MercoPress. South Atlantic News Agency

Emerging economies not immune to slowdown warns IMF

IMF Director D. Strauss-Kahn

The International Monetary Fund Director General Dominique Strauss-Kahn warned that emerging economies are not immune to a slowdown resulting from the financial crisis in United States and thus must prepare to cope with the negative effects.

"What at first was a problem for financial institutions it has become a problem for all economies. This is clearly the case of United States, I think it is clear Europe is on the same track and I don't believe emerging economies are immune to this crisis", said the IMF chief addressing a meeting in New Delhi of India's Council for international economic research. "I believe the effects will be felt and are coming. Industrialized countries and emerging economies are like two horses trotting together". "If one of them is tired the other can carry the load for some time but if both stop suddenly, none of them will be able to advance much more", he illustrated. Strauss-Kahn also warned that "trade relations among emerging countries and the industrialized nations are far closer that can be read in the figures". "Statistics show developing countries trade more among themselves than ever before, but very often goods traded among developing nations are eventually exported to the US or Europe, so the de-coupling argument is not as sound as it seems", said the IMF managing director. Emerging countries must show they are willing to cut interest rates and be willing to apply budget and fiscal instruments to re-launch their economies. "Emerging economies must be prepared and know how they are going to cope with a global slowdown and how much margin they have for monetary flexibilization or an active budget thrust response". But Strauss-Kahn also advised emerging countries to manage their finances and regulatory systems carefully. According to the IMF, in the past a 1% decline in US growth had led to a decline in growth in emerging economies by between 0.5% and 1%, depending on trade and financial links to the US. Last month, the IMF cut its forecast for world growth this year in the face of continued stress in global credit markets, and warned that economic activity could slow even further. It lowered its global 2008 growth projection to 4.1% from 4.4%, reflecting a marked slowdown from the 4.9% pace achieved last year. IMF also cautioned that the main risk to the global outlook was ongoing turmoil in financial markets, which would further reduce domestic demand in advanced economies and create more significant spillovers into emerging markets and developing economies.