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| Strauss-Kahn: loud and clear |
IMF managing director Dominique Strauss-Kahn yesterday rebutted widespread criticism that it is sending mixed signals over how governments should deal with fiscal deficits. “Our message is clear,” he said. “All countries, especially developed countries with a high level of debt, have to go back to fiscal sustainability.
“This means that over three, four or five years, depending on the country, plans have to be announced [and] markets have to understand that governments are committed to go back to a debt level which is more sustainable.”
Strauss-Kahn’s message to IMF governors was seen as refuting criticisms that the IMF had looked both ways on the issue, praising the UK’s tough fiscal stance while urging members generally to avoid premature tightening.
His comments came as Stanley Fischer, a former first deputy managing director of the IMF and now governor of the Bank of Israel, suggested that financial markets could react strongly against rising fiscal deficits. “Markets often take a long time to react but when they do they can react excessively,” said Fischer.
At the same time, he argued at a seminar in Washington yesterday that UK Chancellor George Osborne’s fiscal deficit reduction plan, which has been praised by the IMF, is “not as front-loaded as it appears to be” and that “it will have little impact this year”.
Strauss-Kahn said meanwhile that “a lot depends upon the situation of [a particular] country” in deciding how to tackle fiscal deficits.
“Some countries are at the edge of a cliff,” he said. “They have no choice. They have to fix the fiscal problem. Some others have more fiscal room.”
What the IMF expects, said Strauss-Kahn, “is a decrease in [the fiscal] deficit by one per cent starting in 2011”.
But he stressed that “this is an average. Depending upon countries and their specifics, it can be rather different. Nobody would expect that the advice of the IMF to Germany would be the same as [that] to Greece for instance.
“Sometimes I read that the message of the IMF [on how to deal with fiscal deficits] is a bit blurred”, Strauss-Kahn said. People argue that “we don’t know whether [the IMF] is pushing for growth or for fiscal retrenchment”.
But “the message is clear and consistent,”he insisted. “In the medium term, there is a need for fiscal sustainability. Everything has to be done to go in this direction in the short term while the recovery is still fragile.
“All the fiscal room still available has to be used to boost growth, so we have to go for fiscally sustainable growth.”
Strauss-Kahn also used his address to IMF governors to underline his concerns over growing unemployment.
“During this crisis, the global economy lost about 30 million jobs,” he said. “On top of that, in coming decades 450 million people are going to enter the labour market. So, we really face the risk of a lost generation."