WASHINGTON ~ Global financial leaders head into a weekend of high-powered talks here basking in what the IMF says will be the world economy’s longest sustained expansion since the early 1970s.
But while the International Monetary Fund is positively gushing about global prospects, the spring meetings of the IMF and the World Bank will not be without controversy – especially for bank chief Paul Wolfowitz.
The former deputy US defense secretary is accused of favoritism over startling pay hikes given to his Libyan-born girlfriend when she was on the World Bank’s payroll, just as he vies to clean up corruption in its lending.
Prior to the weekend meetings, finance ministers from the wealthy Group of Seven nations will debate currency rates and controls on the trillion-dollar hedge fund industry at their latest talks in Washington on Friday.
The G7 ministers will survey a global economic picture that, according to a twice-yearly IMF survey released on Wednesday, has rarely looked as good.
In its World Economic Outlook report, the Fund projected that growth in global gross domestic product (GDP) would reach 4.9 percent both this year and next.
While down from 5.4 percent in 2006, that would take the current expansion into its fifth and sixth years, the world economy’s best performance since before the 1970s oil shocks.
That would come despite a housing-led slowdown in the United States, which was forecast to register its slowest growth rate in five years at 2.2 percent in 2007.
If the IMF forecasts are proven correct – and Fund officials on Wednesday admitted that their figures are only sometimes “spot on” – then the eurozone and Japan would both overtake US growth for the first time in many years.
Both economies were seen expanding by 2.3 percent this year, while red-hot growth in China, India and other big developing powers was seen as moderating, but only a little.
Unlike in the 1970s, according to IMF chief economist Simon Johnson, growth is far more widespread as China and India extend dramatic transformations while Europe and Japan finally perk up.
“Everyone around the world is sharing in this prosperity. I hesitate to say that that is unprecedented, but it is very impressive,” he told a news conference.
“While the US indeed may have sneezed, it appears to be a mild sneeze so far, and not likely to spread.”
IMF managing director Rodrigo Rato was likely to expand on the report’s findings at a news conference on Thursday, while also addressing a drive by the six-decade-old Fund to overhaul its operations.
Reforms designed to make the IMF more relevant in a fast-changing economic landscape appear to be hitting a roadblock as richer powers hold out against any dilution of their influence.
Under Wolfowitz, the IMF’s sister institution also faces questions about its relevance. On one longstanding criticism, the World Bank is trying to force change by going after graft in its multimillion-dollar loans.
But the Wolfowitz campaign has had to be watered down in the face of virulent criticism, and some countries have queried whether an architect of the war in Iraq is best positioned to promote “good governance.”
The US official now faces embarrassing questions over his girlfriend, Shaha Riza, who through rapid promotions went on to earn nearly US$200,000 during an external assignment from the World Bank to the US State Department.
At a hastily arranged briefing on Wednesday, Wolfowitz deflected a barrage of questions about the Riza affair by arguing it was the subject of an investigation.
“You have to ask; I have to answer,” he parried, turning exasperated at a grilling from reporters.