São Paulo – The managing director of the International Monetary Fund (IMF), Dominique Strauss-Khan, said last Friday (4th) that the stimulus policies implemented by governments across the world to fight the financial crisis should only be exited once the economy recovery is steady. He stated, during an address in Berlin, that the global economy is reacting, but advised caution.
“The global economy appears to be emerging at last from the worst economic downturn in our lifetimes. Several advanced economies, including France and Germany, have already returned to growth, and emerging economies are recovering even more strongly,” said Strauss-Khan.
He claimed, however, that the recovery should be slow and that, in developed nations, this process is driven by stimulus policies and restocking, with underlying private demand remaining weak. As for emerging economies, the Fund’s director said that “the outlook is considerably better.”
“Given the fragility of the recovery, there are risks that it could stall,” he stated. “Premature exit from accommodative monetary and fiscal policies is a principal concern,” he declared. “Policymakers should err on the side of caution as they decide when to exit from their crisis response policies,” he added.
Same as with formulation of anti-cyclic actions, Strauss-Khan advises governments to make coordinated decisions regarding the withdrawal of stimulus policies. To him, in this case, international coordination will be as important when the time comes to implement exit strategies as it was for the adoption of anti-crisis measures, or even more.
Strauss-Khan said that his main concern is the high unemployment level worldwide. “I am concerned about the social and economic costs of high unemployment, which will persist even as financial markets and output stabilises,” he claimed. Hence the willingness to maintain the stimulus policies until there is a de facto resumption of private demand and of labour market growth.
In his address, the IMF director highlighted three key areas for ensuring a sustainable resumption: identifying new sources of growth; reforming the financial sector; and strengthening the international monetary system.
Regarding the former, he stated that on the demand side, “the baton will eventually need to be passed from the public to the private sector.” Strauss-Khan called for a global rebalancing of demand, including fixing the financial system in advanced economise and boosting domestic spending in emerging Asia.
On the supply side, the Fund’s director calle dfor reforms to boost productivity, by increasing labour market flexibility and competition. He also mentioned support to the development of green technologies.
“A number of countries have already undertaken ‘green’ stimulus measures – for example, to improve energy efficiency – that are helping to sustain aggregate demand and employment. These measures could also have powerful induced effects on technological innovation. Advances in ‘green’ technology could even become the ‘microprocessor’ revolution of tomorrow, while at the same time helping address global climate change.”
*Translated by Gabriel Pomerancblum
