Global response needed to deal with economic slowdown: IMF

ROB LEVER, Agence France-Presse, Washington

The global economy faces heightened risks in the wake of the Sept. 11 terror attacks and requires a "coordinated international response," IMF managing director Horst Koehler said Friday.

"A number of developments indicate that a more pronounced than expected economic slowdown is underway across much of the IMF's membership," Koehler told the IMF executive board in a bleak assessment of the global economy.

"Even before the attacks on Sept. 11, the global situation was weak, with a synchronized downturn across all major regions."

Following the events of Sept. 11, he said, "a coordinated international response is needed to deal with weaknesses in the world economy and the new risks in the outlook," and called for an "early" meeting of the organization's financial committee and development committee.

Koehler made the comments on the eve of a meeting of top finance officials of the Group of Seven industrialized nations in Washington, which was also working on a response to the economic fallout from the suicide attacks.

The IMF praised the economic stimulus efforts of the United States, but suggested that more needs to be done, especially by the other big industrial nations.

Koehler said that advanced economies have "a key responsibility" to help avert a severe global downturn, including economic stimulus efforts and cutting interest rates.

The developed countries' central banks "should use the further room for easing available" and cut interest rates beyond the recent action taken by G-7 monetary authorities, Koehler said, if necessary to counter downside risks.

He singled out Japan as having particular scope for further easing, saying "in Japan there is still scope for more decisive monetary action."

In the euro area, "monetary policy should be vigilant, and if necessary use the room for additional easing," the IMF managing director said.

The IMF "stands ready" to help developing economies with strong policies, Koehler also said, noting that the IMF is "well positioned to deal with the additional need for Fund resources in these scenarios over the next 1-2 years."

The IMF may consider extending more credit to countries hurt by the downturn but "the Fund's response should be part of a concerted response by the international community," Koehler said.

"The Fund, its 183 member countries, and the international community more generally, will need to respond with sound policies to reduce the likelihood of a sustained slowdown, and make sure we are ready to deal with a deeper and longer downturn if it does emerge -- thereby limiting the disruption and attendant human costs."