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Finance Chiefs Urge IMF To Sharpen Crisis Radar

Washington D.C.
Washington D.C.

Financial leaders on Saturday urged the International Monetary Fund to sharpen its oversight of the global economy, which is burdened by surging food prices and a credit crisis that shows no end in sight.

As rich countries struggled to get a handle on financial turmoil that has rocked markets for nine months and worried the U.S. dollar may have fallen too far, emerging and developing nations wondered how much they would be spared from a crisis that may have already pushed the U.S. economy into recession.

Countries also fretted over increasing prices for food and other commodities, and related shortages of key staples that have fueled protests in Asia, Africa and Latin America.

They called on the IMF and World Bank to stand ready with emergency funding to help the poorer nations of the world in case financial market woes spread to their economies and the food crisis worsened.

U.S. Treasury Secretary Henry Paulson warned of "more bumps in the road."

"It took time to build up recent excesses and it will take time to work through the consequences," he told the IMF's policy-setting International Monetary and Financial Committee.

A year ago, finance ministers and central bank chiefs were basking in five years of strong world growth, unaware that a U.S. housing boom was about to go bust, triggering what may be the biggest financial shock since the Great Depression.

CHANGING ROLE

All of this has taken place at a time the IMF, traditionally a lender of last of resort in times of crises, was seeking a new role for itself amid a sharp decline in borrowing from emerging and developing economies.

The Washington-based lender has also sought to boost its relevance by giving emerging economies China, India, Brazil, Mexico and South Korea more voting power in the institution.

Its 185 member countries are likely to approve changes in their relative voting power later in April, although some nations that stand to lose from the shift -- such as Russia, Argentina, Saudi Arabia, Iran and Egypt -- oppose the move.

The voting power changes will complete a number of institutional reforms that have been in the works for years. With those reforms nearly complete, financial leaders said it is time for the IMF to focus on its core mission of ensuring global financial stability.

While the G7 -- the United States, Canada, Britain, France, Germany, Italy and Japan -- stopped short of saying the U.S. economy was heading for recession after a meeting on Friday, European Monetary Affairs Commissioner Joaquin Almunia acknowledged the risk of a U.S. downturn had increased.

Almunia said there was a potential for the turmoil to be more wrenching since uncertainty over the depth of the problems made it tougher for central banks to determine how to respond.

Paulson, who said an effective IMF was as important as ever to ensure stability of the global financial system, called on the fund to focus more intently on the alignment of the world's currencies and to move quickly to address dangers to market stability posed by rapidly expanding sovereign wealth funds.

Argentine Economy Minister Martin Lousteau cautioned that developing and emerging economies were not completely shielded from the crisis despite an unprecedented build-up in reserves.

"The crisis is very distinct and we may need to navigate in unchartered waters," he said.

The head of the United Arab Emirates' central bank, Sultan Nasser al-Suweidi, said the IMF's global reach made it uniquely positioned to consider lessons learned from the crisis.

"We see a central role for the fund as a forum for discussion and agreement on a set of coordinated and consistent policy responses, not only among industrial countries but encompassing emerging and developing countries as well," he said.

(Reporting by Lesley Wroughton; editing by Tim Ahmann)