News Briefs

• Pages: 32

Page 32

At Davos, Strauss-Kahn Calls For Multilateral Coordination

The global economy plenary session at the annual meeting of the World Economic Forum in Davos, Switzerland, is an eagerly awaited event. The session, chaired by the Financial Times' Martin Wolf, is the centerpiece of the Davos meetings, particularly so in 2008 because of the market volatility and uncertain prospects for the United States.

Wolf said that the "Davos consensus" on the health and prospects for the global economy was "always proven wrong." This year, he said, the consensus is that we may be on the brink of a U.S.- if not world-recession, adding that the deep pessimism displayed by the delegates in 2008 may be excessive.

In the panel discussion, IMF Managing Director Dominique Strauss-Kahn offered the Fund's perspective on the global economy, saying that he expects a significant slowdown in the U.S. economy that would need a strong response.

Strauss-Kahn said that low interest rates, high liquidity, a breakdown in credit and risk management practices, and a shortcoming in U.S. financial regulation and supervision had produced an economic "perfect storm" in the financial world. "I think we have to recognize the failure in this system and the overall regulation," he said.

Strauss-Kahn stressed that central bank coordination is needed to deal with the coming slowdown. "Central banks must continue to provide liquidity to financial markets with as much or more coordination than we have seen in the past weeks."

Monetary policy alone will not be enough to address persistent global economic problems- systemic countries with strong fiscal positions need to take fiscal measures, Strauss-Kahn cautioned. "Some countries are not in a situation to increase the deficit, but other countries are in a position where there is some room for fiscal loosening," he said.

With regard to the effects of a U.S. slowdown on the rest of the world, Strauss-Kahn said that while emerging markets appear to be "doing well," they are not immune from problems, noting the complex links between emerging markets and industrial countries. Today's economic and financial globalization requires multilateral coordination of economic policies, he stressed.

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