IMF chief willing to work with Trump to fix global trading system

By David Lawder

WASHINGTON (Reuters) - World financial leaders gathered in Washington on Thursday with pledges to work with U.S. President Donald Trump to fix lingering trade problems while vowing to keep their commitments to free trade and global integration.

Worries over Trump's approach to trade, taxes, financial regulation and climate change clouded the start of the International Monetary Fund and World Bank spring meetings, even amid improved optimism over global growth prospects.

As the meetings got started, two blocks away at the White House, Trump signed a directive to study whether steel imports into the United States could be restricted for national security reasons under a law passed in 1962.

Such moves, including a review of "Buy American" rules launched earlier this week, have raised concerns that the United States is looking outside the World Trade Organization for remedies to restrict U.S. imports.

IMF Managing Director Christine Lagarde said she would work with the Trump administration to improve the global trading system. She added that there was a need to reduce government subsidies for industry and other trade distortions that limited competition, but said "protectionist measures" needed to be avoided.

"From the various contacts that I've had with the (Trump) administration so far, I have every reason to believe that we will make progress, that we will cooperate all together in order to support and indeed improve the system as we have it," Lagarde said in a news conference.

The changes, including improvements to WTO dispute settlement rules, must ensure a "level playing field" for trade, Lagarde said, adding that such changes could only be achieved through multilateral dialogue.

The concerns over Trump's trade policies come at a time when the IMF's latest forecasts point to a strengthening global economy - along with a warning that trade restrictions could stall growth.

"We are finally seeing the global economy picking up the momentum that we hope is going to be sustained in the medium and longer term," Lagarde said.

Separately, World Bank President Jim Yong Kim said he was "encouraged" by his engagement so far with Trump. But he added that he would not reduce the multilateral lender's commitment to trade or to financing alternative energy projects.

"The science of climate change didn't change with any particular election, and I don't see that it will," Kim said told a news conference. "We have to be an evidence-based organization."

In addition to trade, the IMF said in a report released on Wednesday that Trump's proposed tax cuts and roll-back of financial regulations could fuel financial risk-taking and raise public debt enough to hurt economic growth.

'LITTLE LEVERAGE'

The IMF and World Bank meetings come about a month after U.S. Treasury Secretary Steven Mnuchin insisted that an anti-protectionism pledge be dropped from a Group of 20 communique issued in Baden-Baden, Germany.

Eswar Prasad, former head of the IMF's China department, said the Trump administration may choose to simply ignore the advice of the IMF and other institutions.

"The IMF has little leverage since its limited toolkit of analysis-based advice, persuasion, and peer pressure is unlikely to have much of an impact on this administration's policies," said Prasad, now an international trade professor at Cornell University.

Mnuchin's decision against naming China a currency manipulator last week removed one concern for the IMF ahead of the meeting.

(Reporting by David Lawder; Editing by Simon Cameron-Moore and Paul Simao)