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MANILA : A global recession can be avoided with a coordinated plan to restore market confidence shattered by the US sub-prime mortgage crisis, the former International Monetary Fund chief said Tuesday.
Michel Camdessus said that if world leaders can coordinate their actions now to re-establish confidence in international markets a recovery could be expected by the end of next year.
Camdessus, who as IMF managing director presided over the resolution of the Asian crisis a decade ago, said thanks to Asia's growth the world economy could expect to expand next year of around three percent.
"This means the world, thanks to the dynamism of Asia, will avoid recession but you will have a distinct slowdown of world activity," he said.
Camdessus said individually, it was possible the US and the rest of the developed world would suffer a technical recession, or two consecutive quarters of contraction, but that Asian economic expansion would be a "constant" factor.
"It is obvious that we must broaden the competence and jurisdiction of the IMF to the financial transactions instead of keeping it limited to the monetary aspect and to the balance of payments problems," he told a news conference later.
He noted that US mortgage lending to people who could not afford to pay, as well as the "off-balance sheet" operations of financial institutions that hid the problem of "toxic" debt, were "unregulated."
"It is just fair also to strengthen the political control of the IMF by the governments (through) a more balanced distribution of power in the executive body -- Asia in particular should be better represented," he said.
Camdessus praised European moves in coordinating actions to re-establish market confidence, while making sure inflation is kept in check.
"You have two enemies to combat here, and the appropriate mix of monetary policy and fiscal policy is of the essence," he said.
While the US economy could contract over two consecutive quarters, "provided that confidence is re-established, the US would start recovering during the middle of next year," Camdessus said.
He attributed this to the "remarkable" confluence of a favourable exchange rate that was "allowing them (Americans) to compensate through a surge of their exports the recession they have in internal housing markets."
Camdessus said the "unregulated" US housing market was "regrettable negligence," and that unless that was changed, "we are just preparing for the next crisis."
- AFP /ls
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