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.