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Imf warns gap between rich and poor nations Original Source Link: (May no longer be active)
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'Don't Let Down Guard,' IMF Chief Warns
Sat Oct 2, 2004 01:38 PM ET
By Lesley Wroughton
WASHINGTON (Reuters) - With no major economic crises brewing, the head of the International Monetary Fund on Saturday urged world financial leaders to seize the period of calm as a time to tackle weak spots in their economies.
In his first speech to the IMF's main policy-setting committee since becoming the fund's managing director in June, Rodrigo Rato said countries could not let down their guards, since current low volatility may invite increased risk taking.
He noted that in some countries, signs of reform fatigue had emerged.
"What is needed is durable fiscal consolidation, growth-enhancing structural reforms, strengthened corporate and financial balance sheets, the rebalancing of global current account positions, and poverty reduction," Rato told the IMF's International Monetary and Financial Committee, marking the opening of the annual meeting of the IMF and World Bank.
The last instance of a major economic emergency during the meetings -- one of the rare events that bring together top global finance officials from rich and poor nations -- was in 1997 in the buildup to the Asian contagion.
Rato, Spain's former finance minister, used the gathering of the 184 fund and World Bank members to present the global lender's outlook for the world's economy.
The IMF's World Economic Outlook, released earlier this week, saw the strongest performance for the global economy in nearly three decades this year, with growth of some 5 percent.
Tasked with promoting economic stability, the IMF said while the economy was at its best in many decades, the recovery would moderate next year to 4.3 percent as oil prices surge from increased demand from China and India.
Crude prices surged to above $50 a barrel on Friday, although the IMF has said that in real terms they are still way below prices in the late 1970s.
Rato said the recovery had become further entrenched and was geographically more broad based, mainly due to accommodative economic policies, improved corporate profits and stronger equity and house prices.
"Financial market conditions are benign at present, supported by the global recovery, and the financial system is more resilient today than it has been since the bursting of the equity bubble," he said.
Rato said most financial institutions seemed well protected against the risk of higher interest rates, but warned regulators to be vigilant in their supervision of key institutions to guard against a build-up of excessive leverage and risk-taking.
While the IMF has said developing Asia should help rebalance the global economy, Rato noted there had been "little progress" by Asia, in particular China, for more exchange rate flexibility.
"The key policy requirements include medium-term fiscal consolidation in the United States to boost national savings, structural reforms to boost growth prospects outside the US and exchange rate flexibility in Asia," he said.
James Wolfensohn, president of the World Bank, also recognized the dangers in store for the world's poorest countries from oil prices and higher interest rates.
He said it would mainly affect heavily indebted nations and those that import oil. "Mitigating and managing these risks remain important challenges for us all," told the IMFC.
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