Top global finance ministers have received a sharp warning from the head of the IMF, who said their policies could disrupt world markets as they remained divided on how to ease the debt burden carried by the poorest countries.
The warning from International Monetary Fund Managing Director Rodrigo Rato on Saturday followed a twice-yearly meeting here of the IMF policy-making committee, made up of senior finance chiefs from around the world.
Earlier in the day finance ministers and central bankers from the powerful Group of Seven industrialized countries issued an upbeat statement on global prospects, predicting "solid growth for 2005" despite higher oil prices and an uneven pace of activity across several regions.
But the Group of Seven -- Britain, Canada, France, Germany, Italy, Japan and the US -- failed to find common ground on debt relief for the world's most impoverished nations, a failure that anti-poverty campaigners said would result in the deaths of millions more children.
Rato dampened the optimism in the G7 statement with unusually pointed remarks aimed at some of the planet's most influential economic players.
He said the global financial system was now out of kilter because of the huge US current account deficit, weak growth in Europe and Japan, the low savings rate of US consumers and inflexible currency regimes in Asia.
"If policies do not adapt, do not change to react to these imbalances, we run the risk of an abrupt correction of the markets ... [when] confidence for different reasons could evaporate or could be reduced," he told reporters.
Rato in addition cited the "need for Asian countries to have more flexible exchange rates" after the G7 implicitly called on China to relax its yuan-US dollar currency peg.
US Treasury Secretary John Snow said: "It's time [for the Chinese] to take the next step and move to flexibility."
The finance ministers from Britain, Canada, France, Germany, Italy, Japan and the US said that "more flexibility in exchange rates is desirable for major countries or economic areas."
Such countries should "promote smooth and widespread adjustments in the international financial system, based on market mechanisms," they said in a statement.
The IMF head has not been alone in sounding the alarm about the persistent deficit in the US current account, a broad measure of trade in goods and services as well as certain financial transfers.
The current account shortfall unnerves Rato and other economists because it raises fears that foreign investors will lose confidence in the US and begin to shun US assets.
That could further weaken the dollar in a disorderly manner, prompting the US Federal Reserve to raise interest rates at a pace that would threaten global growth.
Despite any sign of concrete headway, G7 ministers meanwhile claimed progress towards their goal of erasing a US$80-billion-dollar multilateral debt burden that sees more money go on interest repayments than on health or education in the developing world.
"It's now recognized, I think for the first time from these meetings, that more money has to be made available," British finance minister Gordon Brown, the G7's current chairman, told a news conference.
"What we must now do is get the international agreement on sums of money and we believe that that will come at Gleneagles," he said in reference to a Group of Eight -- the G7 plus Russia -- summit in Scotland in July.
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