Too early to talk of unwinding stimulus action, says IMF chief

It is premature to talk of rolling back stimulus spending  at a time when the world economy is yet to weather the worst of a recession that claimed a record number of jobs the world over, IMF managing director Dominique Strauss-Kahn said today.

Almost all of the G-8 countries, except perhaps for the US and the UK, are now seriously looking for ways to unwind emergency steps to rescue their economies once recovery is certain, (See: G8 wants to get out of the stimulus pit, looks at IMF)

Strauss-Kahn said while it was a credit to governments around the world that their policy actions were starting to have effect, the recovery was weak and a lot more remained to be done, particularly in the financial sector.

He said while it was important to plan post-crisis strategies, "it is even more important to first exit from the crisis." The situation in some emerging market countries was still worrying, he added.

It is essential that individual governments coordinate financial supervision and contininue to clean up bank balance sheets in order to provide stimulus to the global economy, he said.

In a communiqué issued at the end of the talks, G-8 finance ministers said they had discussed the need to prepare strategies for unwinding the stimulus policies once recovery is assured.

"Their stance is that we are beginning to see some green shoots but nevertheless we have to be cautious," Strauss-Kahn said during a visit to Kazakhstan, adding, "The large part of the worst is not yet behind us."

Member countrites, especially those most fiscally conservative ones like Germany and Canada have been mounting pressure on the grouping for a quicker wind down of stimulus.

The G-8 ministers differed over how quickly to start rolling back state spending plans and hiking interest rates.

"These "exit strategies", which may vary from country to country, are essential to promote a sustainable recovery over the long term," the statement said. "We asked the IMF to undertake the necessary analytical work to assist us with this process," it added.

Finance ministers from the US, Japan, Germany, France, Britain, Italy, Canada, Russia, and the European Union had met last week ahead of a summit of G-8 national leaders in July in L'Aquila, central Italy.

The G-8 communiqué also referred to the IMF's role in providing rapid resources to counter the crisis, step up help to low-income countries, and reform the governance structure of the multilateral institution.

"We have led efforts to provide the IMF with the necessary resources to expand its lending capacity and are fully committed to swiftly implement the London Summit commitment, and urge other countries to participate," the G-8 communique said.

"We are also exploring ways to substantially increase the IMF capacity for concessional lending through the sale of gold or other means, consistent with the new income model, and we encourage the fund to explore the scope for increased concessionality to low-income countries," it added.

At a summit in London, in April, the Group of Twenty (G-20) industrial and emerging market countries had proposed a tripling of IMF's lendable resources to $750 billion to help combat the crisis, Strauss-Kahn said.

While the G-20 had suggested a doubling of concessional lending to around $6 billion over 2-3 years, in fact it could reach some $8 billion, Strauss-Kahn said.  He also called for a further lowering of concessional interest rates for low income countries.

The G-20 had also mandated the IMF to make a new general allocation of the IMF's Special Drawing Rights to inject $250 billion into the world economy and increase global liquidity. Strauss-Kahn said the IMF's executive board would discuss ways to proceed with the proposals on 13 July.

Even with some form of economic recovery, analysts expect unemployment to climb for many months to come.