MercoPress. South Atlantic News Agency

IMF warns it’s too early to withdraw stimulus packages

Managing Director Dominique Strauss-Kahn in an Asian conference tour

International Monetary Fund Managing Director Dominique Strauss-Kahn said it’s too early for policy makers to withdraw stimulus that’s driving the global recovery.

“The global economy is recovering, even if its recovery is fragile,” Strauss-Kahn said in a speech at Tokyo University in Japan’s capital Monday. A plan to withdraw emergency measures “should be designed today” yet not “implemented” because world economies are still dependent on government support and private demand remains weak, he said.

Strauss-Kahn had said earlier this month that the world’s economic recovery is occurring “sooner and stronger” than anticipated. More than 2 trillion US dollars in government spending around the world has spurred growth, pulling economies out of a recession spurred by a meltdown in the US housing market.

Government measures “should be focused more on what is likely to fight unemployment,” he said today. Strauss-Kahn said countries haven’t done enough to tighten regulation in the wake of the global financial crisis.

“The root of the crisis” was “a failing of regulation and supervision of the financial sector in the US,” he said. “A lot has already been done, but it’s not enough.”

He urged nations to consider having companies in the financial sector financially help solve the problems they created. US President Barack Obama’s proposed levy on the country’s banks is “very welcome” and “a good idea,” Strauss-Kahn said.

Obama is proposing a tax on the country’s largest financial firms to get back taxpayer money that bailed out those companies during the worst recession since the 1930s. The fee would apply to financial companies with assets of more than 50 billion USD such as Citigroup Inc., American International Group Inc. and Bank of America Corp.

Non-financial companies which also got bail-out aid including General Motors Co. and Chrysler Group LLC would be exempt from the levy.

Strauss-Kahn also mentioned that the world was seeing a multi-speed recovery, with different countries emerging from the crisis at different rates. He said the IMF would release its quarterly growth forecast shortly showing a faster recovery than expected.

Emerging markets, particularly in Asia and Latinamerica, were leading the recovery, but advanced economies were still gaining ground more quickly than anticipated earlier. However, the recovery is fragile and growth, particularly in advanced economies, remains dependent of government stimulus measures.

“Our forecast at the IMF is not a forecast of a double dip. But you never know. It may happen and especially if countries exit too early. If they exit too early and we have a new downturn in growth, then really I don’t know what we can do. A lot of our toolkit in terms of fiscal and monetary policy has been used. If we fall back into negative territory for growth it will be very, very difficult to solve the problem, so, our advice is to be very careful,” the Managing Director cautioned.

“The best indicator (for the exit timing) is private demand and employment ... In most countries, growth is still supported by government policies. For as long as you do not have private demand strong enough to offset the need of public policy, you shouldn't exit,” he said.

Strauss-Kahn is visiting the region as part of enhanced engagement with Asia by the IMF. The IMF and the Government of Korea are planning a high level regional conference in Seoul for July.