Nov. 5 (Bloomberg) -- The Group of 20’s effort to shift the global economy away from dependence on U.S. spending and Chinese savings may fail because the International Monetary Fund lacks the power to enforce its policy prescriptions, the IMF’s past three chief economists said.

The Washington-based IMF will work with finance chiefs from the G-20 nations this weekend on a timetable for steps to ensure the next global expansion is more balanced. The aim is to avoid distortions such as the U.S. trade deficit and the Chinese current-account surplus, both of which economists blame for helping to trigger the deepest postwar global recession.

The risk is that governments will vow to mend their ways and then ignore the IMF’s advice, Kenneth Rogoff, Raghuram Rajan and Simon Johnson, who ran the fund’s research department from 2001 to 2008, said in separate interviews. That was the lesson of an unsuccessful IMF effort in 2006 to smooth lopsided trade flows, and the institution still lacks enforcement tools.

“I’m pretty skeptical,” said Johnson, the fund’s chief economist from 2007 to 2008, said. “The question is what pressure points will there be, and I just don’t see any,” added Johnson, who now teaches at the Massachusetts Institute of Technology, in Cambridge, Massachusetts.

G-20 finance ministers and central bankers, including U.S. Treasury Secretary Timothy Geithner and European Central Bank President Jean-Claude Trichet, start two days of talks tomorrow in St. Andrews, Scotland.

G-20 Agenda

On their agenda is figuring out how to measure the effect of member nations’ economic policies and to propose changes for their leaders, who meet in June.

Policy makers are trying to avoid a repeat of the last expansion when U.S. consumers relied on borrowing from abroad to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought U.S. Treasury debt and depressed global yields. Lower borrowing costs helped stoke the U.S. housing and credit booms that turned to bust in 2007.

Under the proposal, “countries give us their forecasts, we do the numbers to see if they add up,” IMF Managing Director Dominique Strauss-Kahn said in a Nov. 3 interview in Washington. At the leaders’ summit, “we say ‘here are the simulations we did, where things are going if each of you does what they have said and, here’s how we can improve things if we do a bit differently.’”

IMF’s Input

The IMF is the best-placed institution to do the job after informally playing that role for the Group of Seven industrial nations, Rogoff said.

While the initiative may help countries focus on what needs to be done and generate better data, the risk is it flops as governments prove reluctant to overhaul their economies, Rogoff and Rajan said. Both noted the need for China to spend more and the U.S. to increase savings.

China owned $797 billion in Treasuries as of August, up almost fourfold from five years earlier, according to U.S. Treasury data.

“Any change of the magnitude that’s required” involves a lot of pain, said Rajan, who now teaches at the University of Chicago. “The political calculus never likes short-term pain for long-term gain, and in country after country that’s what’s required for rebalancing to work out,” Rajan said.

“The more they ignore the problem the more we’re going to postpone resolution and create the environment for more problems down the line,” he added.

Ignoring Advice

If governments decide to ignore IMF suggestions, “there’s not a lot the IMF can do,” said Rogoff, a Harvard University professor. “As long as China is willing to supply the U.S. large sums of capital at low interest rates we probably can’t expect the Americans to tighten their belt any time soon.”

Change may not come easily. China is refusing to let the yuan gain more against the dollar, rewarding its exporters and pushing up its foreign exchange reserves. The European Commission, the European Union’s Brussels-based executive body, said in an October report that the “euro area as a whole has not contributed to global imbalances.”

Strauss-Kahn is more confident, arguing U.S. consumers are saving more and that China is moving toward a “more domestic- led” growth model that will eventually result in a stronger yuan. He’s betting countries will respond to the IMF’s advice because it will benefit them, noting they did so after his January 2008 suggestion that they run budget deficits to support their economies.

Smaller Deficit

There’s reason for his optimism. The U.S. current account deficit narrowed in the second quarter to its lowest since 2001, while the World Bank said earlier this week that China’s current account surplus will almost halve to $261 billion this year.

“The biggest players, namely the U.S. but also China and Asia, do show the willingness to do something together to try to fight against big imbalances,” Strauss-Kahn said. “Not because they’ve become good boys, but because this is in their own interest.”

Still, three years ago the IMF began convening talks among the U.S., the euro area, Japan, China and Saudi Arabia aimed at striking agreements to cutting the imbalances, only for them to fade. Prior to the crisis, the U.S. regularly rejected the IMF’s proposals that it cut its budget shortfall, while more recently a report by the lender on China was delayed as the two sides disagreed over the wording on exchange rates.

The new attempt may nevertheless fare better, said Tim Adams, a former U.S. Treasury undersecretary for international affairs in the Bush administration. This time the G-20 members are signaling broader cooperation, the U.S. is supportive and the crisis is concentrating minds, he said.

“The process ought to have greater force than it did before,” said Adams, now managing director of the Lindsey Group in Fairfax, Virginia. “The test is whether countries will subordinate domestic interests for international interests and that’s always where the rub lies.”

To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.netSandrine Rastello in Washington at srastello@bloomberg.net

Last Updated: November 5, 2009 00:01 EST