January 27, 2008	Sunday	Muharram 17, 1429

DAVOS, Jan 26: 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 slowing global growth, including both interest rate cuts and increased government spending.

The suggestion from the IMF that countries should increase spending, even those 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,” 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,” Summers said during a debate.

The downbeat atmosphere at Davos, which began on 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, tightening credit conditions and a scandal at French bank Societe Generale have led to a prevailing sense of pessimism.

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.” Japanese Prime Minister Yasuo Fukuda, who will chair the annual Group of Eight (G8) 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.

He also used his address on Saturday to set out his stall for Japan’s chairing of the G8 meeting in July, indicating that climate change would be high on the agenda.

Fukuda said that climate change would be a “top priority” for Japan at the meeting and that he would press for a new global agreement with “fair and equitable” emissions targets involving “all major emitters.”—AFP