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imf Monday, 5 October, 1998, 10:41 GMT 11:41 UK
IMF committee urges 'forceful action'
IMF HQ in Washington
The IMF is seeking ways to stem the growing economic crisis
The policy-making body of the International Monetary Fund has called on member countries to take "forceful action" to restore economic growth and market confidence.

A statement from the IMF's interim committee also said that United States President Bill Clinton's ideas to provide a fund to help countries which might be hit by economic contagion should be studied closely and possibly put into action.

But the statement fell short of issuing specific plans for action to avert a growing financial crisis and offered little to reassure nervous investors.

On Monday, Tokyo stocks fell to their lowest level in nearly 13 years as deepening pessimism in the world's second largest economy pushed Tokyo's Nikkei index down 2.1%, while in Hong Kong the Hang Seng index fell 4%.

European markets also opened down as fears of a global recession grew.

Growing concern

The BBC's Economics Correspondent, James Morgan, says the wide-ranging statement reflects the growing concern of international finance ministers, and the countries highlighted in the communiqué provide a guide to their thinking.

"The outlook for the world economy has worsened considerably ... with a scaling down of prospects for growth of output and trade," the statement said.

Japan and Russia were both told to move much faster to reform or strengthen their economies and banking systems.

The statement said it was "essential that Japan should take prompt and resolute action to strengthen its banking system and to provide sufficient and sustained stimulus to revive domestic demand and restore confidence."

'Vigorous action'

Russia was urged to take "vigorous action" to tackle the root causes of its financial crisis, but the statement said the international community was ready to support "convincing and effective" reform measures.

China and India were commended for their recent economic performance, Beijing in particular for its commitment not to devalue its currency.

Major worries included the continuing refusal of the US Congress to vote additional money for the IMF and the pressure in some developing countries to impose controls on the out-flow of capital.

"Introducing or tightening capital controls is not appropriate to deal effectively with fundamental economic imbalances," the committee said.

Breathing space

"Any temporary breathing space such measures might bring would be outweighed by the long-term damage to investor confidence and the distortionary effects on resource allocation."

Malaysia, which has introduced strict controls on capital movement, was the implied target of the latter criticism. But the committee did say that capital movements had to be orderly and properly regulated.

The biggest argument concerned the role of the interim committee itself.

There was strong support for the committee to become a decisive body in formulating global economic policy.

While this has been opposed by the US, correspondents say some kind of strengthening of its role does seem likely.

The annual meetings of the IMF and World Bank begin in Washington on Tuesday and will be dominated by talks on means of averting a feared global recession.

See also:

05 Oct 98 | The Economy
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