IMF: international economy recovering faster than expected

PanARMENIAN.Net - The international economy is recovering faster than expected from the global crisis, but the world remains a dangerous place and governments should now focus on stepping up reform of financial sector regulation to avoid future crises, said IMF Managing Director Dominique Strauss-Kahn.

Speaking ahead of meetings in Washington of the International Monetary Fund, the World Bank, and the Group of Twenty (G-20) leading industrial and emerging market countries, Strauss-Kahn said the faster-than-expected recovery was testament to the unprecedented cooperation between major economies to combat the crisis.

But in a wide-ranging press conference that also touched on Greece, Iceland, Argentina, China, and reform of the IMF, among other issues, he told reporters on April 22 that the recovery remained uneven and the world could not go back to business as usual.

Need to secure recovery

“The goal now is to secure and advance the recovery, because even if the recovery is stronger and faster than expected, it’s still fragile. And it’s fragile mainly because it’s uneven,” he said. “The world is still a dangerous place, and I don’t like that many people have in mind that the crisis is over, that everything is behind us, and we can go back to business as usual.”

Strauss-Kahn pointed to a variety of problems, including high unemployment in advanced economies, weak private demand, high government debt, the risk of asset price bubbles in emerging markets, and the need to press ahead rapidly with financial sector reform.

Releasing the IMF’s latest economic forecast on April 21, IMF Chief Economist Olivier Blanchard said the world faced an important “new stage of the crisis.” Achieving strong, sustained, and balanced growth would require more work, namely fiscal consolidation in advanced countries, exchange rate adjustments, and a rebalancing of demand across the world.

G-20 leaders will discuss on April 23 a process of mutual assessment of each other’s economies to try to even out the recovery. “Multilateralism and policy cooperation is obviously the great legacy of this crisis, and our point is that it has to be maintained in a postcrisis world. From this point of view, the G-20’s Mutual Assessment Program is very promising. Of course it’s a process which has to be improved, it’s a learning-by-doing process, it’s the first time we are doing it, but already I think it’s really interesting.”

Strauss-Kahn said progress was now needed on financial sector reform. He pointed to three key areas for international agreement by the end of the year: Rules on financial sector liquidity and capital; The toolkit for addressing systemic risks, and The framework for cross-border resolution issues.

While progress was being made on the regulatory side, “more attention has to be paid to the supervisory side, which in our view is the most important because you may have the best possible regulation, but if it’s not enforced and you don’t have supervision it’s as if you did nothing.”

He said he hoped that world leaders would be able to make progress together on pushing ahead with financial market regulation and iron out inconsistencies in approach. Countries do not need exactly the same rules, but they need to be consistent around the world.

Strauss-Kahn said that the IMF had prepared a preliminary paper for discussion by the G-20 on options for taxing the financial sector. “Our belief is that the tax system can help to reduce the likelihood of future crises, along with regulation, of course … What we tried to do was to provide a comprehensive analysis, having in mind two goals: to secure some resources to help with crisis resolution, if any; and to have a tool that would help curb risk-taking behavior, and try by this way to prevent the likelihood of future crises.”