IMF’s Strauss-Kahn Warns Against Early Stimulus Exit

By Aki Ito

Jan. 18 (Bloomberg) -- International Monetary Fund Managing Director Dominique Strauss-Kahn said it’s too early for policy makers to withdraw stimulus that’s driving the global recovery.

“The global economy is recovering, even if its recovery is fragile,” Strauss-Kahn said in a speech at Tokyo University in Japan’s capital today. A plan to withdraw emergency measures “should be designed today” yet not “implemented” because world economies are still dependent on government support and private demand remains weak, he said.

Strauss-Kahn had said earlier this month that the world’s economic recovery is occurring “sooner and stronger” than anticipated. More than $2 trillion in government spending around the world has spurred growth, pulling economies out of a recession spurred by a meltdown in the U.S. housing market.

Government measures “should be focused more on what is likely to fight unemployment,” he said today.

Strauss-Kahn said countries haven’t done enough to tighten regulation in the wake of the global financial crisis.

“The root of the crisis” was “a failing of regulation and supervision of the financial sector in the U.S,” he said. “A lot has already been done, but it’s not enough.”

He urged nations to consider having companies in the financial sector financially help solve the problems they created. U.S. President Barack Obama’s proposed levy on the country’s banks is “very welcome” and “a good idea,” Strauss-Kahn said.

Taxpayer Money

Obama is proposing a tax on the country’s largest financial firms to get back taxpayer money that bailed out those companies during the worst recession since the 1930s. The fee would apply to financial companies with assets of more than $50 billion such as Citigroup Inc., American International Group Inc. and Bank of America Corp.

Non-financial companies which also got bail-out aid including General Motors Co. and Chrysler Group LLC would be exempt from the levy.

Strauss-Kahn reiterated that the fund is committed to helping Ukraine even after suspending a part of a $3.4 billion aid program because the government failed to meet conditions for spending cuts.

“We expect after the election to make it possible to resume our relationship,” he said. Ukraine had a presidential ballot yesterday and a runoff vote is scheduled for Feb. 7.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net