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The Honolulu Advertiser
Posted on: Thursday, September 26, 2002

Accounting scandals erode global economy

By Warren Vieth
Los Angeles Times

WASHINGTON — America's corporate accountability crisis is sapping the strength of the world economy, the International Monetary Fund said yesterday as it reduced its estimates of global growth in 2003.

IMF predicts 3.7% growth next year

The International Monetary Fund expects:

• The world economy will expand 3.7 percent next year after growing 2.8 percent this year.

• The U.S. economy will grow 2.2 percent this year, and 2.6 percent next year.

• The Japanese economy will contract 0.5 percent.

• The economies for the dozen countries sharing the euro will grow 0.9 percent.

• Germany, Europe's largest economy, is set to grow by 0.5 percent in the current year, and by 2.0 percent in 2003.

IMF economists said the accounting scandals were contributing to a sluggish recovery from last year's global recession by undermining investor and consumer confidence around the world, slowing the cycle of production and consumption. They predicted that the world economy would expand at a "tepid" 3.7 percent rate next year, instead of the 4 percent rebound they had forecast six months ago.

The revised estimates are in a 246-page World Economic Outlook that will be presented to world finance officials gathering in Washington for weekend meetings of the IMF, World Bank and Group of Seven industrialized nations.

In an unusual appeal to the thousands of protesters expected to fill the streets outside, IMF chief economist Kenneth Rogoff praised their idealism but denounced efforts by some to halt the increasing integration of rich and poor economies.

"Anarchy does not breed prosperity ... ," he said. "The process of globalization needs to be strengthened, its benefits broadened, but it should not be reversed."

Rogoff's search for common ground did not still the institutions' critics. An independent think tank issued a report predicting that the IMF's efforts to support Brazil's debt-laden economy were doomed to fail. An anti-globalization group reported progress in organizing a boycott of World Bank bonds. Protest leaders outlined their plans to disrupt Washington traffic by occupying major intersections.

The chorus of criticism illustrates the increasingly fractious debate over the "Washington consensus" approach to managing globalization. Nongovernmental organizations have become more aggressive in their attempts to influence actions taken by the IMF, which acts as lender of last resort for economies in crisis, and the World Bank, which finances programs to promote economic growth in developing countries.

The institutions themselves have become more outspoken in their critiques of the policies of their member nations. In its report, the IMF scolded the United States, Europe and Japan for hurting many of the poor countries they say they want to help by subsidizing overproduction of grain and cotton.