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Davos wraps up with warnings for 2008 PDF Print E-mail
Monday, 28 January 2008

Agence France-Presse . Davos, Switzerland

The head of the IMF hammered home the problems facing the world economy in Davos on Saturday, sounding a final gloomy note as the annual gathering of the world's elite wrapped up.

International Monetary Fund director-general Dominique Strauss-Kahn said a 'serious' response was required to counter the risk of a US recession and slowing global growth, including both monetary and fiscal measures.

The suggestion from the IMF that countries should increase their public spending, even countries with deficits, was seen as 'an indication of the gravity of the situation we face' by former US treasury secretary Larry Summers.

'In the first time in a quarter century, the managing director of the IMF has called for an increase in budget deficits ... traditionally it's all been fiscal consolidation,' Summers said during a debate with Strauss-Kahn.

'I congratulate him for that and regard his recognition as an indication of the gravity of the situation that we face.' The downbeat atmosphere at Davos, which began Wednesday, was in stark contrast to recent years when the gathering had been held against a backdrop of bumper corporate profits, strong growth and tame inflation.

Fears of a US recession and global slowdown, wild swings on global stock markets and tightening credit conditions across the world have led to a prevailing sense of pessimism about the year ahead.

This year's Davos event drew nearly 30 heads of state or government, more than 110 cabinet ministers and several hundred corporate chiefs who came to mix with fellow powerbrokers and listen to expert panels. In a session on the outlook for the world economy, Strauss-Kahn told delegates: 'Whatever the answer is on (the possibility) of a (US) recession, what is clear is there will be a serious slowdown and it needs a serious response.' 'We cannot rely only on monetary policy,' he added. Switching to fiscal policy, he said: 'Some countries are not in a situation to increase the deficit, but other countries are in the position where there is some room for fiscal loosening.' The Japanese prime minister, Yasuo Fukuda, who will chair the annual Group of Eight summit in July, gave a keynote speech in which he warned against a 'excessively pessimistic' view of the problems ahead.

'But at the same time we do need to have a sense of urgency as we engage in coordinated action,' he said. The current economic problems facing the world originated in the US housing sector but have spread to infect the global financial system and financial markets.

Losses by banks which invested in complicated securities backed by high-risk US mortgages have led to a credit crunch in which bank lending has been restricted. Fear of further losses and a lack of transparency about the extent of the problems have led to highly volatile trading on world stock markets.

The US secretary of state, Condoleezza Rice, who gave the keynote speech at the opening ceremony, felt obliged to talk up the 'resilience' of the US economy on Wednesday. On Friday, the delegates put their own anxieties aside for a while in a bid to focus on the plight of the world's poor, with rock star activist Bono, billionaire philanthropist Bill Gates and the UN chief, Ban Ki-moon, steering the conversation onto issues such as infant mortality and poverty alleviation.

Ban challenged delegates to renew a commitment to the UN Millennium Development Goals, aimed at halving extreme poverty, boosting health and education and further empowering women across the developing world by 2015. 'Too many nations have fallen behind,' he said. 'We need new ideas and fresh approaches.'

The Davos event has long prided itself on showing the caring side of capitalism, although participants have often been criticised for trumpeting big ideas on important issues in public, while actually expending most of their energy on corridor schmoozing and backroom deals.

Bono, decrying the international community's failure to live up to its promises on development, said it was time to go beyond purely 'moral' statements of intent.

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