Enlarge imageBy Sumeet Desai and Jan Strupczewski
ST ANDREWS, Scotland (Reuters) - The International Monetary Fund warned global financial leaders on Friday not to repeat the mistakes of the Great Depression and choke off emergency support for their economies too quickly.
In a document prepared for a meeting of Group of 20 finance ministers and central bankers in Scotland, seen by Reuters, the IMF said the global recovery was still fragile and dependent on the massive injections of public money around the world.
"One of the key lessons from the experience of similar crises (such as the Great Depression and Japan in the 1990s) is that withdrawing policy stimulus too early can be very costly," the IMF paper said.
Officials say currencies are not on the formal agenda but tension over the weakness of the dollar and China's managed exchange rate was clearly playing on delegates' minds, with Japan saying it had never been in favour of a strong yen.
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G20 meeting host and Chancellor Alistair Darling told Reuters that policymakers would maintain their pledge to keep support in place until recovery was assured and also launch a new system of mutual checks to help rebalance world growth and prevent future crises.
"I think we can reach agreement on firstly making sure we don't remove support too early because the recovery is by no means established everywhere," he said.
PUTTING FLESH ON PITTSBURGH
Darling is hosting the third meeting of G20 finance ministers and central bankers this year in St Andrews, Scotland, aiming to put flesh on the bones of agreements made at a leaders' summit in Pittsburgh in September.
Since then there have been growing signs the world is finally coming out of the deepest downturn in decades after a crisis that wiped out some of the biggest financial institutions.
But the evidence has been mixed.
The U.S. jobless rate jumped to a 26-1/2-year high of 10.2 percent last month, data showed on Friday, as employers cut 190,000 jobs, more than the 175,000 markets had expected but fewer than the 219,000 lost in September.
The IMF is concerned the rich world is lagging behind the developed world in the recovery stakes.
"The pace of recovery is uneven, particularly in advanced economies, with consumer confidence remaining subdued, the waning of temporary fiscal measures such as the cash for clunkers programme in the U.S. and similar programmes elsewhere is slowing production," the paper said.
Ten years after the G20 was formed, leaders agreed in Pittsburgh that it should be the world's main economic governing council, because it also includes most of the key developing economies -- unlike the G7 or G8.
Officials say proposals on the table in Scotland include a system where countries put forward projections for their own economies for examination by the IMF to see if they are consistent with each other.
If not, then alternatives can be looked at within the G20.
CURRENCY CONCERN
While the G20 has generally steered clear of calling on China to let its yuan currency rise, Brazil broke ranks.
"What is a concern is China's fixed exchange rate," a Brazilian finance ministry source told Reuters. "The whole problem is China."
Japan's deputy finance minister, Yoshihiko Noda, also called on China to run a flexible exchange rate.
Swedish Finance Minister Anders Borg, who holds the rotating EU presidency for six months, told Reuters global imbalances could not be tackled without reference to currencies.
"If we want to have a framework for global stability, we will also have to take into account foreign exchange rates," Borg said.
The group may also look at proposals for creating a common pool of reserves to dissuade emerging market countries from accumulating massive foreign exchange reserves that could instead be used to boost growth.
Another theme will be seeking a deal on climate finance ahead of an environmental summit in Copenhagen next month but Darling was doubtful that concrete results could be achieved.
"I want to use this weekend to engage finance ministers in the task of making sure we can get money on the table. We have been very clear we think $100 billion will be required," he said.
Talks on agreeing a budget for the cost of dealing with climate change at the last meeting of finance ministers and central bankers in London in September went nowhere.
(Editing by Patrick Graham)
