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IMF warns against early withdrawal of stimulus

Last Updated: Monday, January 18, 2010 - 11:57

Tokyo: Some countries may suffer double-dip recessions if they exit strategies taken to battle the global financial crisis too early, the head of the International Monetary Fund said Monday.

Recovery in private demand and employment are necessary conditions for governments to begin exiting policies designed to support their economies, although the appropriate timing depends on specific conditions in each nation, Dominique Strauss-Kahn said.

"Recovery in advanced economies has been sluggish," he said. "We have to be cautious because the recovery has been fragile."
Tackling high levels of public debt will become top priority for many governments, he continued.

But he added that too early an exit from stimulus measures could backfire as countries may not have the tools to deal with a renewed downturn after using both fiscal and monetary stimulus measures after the crisis.

"It would be difficult to find new tools," Strauss-Kahn told reporters in Tokyo.

"The best indicator is private demand and employment ... In most countries, growth is still supported by government policies. For as long as you do not have private demand strong enough to offset the need of public policy, you shouldn`t exit," he said.
The IMF in October forecast global growth would resume and hit 3.1 percent in 2010 after contracting in 2009.

Strauss-Kahn reiterated that the economy has been stronger than expected, led by emerging economies in Asia.

He will travel to Hong Kong on Wednesday, where he will deliver a keynote speech at the Asian Financial Forum 2010 that will focus "on the global post-crisis financial landscape and Asia`s role in the new economic order."

Bureau Report

First Published: Monday, January 18, 2010 - 11:57
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