A global effort of individual moves

Tuesday, June 29, 2010

As the economic crisis has given way to a tentative recovery, the Group of 20 large economies and the International Monetary Fund have agreed that countries need to tailor individual economic policies to fit their circumstances, but that coordinating those policies on a regional and global level could add trillions of dollars in output and millions of jobs. In a report sent to G-20 leaders, the IMF outlined the steps countries should consider:

United States. The United States and other high-deficit countries are encouraged to trim budget shortfalls even further than some have planned, but over a longer time period and using methods that rely on growth, not just spending reductions. For example, the IMF recommends a cut in income and capital gains taxes, offset by a consumption-based levy, such as a value-added tax on goods and services -- a "growth-friendly" shift in the tax code that would leave workers with more disposable income and encourage investment.

China, Indonesia and India. As much as possible, emerging economies should do more to support growth, the IMF recommended, and suggested investing an additional 2 percent of gross domestic product in infrastructure, and the same amount in direct transfers to the poor to boost local spending. Flexible exchange rates -- controversial in China -- are considered central to the effort, and the IMF's "upside scenario" sees an Asia-wide currency appreciation of 10 percent.

Germany. Representative of advanced countries that also run surpluses, Germany is advised to trim deficits slower than others, and also to boost local employment and demand, with higher wages, better unemployment benefits and stronger job training programs.

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