IMF chief calls for caution on pulling back economic stimulus

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Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), warned on Saturday that world leaders should remain cautious on pulling back the various stimulus packages they have implemented in response to the global economic crisis.

Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), sits before a panel discussion on the global economic outlook during day four of the 2010 World Economic Forum (WEF) annual meeting in Davos, Switzerland, on Saturday, Jan. 30, 2010. [CFP]

"If we exit too late, public debt will be higher," he said at a panel on the Global Economic Outlook at the World Economic Forum Annual Meeting.

"But if we exit too early, there is the risk of a double-dip recession," he said. "In that case, I don't know what we can do because we have used all of the tools. The probability is low, but the risk is high."

It is a common view that the global economy has stepped out of recession. Developed countries also said goodbye to recession in late 2009, but their recovery is quite weak.

"Growth is better than expected, but still fragile," said Kahn. "In large part, it is still supported by public funding."

Meanwhile, he noted that there is an uneven pace at which the recovery is taking place around the world, with Asia and some other emerging market countries leading the way, and the United States and Europe lagging behind.

Christine Lagarde, Minister of Economy, Industry and Employment of France, said that the timing of the exit is "absolutely critical" and leaders will also have to carefully manage the frustration of their citizens during this process.

Lawrence H. Summers, director of the U.S. National Economic Council, said: "What we see in the United States and some other economies is a statistical recovery and a human recession."

"The policies to contain the economic collapse have been successful. We will continue to grow at a moderate rate for the next several quarters, but what is disturbing is the high unemployment -- which is cyclical, but also structural," said Summers.

Kahn also briefly sketched out the IMF's plans for a 100- billion-U.S.-dollar Green Fund to promote low-carbon economic growth. "The new growth model will be low carbon," he said. " Efforts to address climate change cannot remain stalled because we cannot meet the financing needs."