WASHINGTON, Nov 15: IMF Managing Director Horst Koehler said on Thursday that this weekend’s gathering of global finance leaders in Ottawa will be “very focused” on enabling a global economic recovery in the wake of the September 11 attacks and blocking terrorist finances.
The situation is clearly difficult. But it is manageable, and we continue to expect a recovery next year, Koehler said .
He said the Ottawa gathering of IMF and World Bank leaders would be a very focused meeting, concentrating on the response needed to restore growth and sustain the fight against poverty and the role of the IMF in combatting money laundering and the financing of terrorism.
Koehler said advanced economies have a particular responsibility to ensure their policies support an “early return” to sustainable growth.
He applauded the “aggressive monetary policy” engineered by the US Federal Reserve, and welcomed the recent move by the European Central Bank, saying this will have significant impact, adding there is room for further monetary easing if necessary, given the virtual absence of inflationary pressures.
Beyond these moves, the IMF chief said the United States needs to clarify the stimulus package now being negotiated by Congress.
The European Union, for its part, should allow the automatic fiscal stabilizers to work. Stabilizers include letting fiscal balances deteriorate under the cyclical slowing in tax receipts, rather than trying to counter them.
Koehler said the European Union should avoid unwarranted fiscal contraction.
Japan should also avoid this, in the present circumstances, he said.
Further, Japan needs to inject liquidity more forcefully, to counter deflation, Koehler said.
European countries and Japan should also implement more structural reform to raise the growth potential of their economies.
Declining oil prices should help to promote a global economic recovery, Koehler said, while gains from the use of new technology should support productivity growth.
The key point is to build confidence through sound policies, while making sure that we are prepared to deal with a worse outcome if that proves necessary.
Looking at emerging market countries, Koehler said while these are under “severe stress,” they are in a better position to cope with the global growth deterioration, as a result of reforms adopted in recent years.
As markets will have “little tolerance” for weak fundamentals, Koehler urged emerging markets to “stay the course” with sound policies, extending IMF assistance for countries to deal with the current situation, with additional financing, noting the fund has “adequate liquidity” to meet prospective needs. —AFP