Washington – International Monetary Fund members on Saturday dropped a pledge to fight protectionism amid a split over trade policy and turned their attention to another looming threat to global economic integration: the first round of France’s presidential election.
Concerns that far-right leader Marine Le Pen and far-left rival Jean-Luc Mélenchon, both critics of the European Union, could top the field in Sunday’s vote added to nervousness over U.S. trade policy at the IMF and World Bank spring meetings.
“There was a clear recognition in the room that we have probably moved from high financial and economic risks to more geopolitical risks,” IMF Managing Director Christine Lagarde told a news conference.
Lagarde, a former French finance minister who has warned that a Le Pen presidency could lead to political and economic upheaval, added that a policy shift from “growth momentum to more sharing and inclusive growth” was now needed.
A communique from the IMF’s steering committee on Saturday dropped an anti-protectionism pledge, adopting language that the Trump administration sought last month in Germany as it develops its strategy to reduce U.S. trade deficits.
Earlier in the week, the IMF had warned that protectionist policies that restrict trade could choke off improving global growth.
Instead, the International Monetary and Financial Committee (IMFC) statement pledged that members would “work together” to reduce global trade and current account imbalances “through appropriate policies.”
“We are working to strengthen the contribution of trade to our economies,” the IMFC said, repeating language adopted by the Group of 20 nations last month in Baden Baden, Germany.
Mexican central bank chief Agustin Carstens, the IMFC chair, described protectionism as a “relative term” and “ambiguous,” and said it had been replaced in the communique with something more useful.
“There is no country that does not have any proviso or restriction on trade,” Carstens said in a news conference. “Instead of dwelling on what that concept means, we managed to put it in a more positive, more constructive framework.”
U.S. Treasury Secretary Steven Mnuchin was more pointed in his first statement to the IMF, calling for the Fund to enhance its surveillance of members’ currency exchange rates.
“In our view, excessively large trade surpluses, like excessively large trade deficits, are not conducive to supporting a free and fair trading system,” Mnuchin said in a statement to the IMFC.
The French election presents free trade advocates with a third potential blow in less than a year after Britain’s vote to leave the EU and Donald Trump’s election on a platform to restrict imports and protect U.S. jobs.
Trump has voiced support for Le Pen, the National Front candidate who has promised a referendum on France’s membership in the EU.
Investors fear that a potential run-off between Le Pen and Mélenchon, who has vowed to end the independence of the European Central Bank, would roil financial markets and drive out capital.
ECB policymaker Ewald Nowotny said on Saturday that the central bank was ready to provide emergency cash to French banks if necessary.
“If there should be problems for specific French banks liquidity-wise, then the ECB has the … ELA, Emergency Liquidity Assistance, but we don’t expect, of course, any special movements,” Nowotny, who heads Austria’s central bank, told reporters at the IMF.