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IMF offers to help rebuild Egyptian economy

The International Monetary Fund stands ready to help riot torn Egypt rebuild its economy, the IMF chief said today, as he warned governments to tackle unemployment and income inequality or risk war.

world Updated: Feb 01, 2011 14:05 IST

The International Monetary Fund stands ready to help riot torn Egypt rebuild its economy, the IMF chief said on Tuesday, as he warned governments to tackle unemployment and income inequality or risk war.

Dominique Strauss Kahn also said rising food prices could have "potentially devastating consequences" for poorer nations, and warned that Asia's fast growing economies faced a risk of a "hard landing". Overall, according to the IMF managing director, widening imbalances across and within countries were sparking tensions that threaten to derail the fragile global economic recovery; and could even spark armed conflict.

As Egyptian protesters gathered in their thousands demanding the departure of President Hosni Mubarak, Strauss Kahn said: "The IMF is ready to help in defining the kind of economic policy that could be put in place."

In a speech in Singapore, he said rampant unemployment and a growing income gap was a "strong undercurrent of the political turmoil in Tunisia and of rising social strains in other countries".

Nationwide demonstrations last month led to the ouster of Tunisian strongman Zine El Abidine Ben Ali, and massive street protests are raging in Egypt seeking an end to Mubarak's more than 30 year rule.

"As tensions between countries increase, we could see rising protectionism -- of trade and of finance," Strauss Kahn said. "And as tensions within countries increase, we could see rising social and political instability within nations -- even war."

The IMF boss called anew on China to adjust its exchange rate in its own economic interest, but said he disagreed with critics in the United States and elsewhere who want a rapid revaluation to the yuan. He said the US government, itself, should not have a problem financing its massive debt, and downplayed fears over Japan's debts after a downgrade last week by Standard & Poor's.

But for the global economy as a whole, Strauss Kahn struck a worried tone. "While the recovery is under way, it is not the recovery we wanted," he said. "It is a recovery beset by tensions and strains; which could even sow the seeds of the next crisis." He said the different pace of recovery between advanced and emerging economies was unbalanced and echoed the situation just before the global economic crisis struck in late 2008.

"While growth remains below potential in the advanced economies, emerging and developing economies are growing much faster; and some may soon be overheating," he said.

Growth in economies with large trade surpluses, like China and Germany, is still being powered by exports, while expansion in deficit stricken countries, such as the United States, is being driven by domestic demand, he noted.

"These global imbalances put the sustainability of the recovery at risk," he said.

For Asia in particular, Strauss Kahn warned there were "risks of overheating and even a hard landing", underscoring the dilemma for policymakers trying to keep a lid on inflation while fostering job creating growth. "Food prices are rising too... with potentially devastating consequences for low-income countries," he added.