Davos-Klosters, 30 January 2010

Leaders must balance the desire to keep a list on public debt against the dangers of a double dip recession, said Managing Director Dominique Strauss-Kahn of the International Monetary Fund.

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF) in Washington DC, warned the world’s economic leaders to remain cautious as they examine exit strategies from the various stimulus packages they have implemented in response to the global economic crisis.

“If we exit too late, public debt will be higher,” he said at a panel on the Global Economic Outlook at the World Economic Forum Annual Meeting here today. “But if we exit too early, there is the risk of a double-dip recession. In that case, I don’t know what we can do because we have used all of the tools. The probability is low, but the risk is high.” He also noted that “Growth is better than expected, but still fragile. In large part, it is still supported by public funding.”

Another problem highlighted by the IMF chief is the uneven pace at which the recovery is taking place around the world, with Asia and some other emerging market countries leading the way, and the United States and Europe lagging behind.

Christine Lagarde, Minister of Economy, Industry and Employment of France, and Member of the Foundation Board of the World Economic Forum, agreed that the timing of the exit “is absolutely critical.” She added that leaders will also have to carefully manage the frustration of their citizens during this process.

“What we see in the United States and some other economies,” said Lawrence H. Summers, Director of the US National Economic Council, “is a statistical recovery and a human recession. The policies to contain the economic collapse have been successful. In my judgement, we will continue to grow at a moderate rate for the next several quarters. But what is disturbing is the high unemployment – which is cyclical, but also structural.” In the US currently, one man in five between the ages of 25 and 54 is unemployed. Even after the recovery, according to projections, one in seven or one in eight will remain jobless.

Near the end of the session, Strauss-Kahn briefly sketched out the IMF’s plans for a US$ 100 billion Green Fund to promote low-carbon economic growth. “The new growth model will be low carbon,” he said. Efforts to address climate change cannot remain stalled “because we cannot meet the financing needs.”

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