IMF: 'We must strengthen global economy'

IMF managing director Horst Koehler said yesterday that the world's policymakers are ready to shield a global economic recovery, which faces risks and uncertainties.

"Our most immediate concern must be to strengthen the global economy," Koehler told finance ministers and central bankers of the 184-member International Monetary Fund and World Bank.

"There are clearly a number of risks and uncertainties. But we should beware of undue pessimism. There are still good reasons to expect that the recovery will continue," Koehler said.

Koehler said the economy faced widespread signs of risk aversion. Global stock markets have plunged this year, hit by a slew of US corporate accounting scandals and, most recently, fears about the impact of a war in Iraq on oil prices and the wider economy.

"While there are widespread signs of risk aversion, I trust that there are still entrepreneurs who look for new opportunities and are not content to follow the herd," the IMF boss said.

Policymakers, he said, knew what to do in case of further signs of economic weakness. "Monetary policy should be the first line of defence, as long as inflation prospects remain subdued," Koehler said.

Advanced economies had a responsibility to strengthen growth, Koehler told the policymakers on the last day of a series of weekend talks between members of the IMF and World Bank. "We look to the US to set a continued example, and to guard against the re-emergence of fiscal deficits," Koehler said.

Europe should stick to its Stability and Growth Pact, which fixes the economic rules for the European Union, notably concerning deficit targets. The European Commission last week proposed postponing for two years the 2004 target date for lowering countries' public debt ceilings to a maximum 3pc of annual economic output.