IMF: Do Not Repeat Mistakes of Great Depression

Wise words…

IMF: Do Not Repeat Mistakes of Great Depression
Friday, November 6, 2009 1:10 PM

ST ANDREWS, Scotland — The International Monetary Fund warned global financial leaders on Friday not to repeat the mistakes of the Great Depression and choke off emergency support for their economies too quickly.

In a document prepared for a meeting of Group of 20 finance ministers and central bankers in Scotland and seen by Reuters, the IMF stressed the fragility of global recovery, saying it was largely dependent on government and central bank support.

One of the key lessons from the experience of similar crises (such as the Great Depression and Japan in the 1990s) is that withdrawing policy stimulus too early can be very costly, particularly if the financial system remains vulnerable and prone to adverse shocks,” the IMF paper said.

G20 meeting host and British finance minister Alistair Darling told Reuters policymakers would maintain their pledge to keep support in place until recovery was assured and also launch a new system of mutual checks to help rebalance world growth and prevent future crises.

“I think we can reach agreement on firstly making sure we don’t remove support too early because the recovery is by no means established everywhere,” he said.


Darling is hosting the third meeting of G20 finance ministers and central bankers this year in St Andrews, Scotland, aiming to put flesh on the bones of agreements made at a leaders’ summit in Pittsburgh in September.

Since then there have been growing signs that the world is finally coming out of the deepest downturn in decades after a crisis that wiped out some of the biggest financial institutions.

But the evidence has been mixed.

The U.S. jobless rate unexpectedly jumped to a 26-1/2-year high of 10.2 percent last month, data showed on Friday, as employers cut 190,000 jobs, more than the 175,000 markets had expected but fewer than the 219,000 lost in September.

The European Central Bank on Thursday took a first small step toward easing out its crisis steps — ultra-low interest rates and cash injections for the economy — by signaling one-year loans to banks will not be repeated next year.

The IMF is concerned that the rich world is lagging behind the developed world in the recovery stakes and is too reliant on the extraordinary support.

“The pace of recovery is uneven, particularly in advanced economies, with consumer confidence remaining subdued, the waning of temporary fiscal measures such as the cash for clunkers program in the U.S. and similar programs elsewhere is slowing production,” the paper said.


Ten years after the G20 was formed, leaders agreed in Pittsburgh that it should be the world’s main economic governing council, because it also includes most of the key developing economies — unlike the G7 or G8.

Officials say that proposals on the table in Scotland include a system where countries put forward projections for their own economies for examination by the IMF to see if they are consistent with each other.

If not, then alternatives can be looked at within the G20.

Asked if that meant countries would be given targets they had to achieve, for example on GDP, Darling said: “I don’t think it is a case of people telling countries what they ought to do.”

Officials have made clear currency moves are not on the formal agenda for the meeting, even if there is general disquiet about the weakness of the dollar behind closed doors and the fact Chinese currency’s peg to the U.S. currency is also keeping the yuan too low and hurting other countries’ exports.

On arriving at the meeting, Japan’s deputy finance minister called for China to run a flexible exchange rate.

The group may also look at proposals for creating a common pool of reserves to dissuade emerging market countries from accumulating massive foreign exchange reserves that could instead be used to boost growth.

Another theme will be seeking a deal on climate finance ahead of an environmental summit in Copenhagen next month but Darling was doubtful that concrete results could be achieved.

“I want to use this weekend to engage finance ministers in the task of making sure we can get money on the table. We have been very clear we think $100 billion will be required,” he said.

Talks on agreeing a budget for the cost of dealing with climate change at the last meeting of finance ministers and central bankers in London in September went nowhere.