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Economic Recovery Linked to Global Stability and Peace, says IMF MD

January 31, 2010: In his keynote address to the 10th Annual Herzliya Conference, International Monetary Fund Managing Director Dominique Strauss-Kahn said the world economy was reviving faster than expected, but the recovery was still fragile. “Domestic demand, mostly in advance countries, is still driven by the public sector stimulus. Private demand is still rather weak,” he warned.

Mr. Strauss-Kahn noted the global economy is experiencing a multi-speed recovery with emerging countries, mainly in Asia, having recovered almost fully. He said Asia was leading the way. “It shows the Asian part of the world is now close to total recovery. The question of dealing with different speeds in the economy… is something to which we need to give great attention.”

He also advised countries to be careful how quickly they withdraw stimulus measures used to combat the financial crisis. “If you exit too early, then the risks are much bigger. Private demand must have recovered before the stimulus is withdrawn.”

Mr. Strauss-Kahn stressed that the global crisis had created a problem of fiscal sustainability for many countries that could take decades to fix because of the huge debts built up during the crisis, especially in developed countries. “The fiscal sustainability problem is going to be one of the biggest, maybe the biggest problem for the coming several years,” he stated. “But at this stage, what's important is for countries to announce a credible strategy to bring their debt back to more sustainable levels.”

Mr. Strauss Kahn pointed to the linkage between global economic recovery and political stability. “History is replete with examples of how economic and financial insecurity stoke social tensions, which in turn can undermine political stability, and even result in war,” he said.

“Getting the economy right—and addressing threats to its stability—can play an essential role in fostering the conditions for peace,” he said.

Mr. Strauss-Kahn noted that the IMF helps strengthen economic security. IMF financing, for example, can help avert economic collapse in times of crisis. It can also allow governments maintain social spending.

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