IMF head warns of stalled recovery, urges reforms

ISTANBUL (Xinhua) – International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn said on Friday that resuming economic growth does not mean the crisis is over, warning against risks of a stalled recovery and urging for reforms of the 186-nation agency.

The world economy is expected to show a positive growth in 2010 but risks still lurk next year, and “the biggest one is that the recovery stalls,” said Strauss-Kahn at a press conference in the largest Turkish city Istanbul, which is hosting the annual meetings of the IMF and the World Bank, slated for Oct. 6-7.

“I’m still concerned about the rising unemployment … economic growth is resuming but that does not mean the crisis is behind us,” he told reporters.

The crisis has already thrown about 15 million people out of work in the advanced economies, with more to follow as unemployment continues rising next year, said the IMF head.

He warned governments not to exit from stimulus and crisis support measures too early, which would harm the recovery.

The IMF said in a report Thursday it upgraded forecast for global economic growth in 2010 to 3.1 percent year-on-year after huge public spending and credit expansion took effect.

The growth will be slow and fragile and the recovery could further slow down if private demand in advanced economies is too weak to take over as policy stimulus and inventory restocking lose steam, said Strauss-Kahn.

The world now needs to sustain international cooperation on monetary policies, improve financial stability to avoid reversals and build a more stable international monetary system, said Strauss-Kahn.

He also urged for reforms to make the IMF better play the role of “the lender of last resort” to solve global economic imbalance, which has been blamed as a root for the global financial crisis that sent the world economy into the deepest recession since the 1930s.

To ask countries like China and other Asian nations to reduce surpluses requires an offer of other protection for them from speculative attacks, and a more efficient and less costly solution is pooling their reserves collectively, which was just the original mandate of the IMF, said Strauss-Kahn.

The IMF needs to build financial credibility and increase its legitimacy to play such a role by expanding resources and forward quota reforms, he noted.

“The role I see for the IMF won’t be achieved in just a couple of days but let’s start now and step forward,” he told the press. “Time is the enemy of reforms. This meeting in Istanbul may be the starting point of a new IMF.”

Asian countries have accumulated hefty surpluses and foreign reserves in the past decade to guard against drastic foreign capital outflows and currency crises that hit them hard in late 1990s.

The IMF drew criticism during the Asian crisis from members unhappy about its austere conditions for loans. The agency asked loan receivers to cut fiscal spending and control deficits, which many countries said further dampened the economy.

Strauss-Kahn said the Group of 20 (G20) leaders’ call in an April summit to triple IMF lending resources to 750 billion US dollars would erase earlier doubts about the Fund’s ability to meet financing needs.

He added that the IMF lending instruments have also been made more responsive to conditions in member countries.

Leaders of the G20 riches and fastest-growing economies voiced support last month for a shift in voting power at the IMF towards emerging economies. Changes in IMF voting power are expected to be decided by early 2011 by the IMF member countries.