(Business Intelligence Brief) The meeting of the International Monetary Fund is not always a seminal event in the global economic calendar but this year it has become the focal point for a range of concerns. In the last few months, the slow economic recovery has thrust almost every one of the developed nations into a crisis - some more seriously than others. The slow pace of recovery has meant that governments in Europe, Japan and the United States are far weaker than they expected to be, leaving political leaders are in panic mode. This has meant that they are all considering actions that are likely to have a deleterious impact on the global economy in the not distant future. The IMF meeting will try to get these nations to reconsider their policies but that could be an uphill battle in many respects.

The key issue for the moment is currency value. The Japanese have been leading the charge of late but they are not the only nation that has been trying to salvage their export sector with currency adjustments. The decision to try to reduce the value of the yen was taken as the dollar and euro sank dramatically against it. Suddenly the export economy in Japan was threatened and the companies that depend on overseas markets saw their respective stock prices collapse. The rapid decline in the market provoked the Japanese leadership to act despite the fact that such a move would be condemned by other nations. The timing of the Japanese decision could hardly be worse as the US was in the process of trying to ratchet up the pressure on the Chinese for their currency policy at the same time. It was awkward to be assailing the Chinese foe engaging in currency manipulation as the Japanese engaged in a version that was far more direct.

As the IMF meets, the US currency is falling like a stone and shows no sign of recovery as long as the Fed is still pursuing a policy of stimulation through low interest rates and an expansion of their securities purchasing. The Europeans are a little more cautious and may start to cut back on their stimulation, but they will be careful to avoid creating a situation in which the euro gains too much and too fast. That leaves almost every nation in the same boat and there are several who have warned that they are about to take steps to reduce the value of their currencies. The list includes South Africa, Australia, Korea and Brazil. Many more have sent signals that they will consider moves soon as well. This is the kind of response that was once referred to as "beggar thy neighbor" and has been blamed for accelerating and deepening the depression in the 1930s.

Analysis: The IMF is trying to get nations to engage in both short- and long term-strategies. In the short term, the name of the game is restraint - trying to convince nations that they should resist the temptation to protect their currency situation. These pleas are expected to fall on deaf ears. The long-term discussion may be a little less contentious, but few expect nations to make these adjustments rapidly, if at all. The IMF position and that of the US and European delegations is that the world economy is fundamentally out of balance, and that has to be addressed if these currency related crises are to become less common. In simplest terms, the export centered nations like China, Japan and other Asian states have to become more oriented to their domestic markets so that they sell less to other states. Meanwhile the states that do so much of the importing need to do far less. The trade deficit run by the United States is the case in point - too many imports and too few exports. Getting the system in balance is partly related to currency values abut there also has to be some conscious decisions regarding economic priorities. The Chinese spend very little on their own population and that has to change. The United States makes it far too easy to buy from overseas and fails to protect its own interests more often than not.

Chris Kuehl, of Armada Corporate Intelligence, is NACM's economic advisor

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