With new senior-level team in place, the IMF takes on challenges of difficult economic climate

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The rise in world oil prices during 2000, weaker equity markets, a slump in the high-tech sector--especially in the United States--and continued difficulties in the financial and corporate sectors in Japan are among the factors that have dampened world economic growth in 2001. Global output growth is now projected to come in at slightly less than 3 percent, down from almost 5 percent in 2000. Although shortterm prospects have worsened significantly during 2001, the most likely outcome remains a relatively mild and short-lived slowdown, with growth recovering in 2002-03. Nevertheless, there are significant downside risks to this scenario, including those associated with the external imbalancesPage 2 of the United States and some other major countries; still richly valued equity markets in many countries; and the financial difficulties of some emerging market economies.

In the United States, growth is expected to pick up in the second half of 2001 as the earlier easing of policies takes effect. Japan, suffering its fourth recession in the past decade, needs both supportive macroeconomic policies and continued structural reform, including in the banking sector, to foster self-sustained recovery. In Europe, economic growth has also slowed more markedly in the euro area than projected earlier, in spite of the support to the traded sector provided by the weakness of the currency.

Events in several emerging market economies this year--Argentina, Brazil, and Turkey--have made it clear that the risk of financial crisis is still very real. Argentina, suffering from a three-year recession, recently passed a package of fiscal adjustment measures to ease financial pressures and allay concerns about its ability to service its external debt.

Neighboring Brazil has been affected by the regional difficulties and has tightened its fiscal policy to address the problems of a weakened currency, higher interest rates, and slower growth, which have exacerbated its own debt burden. After suffering a crippling financial crisis, Turkey has adopted a comprehensive strategy of bank restructuring, fiscal consolidation, and structural reform and is making good progress in addressing its economic ills.

During the year, the IMF worked to help ease the financial pressures in these countries and, together with the World Bank, to help address the problems of its poorest members.

Change and reform at the IMF

As the world economy...