T he finance ministers and central bankers who meet in Washington today for the spring meetings of the International Monetary Fund and the World Bank come together at perhaps the most critical time in the recent history of the global financial system.
Their policy pronouncements over the next few days will go a long way in determining whether the world economy emerges smoothly and relatively unscathed from the sub-prime crisis and the credit crunch that accompanied it, or whether we are all in for an economic recession to rival the Great Recession of the 1930s in its severity and duration.
The stakes could not be higher for the grey suits gathering in the US. They will also be expected to give a concerted view on several issues relating specifically to the Gulf – namely sovereign wealth funds, energy prices and currency pegs – that could also determine how the GCC countries weather the economic storm. For the region’s financial leaders too, the gatherings will be crucial.
On the broader issue of the global economy, the IMF and World Bank will have to decide whether the action so far taken by the American and some European governments is enough to head off a global recession.
Interest rate cuts have had a steadying effect on global markets, and the rescue of Bear Stearns is regarded by some as a turning point in the crisis.
For the Middle East, the gatherings come at a time when the region is flexing its financial muscle as never before, and this has produced conflict and controversy with the west.
The IMF is expected to produce a “code of conduct” for the sovereign wealth funds that have emerged as key players on the world financial scene.
Energy prices and the GCC’s dollar peg are so interdependent that it will take all the wisdom of the gathered experts to see the wood for the trees.
But one point is clear: if the American and European financiers in Washington fail to tackle this issue in an objective and bilateral fashion, it will come back to bite them. The world has the right to expect some decisive unanimity from a gathering of economists, for once.
All eyes on crucial IMF meetings beginning today