Effect of global crisis uneven in the region - IMF chief

Dominique Strauss-Kahn, managing director of the International Mone-tary Fund (IMF), says that the effect of the global economic crisis on the region has been uneven.

Addressing the Third Meeting of Finance Ministers of the Americas and the Caribbean, Strauss-Kahn said that countries that followed sound policies "fared rather well - better than countries in other regions and better than in the past.

"On the other hand, countries in Central America took longer to recover, and the tourism-dependent Caribbean countries are still suffering," he said.

Strauss-Kahn said regional countries with good performance were generally associated with "a good starting position", stating that these countries did not make the mistakes of many advanced countries by going on a "debt-fuelled spending binge or using complex financial engineering to magnify risk".

"Rather, they learned from past mistakes, and embraced cautious and prudent macroeconomic policies," the IMF official said.

"Here, when the storm arrived, the levies were firmly in place. Countries had saved for a rainy day, so they could use fiscal policy to cushion the downturn and support employment," he said.

Policies implement

Strauss-Kahn said, for the first time in history, many countries in the region were able to implement counter-cyclical monetary and fiscal policies, and that many also benefited from flexible exchange rates, significant international reserve buffers, and "a more credible monetary policy than before".

He said, for emerging markets in Latin America and the Caribbean, a natural starting point would be to remove temporary fiscal stimulus.

"Fiscal correction can take some heat off monetary tightening, which in turn can dampen excessive capital inflows," he said.

Strauss-Kahn said the key issue of direct relevance to the region is the challenge of rebounding capital inflows.

He said countries with strong fundamentals will likely receive large and sustained capital inflows over the coming years, but stated that the challenge will be to "absorb these flows effectively and avoid the build-up of vulnerabilities".

A pragmatic response

"Any policy response must be pragmatic," he said, noting that a range of tools can be deployed, including exchange rate appreciation, reserve accumulation, tighter fiscal policy and macro-prudential measures.

"Capital controls can sometimes play a role too, but should not be used to avoid needed adjustment," he added.

But the IMF warned that as unemployment stays high, an economic crisis can quickly turn into a social one.

Strauss-Kahn pointed to specific labour market policies that he said can help limit the damage, stating that adequate unemployment benefits can support confidence, protect household incomes and avoid increases in poverty.

In addition, he said education and training programmes can help, but called for more international cooperation "than ever before", since the challenges are becoming more complex.