The International Monetary Fund (IMF) has called for new energy initiatives to offset rising oil prices and demand over the medium-long term.
Speaking at a conference on the 60th anniversary of the Bretton Woods agreements, the fund’s managing director Rodrigo Rato said the recent rise in oil prices is related primarily to a rise in demand.
“We need energy policies over the medium-long term to compensate for this rise,” he said.
Earlier, Rato said the IMF is calling on Europe and Japan to promote sustainable economic growth through structural reforms, noting that the US needs to make “active efforts” to reduce its current account and trade deficits.
Rato emphasised the need for IMF surveillance not just on crisis-prone countries, but also on the stability of the system as a whole.
He said financial globalisation has raised the risks of contagion, or the knock-on effects through which one country’s vulnerabilities can spread through the global economic system.
“Even if a country is not itself at risk, it may be contributing to global imbalances and placing the rest of the world at risk,” he said in disguised reference to the US.
Current trends imply that financial globalisation will continue to intensify, with emerging markets – namely China and India – representing an increasingly larger share of the world economy, a trend which he recognised could pose “particular systemic challenges.”
And while the problem of providing large-scale financial support in a way that encourages sound economic policies is still unresolved, he said that abandoning large scale financial support is “undesirable”.
Rato said the IMF must be more assertive in approving financial support, a move that could encourage countries to implement sound policies and “avoid the need for the fund’s support in the first place.”
Still, he said the IMF does not rule out awarding “exceptionally” large loans to prevent risks to the global financial system, as when it provided USD21bn to South Korea in 1997.
Rato concluded by calling for greater clarity in the IMF’s role in low-income countries, as well as better co-ordination with other institutions, including the World Bank, the UN, regional development banks and the WTO.