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IMFSurvey Magazine: In the News

IMF Backs Continued Chinese Stimulus, Economic Rebalancing

IMF chief Dominique Strauss-Kahn speaks at townhall meeting at Tsinghua University in Beijing, China (photo: Doug Kanter/IMF)

IMF Chief in Asia

IMF Backs Continued Chinese Stimulus, Economic Rebalancing

November 17, 2009

  • IMF supports China stimulus for 2010
  • Call for Asia to help mold future world economy
  • IMF deepening ties with Asia

The head of the IMF has welcomed China’s pledge to continue with its stimulus package in 2010 and said the Chinese people would gain from a rebalancing of their economy.

Wrapping up a six-day trip to Asia, Dominique Strauss-Kahn told reporters in the Chinese capital, Beijing, that the decision by Chinese authorities to continue with fiscal and monetary stimulus was “exactly the right policy to implement.”

“The main goal is to help with public demand, weak private demand. And the reason why we have to continue with stimulus is because a self-sustaining private demand is not yet visible,” he said

Asian rebalancing

During his trip to the region, the IMF Managing Director has been highlighting the Fund’s call for Asian countries—including China—to rebalance their economies, relying less on exports for growth and instead stimulating domestic consumption.

“The main reason why the rebalancing organized by the Chinese authorities is so useful is (because) it is in the interests of the Chinese people themselves, because it is a more sustainable model of growth,” said Strauss-Kahn.

The IMF head said part of the package to encourage domestic consumption included allowing the Chinese currency, the yuan or renminbi, to strengthen in value. He said it would boost the buying power of Chinese households and would be a part of necessary reforms in China.

“Allowing the renminbi and other Asian currencies to rise would help increase the purchasing power of households, raise the labor share of income, and provide the right incentives to reorient investment,” he said.

Strauss-Kahn addresses International Finance Forum in Beijing November 16 (photo: Doug Kanter/IMF)

Asia’s post-crisis role

Strauss-Kahn’s trip to Asia is a reflection of the IMF’s renewed focus on Asia as it leads the world to recovery. The Fund expects Asia's GDP growth to be 5.75 percent next year--almost double the 3 percent rate forecast for the global economy.

During an earlier stopover in Singapore, the IMF head called on the region to use its increasing economic importance and prominence to help mold the future of the world’s economy.

“I believe that Asia should play a leadership role in guiding the global economy to a new, more sustainable path for growth. This is not only appropriate given Asia's economic weight but also necessary, since Asia is such an important part of the solution."

Strauss-Kahn identified three priorities for reshaping the post-crisis economy including global rebalancing, strengthening the international monetary system and creating a safer and more stable financial system.

IMF and the global economy

On the reform of the global monetary system, the IMF head said the absence of an adequate insurance facility led many emerging markets to self-insure by building excessively large foreign reserves. This contributed to global imbalances and more instability. Strauss-Kahn said the IMF had the potential to serve as an effective and reliable provider of such insurance.

“However to serve as a truly dependable global lender of last resort, the Fund will need considerably greater resources,” he added.

During a speech to hundreds of students in Beijing, the IMF chief said his organization had done well in issuing warnings about the depth of the slump on the eve of the downturn. The IMF was uniquely placed to warn of the consequences of global crises, he suggested.

“Why are we so good in forecasting the consequences? Because this crisis is a crisis of the linkages between the real economy and the financial sector,” he said.

“No other institution in the world works on these linkages."

Strauss-Kahn and students at Tsinghua University in Beijing (photo: Doug Kanter/IMF)

IMF chief and APEC

Earlier during his visit, the IMF head joined heads of state—including U.S president Barak Obama who was on his own region-wide tour—at the Asia-Pacific Economic Cooperation (APEC) forum where leaders pledged to continue with economic stimulus policies until recovery is assured.

"Economic recovery is not yet on a solid footing. We will maintain our economic-stimulus policies until a durable economic recovery has clearly taken hold," governments said in a statement ending their annual summit in Singapore.

The IMF is laying the foundations for a deeper engagement with Asia in the future and during this most recent trip Strauss-Kahn took the opportunity to host the inaugural meeting of a new advisory group of eminent people from across Asia and the Pacific. This group will offer its views on priorities for the region and how the IMF can best meet challenges facing the region.

Comments on this article should be sent to imfsurvey@imf.org


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