National Press Club

IMF Director Predicts Economic Recovery by July 2010

April 17, 2009 | By Lorna Aldrich

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Dominique Strauss-Kahn, managing director of the International Monetary Fund, predicted recovery from the global economic crisis during the first half of 2010, provided “right policies” were enacted. He spoke at the Club April 16.

His necessary policies include financial sector reform and regulation, global stimulus spending and aid to emerging economies. He approved the U.S. plan for addressing banks and the stimulus plan agreed upon for 2009 at the G20 meeting earlier this month.

The G20 meeting supported the IMF by pledging $500 billion in potential loans from central banks, in addition to the $250 million already available, he said. The IMF will use these resources for loans to support countries whose economies are in difficulty, the traditional role of the institution. What is new, Strauss-Kahn said, is that economies in difficulty now have pursued “right policies,” but have suffered reduced capital inflows as a result of the crisis. He cited Mexico and Poland as examples.

In addition to making loans, the IMF will contribute to recovery through economic surveillance, including early warning of economic problems, and assisting in international cooperation, he said. He added that surveillance is particularly critical in the current situation because it is a crisis of linkage between the financial and “real” (production of goods and services) parts of the global economy.

In several digressions, unrelated to the current crisis, the director emphasized a departure from the historical stance of the IMF in aiding countries in economic difficulties. Presently, when lending is conditional on changed policies, the changes are narrower than in the past, when the IMF was criticized for demanding too many policy changes. He added that the new policy includes protection of the most vulnerable populations in the affected economies.

Because seeking assistance from the IMF implied mismanagement in the past, many countries are reluctant to approach the institution for assistance now, Strauss-Kahn said. In the current crisis, he urged countries not to wait too long to ask for assistance.

Responding to a question, he noted that the dollar has become stronger in the current crisis and predicted that it will maintain its position in the global economy when the crisis has passed.

Most questions focused on particular countries or regions, particularly Latin America and Africa. He called most of the countries mentioned relatively strong. Central Europe, he noted, is most affected by the crisis.

One question pertained to the option of issuing IMF bonds, a program included in the organization’s 60-year-old charter but never implemented, he said. He described current plan that call for $$40 billion of bonds, to be denominated in Special Drawing Rights, a unit of account that is a weighted average of the yen, euro, dollar and pound.