May 6 (Bloomberg) -- Surging oil prices. Massive U.S. imbalances. North Korea's nuclear bombs. Violence in the Middle East. A possible Chinese currency revaluation. Asset bubbles here and there.

The global economy has a lot to consider, and so do investors trying to navigate it. Amid such uncertainty, it would be comforting if policy makers were taking steps to keep their imbalances from spilling over into other economies. Sadly, they are not.

``Everyone is waiting for everyone else to act, and that's the biggest risk,'' says Ifzal Ali, chief economist at the Manila- based Asian Development Bank. ``We are all in this together. We will all swim together or sink together.''

Consider the global blame game unfolding before our eyes. The U.S., with its record current account and budget deficits, points to China. If only China would let its pegged currency rise, the Bush administration says, all would be well again.

Europe, with its weak demand and worsening fiscal positions, blames Asia's central banks. Supposedly, their vast dollar purchases are pushing up the euro and hurting people from Dublin to Athens. Europeans also blame a Bush administration that pretends all's well in the U.S. economy.

Asia puts the onus on the West, charging it has created a global system that forces Asians to fund the U.S.'s way of life. People here like to complain it's Washington's fault that they have to park so much of their savings in U.S. Treasuries.

Owning Problems

Depending on whom you speak with, these gripes are either right on or ludicrous. The thread of truth that runs through each is that no one wants to own his problems. No one seems to have the courage to say, ``Yes, we've built up some big problems and here's what we are doing about it.''

Call it the ``Hot Potato Syndrome.'' Policy makers are all too keen on passing it to others so they won't get burned.

Ali thinks it's time to end this dangerous pattern of denial, one that merely means imbalances grow ever bigger and more dangerous. What's interesting about his view is that Asia has a role to play, too. Most in this region think the rich Group of Seven economies should do the heavily lifting. Ali thinks there's plenty of work to go around.

``The biggest risk to Asia is how economies here will adjust to the global imbalances,'' Ali tells me here in Istanbul, where the ADB is holding its annual meeting. ``But Asia must not only be resilient to risks, but also be a major player in resolving the world's problems.''

The Yuan Focus

It's not quite a 12-step program, yet Ali thinks the following needs to happen, and soon. First, the U.S. needs to address its record deficits, which he calls ``totally unsustainable.'' Second, Europe and Japan must increase domestic demand and end their sluggish growth cycles once and for all. Third, non-Japan Asia should allow its currencies to rise.

Asia's responsibilities to global stability don't end there. This region needs to step up efforts to eradicate poverty, accelerate the development of local-currency bond markets and reduce health risks like SARS, bird flu and HIV/AIDS. It also must develop a plan to address the economic effects of rising oil prices.

``We are watching with concern the downside risk'' arising from high oil prices, says Nor Mohamed Yakcop, Malaysia's second finance minister. ``I'm sure all the governments in the world are looking at the higher oil prices, inflation and possibly higher interest rates, and we have to make sure we are aware of the risks and be prepared.''

The trouble is, the world's attention is focused elsewhere: China's currency policy. Breathless speculation over whether China will alter its 8.3 peg to the dollar is sucking all the air out of discussions about global imbalances. ``Just focusing on the yuan is counterproductive,'' Ali explains. ``It would be nice if the world were that simple -- it's not.''

Pressuring China

Tell that to the Bush administration, though. It continues to pound away at China, accusing it of manipulating its currency to the detriment of the U.S. economy. The irony, of course, is that every time the U.S. pushes China publicly to let the yuan rise, it merely delays such a step.

In Beijing, the Communist Party is struggling to maintain credibility and it can't be seen bowing to U.S. pressure. This issue requires thoughtful, behind-the-scenes economic diplomacy, not podium thumping for the world's television cameras.

``So along with distracting us from the real problems out there, the U.S. is pursuing a failed approach on the issue,'' says Jeremy Grantham, chairman of Grantham, Mayo, Van Otterloo & Co., who oversees $85 billion in assets.

Besides, China may not be ready to move, given its fragile financial system. ``A hard landing in China would have a very negative impact on Asian trade,'' Ali explains.

The same is true of hard landings in the U.S. or continued stagnation in Japan and Europe. Amid so many economic hot potatoes, it would be nice if policy makers were addressing imbalances. Instead, they're busy pointing fingers, putting the global economy at bigger risk.

To contact the writer of this column: William Pesek Jr. in Istanbul, or reachable through the Tokyo newsroom at wpesek@bloomberg.net.

Last Updated: May 5, 2005 16:44 EDT