IMF chief warns against unwinding stimulus too soon

Tags: IMF | stimulus package | warning

Written by Reuters
Friday, 04 September 2009 17:14

BERLIN: The global economy is emerging from a deep downturn, but the recovery will be sluggish and unwinding stimulus measures too soon could derail an upswing, IMF Managing Director Dominique Strauss-Kahn said on Friday, Sept 4, according to Reuters.

Speaking at a Bundesbank conference in Berlin, Strauss-Kahn expressed concern about the risks of a rise in unemployment, which he said could lead to a decline in potential growth and social consequences he said were "even more worrisome".

"Unwinding the stimulus too soon runs a real risk of derailing the recovery, with potentially significant implications for growth and unemployment," the International Monetary Fund (IMF) chief said, according to a text of his speech provided prior to delivery.

"Therefore, exit policies should only be launched once there are clear indications that the recovery has taken hold and that unemployment is set to decline."

Strauss-Kahn said he believed the time was right for policymakers to develop exit strategies but urged them to "err on the side of caution" when deciding when to begin implementing them.

He also said central banks could face challenges to their independence as the global economy emerges from the crisis, including political pressures to "inflate the debt away", adding that these pressures must be resisted.

Strauss-Kahn said he was concerned an improvement in financial markets was leading to complacency in dealing with problems in the banking system, including reform of compensation practices.

"We must also act decisively to promote the reform of compensation policies in the financial industry," he said. "And I worry that as the financial sector emerges from crisis, a 'business as usual' mentality may prevent serious progress from being made." - Reuters