IMF chief renews call for spending to kick-start economies
Friday, 12 December 2008
WASHINGTON, Dec 11 (AFP): International Monetary Fund (IMF) chief Dominique Strauss-Kahn again urged governments yesterday to use spending, rather than interest rate cuts, to battle the global financial crisis.
"Countries with the strongest fiscal policy frameworks, those best able to finance new fiscal efforts, and those with clearly sustainable debt positions, should take the lead in supporting global demand," Strauss-Kahn said in a speech in Kingston, Jamaica.
"With inflation receding, central banks in advanced and emerging market countries have also taken steps to ease monetary policy," he said according to the prepared text.
But "lower interest rates may not necessarily act as an accelerator, the way higher rates act as a brake" on economic activity, he said.
The IMF managing director explained that "when the real economy has stalled, loosening monetary policy does not remove the uncertainty that firms face regarding their investment decisions."
"Further, banks in normal times perform the function of intermediating between savers and borrowers. As banks have suffered extensive losses and are primarily focused on repairing their balance sheets, the channel through which monetary policy normally works has now been severely impaired."
The financial meltdown has eroded economic growth and thrown the US and other major economies into recession.
Strauss-Kahn noted that the IMF believes a global fiscal stimulus of about 2.0 per cent of world gross domestic product "is justified."
That amount represents 1.24 trillion dollars, based on the multilateral institution's estimate of 2008 global output.
"Countries with the strongest fiscal policy frameworks, those best able to finance new fiscal efforts, and those with clearly sustainable debt positions, should take the lead in supporting global demand," Strauss-Kahn said in a speech in Kingston, Jamaica.
"With inflation receding, central banks in advanced and emerging market countries have also taken steps to ease monetary policy," he said according to the prepared text.
But "lower interest rates may not necessarily act as an accelerator, the way higher rates act as a brake" on economic activity, he said.
The IMF managing director explained that "when the real economy has stalled, loosening monetary policy does not remove the uncertainty that firms face regarding their investment decisions."
"Further, banks in normal times perform the function of intermediating between savers and borrowers. As banks have suffered extensive losses and are primarily focused on repairing their balance sheets, the channel through which monetary policy normally works has now been severely impaired."
The financial meltdown has eroded economic growth and thrown the US and other major economies into recession.
Strauss-Kahn noted that the IMF believes a global fiscal stimulus of about 2.0 per cent of world gross domestic product "is justified."
That amount represents 1.24 trillion dollars, based on the multilateral institution's estimate of 2008 global output.