IMF says global economy on upswing, but uncertainties remain

WASHINGTON – International Monetary Fund Managing Director Horst Kohler said Friday a recovery in the global economy appeared to be underway but there were still uncertainties and risks related to the strength and durability of the upswing in the United States, financial market volatility and political tensions in the Middle East and South Asia.

In a speech at the Central Bank Governors’ Symposium in London, Kohler said overcoming these challenges would require tackling underlying economic and financial imbalances. A copy of his speech was released by IMF headquarters here.

"This calls for strong leadership of the advanced industrial countries, by taking action to strengthen the prospects of sustained growth in their own economies and through leading by example in the effort to make globalization work for the benefit of all," he said.

Kohler said strong US growth in the second half of the 1990s served the global economy well. But this was accompanied by a widening current account deficit, raising concerns over the sustainability of capital inflows to the United States and the possibility of disorderly exchange rate adjustments.

He said it was crucial for the US to ensure that the budget remains balanced over the medium term, as part of a strategy for increasing national savings.

Also needed to strengthen the global economy is a more robust, domestic demand-driven growth in other advanced economies, he said.

The IMF chief urged Europe to implement structural reforms to raise growth rates to three percent a year or more. Similarly he appealed to Japan to dispose of non-performing loans, deregulate key industries and restructure its banking and corporate sectors to enable it to return to a growth performance that corresponded to its potential.

Kohler said the IMF needed to help member countries put in place "shock absorbers" that make their economies more resilient to adverse external developments. These include more flexible exchange rate regimes; stronger net international reserve positions; budgets that leave some room to maneuver in difficult times; efficient and diversified financial systems; and more effecive social safety nets.