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20 January 2010

Head of IMF warns of threats to recovery; stimulus is still required


Though the global economy is recovering from the international financial crisis faster than expected, Dominique Strauss-Kahn is concerned that growth is still largely driven by government stimulus measures. Countries risk a return to recession if anti-crisis measures are withdrawn too soon.

Speaking on a trip to Asia, a continent that is leading the recovery, Strauss-Kahn identified several key issues to focus on in 2010.

• Building a sustainable recovery. Governments should use stimulus measures to help create jobs and combat unemployment. Joblessness is a threat to democracy and could lead to social unrest and even war. “When we are working to try to achieve economic and financial stability, what is at stake is not only dry figures on a piece of paper. It’s the whole stability of the world that is at stake, and that’s why sustainable recovery goes much further than only the rate of growth.”
 
• Addressing the roots of the crisis. Lax supervision and regulation of financial markets was an underlying cause of the crisis. The financial sector cannot return to business as usual. Governments must not abandon financial sector reform just because the recovery is under way.
 
• Forging global cooperation. Governments should build on the global cooperation that developed during the crisis. The IMF is providing analytical support for the mutual assessment process initiated by the leaders of the Group of Twenty (G20) and will present a paper to finance ministers at their April meeting. Strauss-Kahn said this would be very important for the future of the world economy. “It acknowledges that we are truly in a globalized world… There is no domestic solution to global problems.”
 
• Pursuing change at the IMF. The fund has already changed to help combat the crisis, introducing more flexible loan facilities, with streamlined conditionality. The Fund would push ahead with changes in its governance structure to better reflect the weight of dynamic emerging economies, as well as reviewing its mandate. “We need multilateral institutions that deal with globalized problems,” he told reporters.
 
 
 


© International Monetary Fund


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