IMF chief asks for global solution to serious US slowdown
Tuesday, 29 January 2008

Agence France-Presse .Davos

The director general of the IMF called Saturday for a ‘serious’ response to the risk of a US recession and encouraged fiscal stimulus programmes in some countries. Speaking in Davos, the head of the International Monetary Fund, Dominique Strauss-Kahn said: ‘Whatever the answer is on a recession, what is clear is there will be a serious US slowdown and it needs a serious response.’

The head of the IMF, which usually encourages reductions in public spending, indicated that there was room for fiscal loosening in some big countries and interest rate cuts. ‘We cannot rely only on monetary policy,’ he said during a public debate about the world economy.

‘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,’ he added, declining to name the countries he had in mind. On interest rates, he said that an expected economic slowdown would lead to falls in inflation which would allow some central banks to lower borrowing costs to boost the economy.

The US Federal Reserve has slashed interest rates aggressively, but the European Central Bank is resisting pressure from some European politicians to act because it remains concerned about inflation. ‘There will probably by even more room to lower rates in the coming weeks or the coming months depending on the price of commodities and on the decreasing demand,' Strauss-Kahn said. He also said the IMF would issue economic forecasts next week that would show emerging countries doing ‘rather well’ despite the problems faced by the US economy.

He also called for a global solution to the current economic problems, which originated in the US housing market 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 losses and a lack of transparency about the extent of the problems have led to highly volatile trading on world stock markets. ‘All this shows that we need more multilateral regulation,’ Strauss-Kahn said.

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