, if the recovery
occurs at the projected pace,” Mr. Lipsky said.

Mr. Lipsky
also said that a “global rebalancing of savings patterns” would be needed to
sustain the recovery.

The United
States and the European Union have become increasingly concerned about China’s
accumulation of an estimated $2.5 trillion in foreign reserves, the result of a
large current account surplus with the rest of the world as well as actions to
hold down the value of China’s currency.

economists say China will eventually need to develop its domestic markets and
wean its economy away from a dependence on exports.