IMF hopeful of good world growth

IMF hopeful of good world growth

HONG KONG (Reuter): The International Monetary Fund kicked off
its annual meetings with an upbeat assessment of the global
economy yesterday, predicting several more years of low-inflation
growth.

But IMF experts admitted that problems in Thailand and
elsewhere in southeast Asia were clouding an otherwise bright
economic picture. The United States might have to raise interest
rates to cool down its simmering economy.

"We continue to believe the world economy will turn in good
performances, both in 1997 and 1998," chief economist Michael
Mussa told a news conference launching the IMF's World Economic
Outlook, a six-monthly look at prospects in the IMF's 181 member
states.

"There are some areas of strain, but reasons for confidence in
strong growth and low inflation."

The closely watched report said the global economy would grow
by a respectable 4.2 percent this year and 4.3 percent in 1998
and that the expansion could continue. "There are reasons to
believe that the current expansion can be sustained into the next
century," it said.

But Thai growth would almost sputter out as the government
brought in a painful austerity plan, falling to 2.5 percent in
1997, from 6.4 percent last year. "It's certainly going to feel
like recession," Mussa said.

The Thai economic crisis, triggered by the collapse of the
baht currency, is overshadowing the Hong Kong annual meetings of
IMF and World Bank, its Washington-based sister organization.

The two institutions are contributing almost US$5.5 billion to
a $17.2 billion rescue package for Thailand, the biggest loan
since the international community bailed out Mexico in 1995.

Some 16,000 people are participating in the meetings, which
are taking place in the new glass-fronted Hong Kong convention
center overlooking the harbor.

IMF managing director Michel Camdessus will brief some of the
2,000 reporters at the meetings today and the World Bank will
release a report on China's growth prospects to 2020.

China took Hong Kong back on July 1 this year, ending 156
years of British colonial rule. But Hong Kong is guarding its
special status jealously, promising an open economy, a firm
currency and no change to its business-friendly environment.

In Wednesday's report the IMF said Europe was poised for
stronger growth and was on track to launch a single currency on
time. But it urged the governments of France and Germany to take
urgent action to eliminate structural barriers to growth.

The IMF said growth would slow in Asia's tiger economies and
in Japan, where it revised previous estimates down and forecast a
rise in gross domestic product of 1.1 percent this year.

But the economic picture elsewhere was relatively bright and
the IMF said strong growth in the United States and Britain was
underpinning its rosy forecasts for the world economy. "The U.S.
economy continues to perform exceptionally well," Mussa said.

He said the United States would probably have to raise
interest rates within the next six months.

Other issues scheduled for discussion include a likely issue
of Special Drawing Rights, the IMF's artificial currency, to
provide reserves for countries which joined the Fund since the
last issue and debates on how to fund loan and debt relief
programs for the poorest countries in the world.

Policy makers will also discuss how best to prevent
instability in emerging economies -- a key issue following the
turbulence in Thailand and elsewhere in the region.

Some countries want the IMF to sell up to five million ounces
of gold from its reserves to fund the debt package, which is
rewarding countries with a strong track record of economic reform
with the most generous debt relief yet on offer from the
international community.

But others say gold sales could be inflationary and a German
official said on Wednesday he did not expect the issue to be on
the agenda in Hong Kong.

Finance ministers and central bank chiefs from the Group of
Seven industrialized countries will take a break from IMF affairs
on Saturday for talks on the world economy.

U.S. Treasury Secretary Robert Rubin, irritated at Japan's
widening trade surplus with the United States, said exchange
rates would be "a matter of interest" but he gave no details.