UPDATE: IMF Strauss-Kahn:Late Stimulus Exit Better Than Early
(Adds comment, context)
By Natasha Brereton
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- International Monetary Fund Managing Director Dominique
Strauss-Kahn said Monday that it is still too early for a general exit from
stimulus policies, and that governments should err on the side of caution, with
a late exit being potentially less damaging than an early one.
In a speech in London, Strauss-Kahn said that, while conditions in the global
economy are improving, they remain highly vulnerable, threatened by
undercapitalized banking systems, weak household finances, high unemployment and
large public deficits.
He added that designing and communicating plans for fiscal consolidation
should be the top priority, especially for advanced economies, where there is "
little sign" of inflationary pressures, and monetary policy can afford to stay
accommodative for "some time."
"I think it is still too early for a general exit. Exit should instead await a
sustained recovery in private demand, as well as entrenched financial stability-
-a key litmus test," Strauss-Kahn said. "We recommend erring on the side of
caution, as exiting too early is costlier than exiting too late."
Strauss-Kahn said the overall outlook for the U.K. had improved and there were
signs that increases in unemployment levels were nearing an end, but that
recovery would be held back by bank and household balance sheet adjustment.
As such, "the recovery may be somewhat subdued," he said.
Data Wednesday are expected to confirm that the U.K. remained in recession for
a sixth consecutive period in July-September, but analysts broadly expect the
economy to start growing again this quarter, albeit at a modest pace.
The IMF chief noted that the activities of surplus countries would be crucial
in sustaining global growth, and that an appreciation of the Chinese yuan and
some other Asian currencies would be necessary to achieve the desired shift from
exports toward domestic demand.
He also warned that uncertainty over the future regulatory environment was
creating perverse incentives, and stressed the importance of spelling out the
details of future requirements and the timescale for implementation at the
earliest possible opportunity.
"It might be encouraging a risk-taking culture--a Mardi Gras effect whereby
financial institutions party now in expectation of lean times to come," Strauss-
Kahn said.
"Clearly, this is dangerous, not least for emerging markets. And we may run
out of time--if we wait too long to implement these reforms, it might be too
late."
-By Natasha Brereton, Dow Jones Newswires; +44-20-7842-9254; natasha.brereton@
dowjones.com
(END) Dow Jones Newswires
11-23-090630ET
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