Hedge funds threaten world growth, says IMF
By Edmund Conway in Washington (Filed: 04/10/2004)
The International Monetary Fund has issued a stern warning to hedge funds, which it believes have destabilised global equity markets and pushed oil prices higher.
In the communique issued after its biannual meeting this weekend, the IMF's policy committee, chaired by Gordon Brown, made an unprecedented demand for the notoriously secretive industry to improve disclosure.
After also repeating calls for China to release the peg on its currency, the renminbi, the communique said: "Improving transparency in markets, including the role of hedge funds, would help strengthen market surveillance." The IMF warned that hedge funds' tendency to "search for yield" could undermine the current global upturn, in which world economic growth hit its fastest rate for 30 years.
In a report published ahead of the meetings, the IMF indicated that there could well be a re-run of the crisis caused by the collapse of Long Term Capital Management in 1998. "We still do not know what we do not know about hedge funds, and efforts to improve our surveillance and understanding of their market activities should be supported," it said.
A lack of volatility in equity and bond markets has hit hedge funds' profits, prompting many funds to invest in commodities and oil, which in turn has contributed to the recent rise in prices. High oil prices dominated talk at the IMF and Group of Seven (G7) meetings in Washington. Both institutions warned that oil markets had become more volatile because of a lack of information about crude supply.
"This is not the time for complacency," the G7 said. "Oil prices are high and remain a risk. So first, we call on oil producers to provide adequate supplies to ensure that prices moderate." The IMF said it continued to support plans for developing world debt relief.
But Mr Brown was forced to defend his performance at the meeting after it failed to implement his proposals to raise money through off-balance sheet gold sales and a doubling of the international financing facility. Mr Brown also insisted that, back in the UK, he would not break his borrowing rules, despite pledging to increase education spending in the Pre-Budget Report.
"We are meeting and will meet our fiscal rules in this cycle and next as we uphold our prudent management of the public finances," he said.
"We will take no risks with inflationary pay deals and will reject irresponsible pre-election promises." The Chancellor also said the Pre-Budget Report would include measures to lessen the effect of offshoring on the British economy, amid the continuing export of call-centre jobs to India and Asia.
"With China and India's wages just 5pc of those in the UK, we will not compete by lowering wages but by raising skills," he said. |
