By Leika Kihara and Francesco Canepa
WASHINGTON (Reuters) - 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 from the Group of 20 nations that the Trump administration sought last month in Germany as it develops a strategy to slash 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."
Mexican central bank chief Agustin Carstens, the IMFC chairman, said most countries have some trade restrictions and that protectionism was an "ambiguous" term.
"Instead of dwelling on what that concept means, we managed to put it in a more positive, more constructive framework," Carstens told a news conference.
Some officials chose to focus on the brightening global economy instead of the risks posed by the French election, new U.S. trade barriers and Britain's decision to leave the European Union, said James Boughton, a former IMF official.
"There's an awful lot of forced optimism about what these people are saying," said Boughton, who is now with the Centre for International Governance Innovation, a Canadian think-tank. "Until the train goes off the tracks, everything looks fine."
U.S. Treasury Secretary Steven Mnuchin called for the IMF to step up its surveillance of members' foreign exchange rates.
President Donald Trump "believes in reciprocal trade deals and reciprocal free trade," Mnuchin told Lagarde in an on-stage interview. "What that means is that if our markets are open there should be a reciprocal nature to other markets which should be open as well."
CONTINGENCY PLANS
The French election presents free trade advocates with a third potential blow in less than a year after Britain's EU referendum and 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.