IMF calls for ‘exit strategy’ as economic storm clearing

Washington, April 26 (Inditop) The world’s finance ministers and central bank heads have voiced a collective hope that the worst of a devastating global recession might be over, but were apparently divided over how much longer governments should run huge budget deficits to finance the recovery.

“There’s agreement that now we can see there’s a break in the clouds,” said Egyptian Finance Minister Youssef Boutros-Ghali after a meeting in Washington of the International Monetary Fund’s (IMF) decision-making body Saturday.

Boutros-Ghali, who chaired the meeting, reinforced a cautiously upbeat message that finance ministers have been giving throughout this week’s annual spring meetings of the IMF and its sister-lender, the World Bank.

While the IMF has forecast a 1.3-percent drop in the global economy in 2009 – the worst since World War II – Managing Director Dominique Strauss-Kahn stuck to his forecast that the downturn will end in the first half of next year.

Amid the positive signals, Strauss-Kahn suggested it was time for governments to develop a clear “exit strategy” from the crisis. He said the talks between finance ministers had shown that some countries were more worried than others over the size of their budget deficits.

“From our point of view, the exit strategy has to be taken into account as soon as possible,” Strauss-Kahn told reporters, though he left open whether governments may need to boost spending again if their economies don’t pick up in 2010.

The IMF’s International Monetary and Financial Committee (IMFC) in a statement said countries should “develop credible exit strategies from extensive government action as the crisis subsides”.

No individual countries were singled out, though others in the past have pointed to the US. The US has launched one of the world’s most ambitious stimulus packages and is expected to run a budget deficit of more than 13 percent this year.

The statement from finance ministers also promised “further decisive and cooperative action” to stabilise their financial sectors, which lie at the core of the global recession, and welcomed the IMF’s efforts to set up an “early warning system” to prevent a future financial collapse.

The IMFC endorsed adding $500 billion to the IMF’s

resources, a pledge that would triple its budget and was made by world leaders at a Group of 20 (G20) summit in London earlier this month.

With Japan and the European Union (EU) offering $100 billion apiece and smaller wealthy nations following suit, the global lender is close to getting an immediate $250-billion cash infusion to help smaller countries facing huge budget gaps.

But some developing countries have resisted a more permanent expansion of the IMF’s resources until they get a greater voice in the institution, which is heavily dominated by the US and Europe.

Many poorer countries remain wary of an institution that has been criticised in the past for forcing tough budget cuts on governments in exchange for its help, and civil society groups complained the IMF and World Bank were still not doing enough to help those worst hit by the crisis.

“The IMF has been tasked with saving the world from economic disaster, but there is not enough on the table to bail out poor countries,” said Marita Hutjes of humanitarian aid group Oxfam.

Anti-globalisation demonstrations by a few hundred people outside the IMF’s building turned violent as police units turned batons on some of the protestors. One person was taken away in an ambulance and two people were arrested, according to protest organisers Global Justice Action.

US Treasury Secretary Timothy Geithner pushed for “substantial progress” in the coming months towards the remaining $250 billion. He called on emerging countries to “demonstrate their growing role in the global economy” by loaning the IMF money.

China, Brazil and other emerging powers are in talks to make loans, but have reportedly sought a promise of a greater role in the IMF’s decision making in return.

Brazilian Finance Minister Guido Mantega said the IMF still had a long way to go before developing countries were well-represented and suggested a long-term increase in the IMF’s funding “could limit the scope for and delay” those reforms.

“The IMF repented from many of its past sins. But it still has to address the original sin: Its democratic deficit,” Mantega said in a statement.

The US and Europe, which together hold about half of the IMF’s voting rights, have both said they are willing to give emerging powers more clout, but a review is only set to be completed in January 2011.