The managing director of the International Monetary Fund has warned that despite some encouraging signs of stability in the world economy, "a number of dangers remain and need to be dealt with."
Jacques de Larosiere said Monday in a speech in London that "the persistence of inflation" is the major obstacle to a more satisfactory economic performance.
But he more or less singled out Germany and Japan as countries "with low inflation rates and a strong balance of payments" that can give "a higher priority to faster growth of domestic demand without incurring the danger of overheating their economies."
As for the United States, Larosiere said "it is of crucial importance" that the current anti-inflation effort reverse "the upward drift of prices" in the past few years.
He credited the United States' Nov. 1 "dollar rescue program" and other nations' efforts with calming exchange markets. Larosiere also said he agreed that the "convergence" of European and U.S. growth rates this year should reduce the U.S. current account (trade and services) deficit, and European and Japanese surpluses.
This convergence "needs to be pursued with unrelenting determination if the desired ends are to be achieved," Larosiere said. This is why he stressed the need for Japan and Germany to "maintain adequate rates of expansion."
Smaller, developing nations also must make adjustments, Larosiere warned. He called for such countries to correct their external deficits "by limiting domestic spending to what they can earn, plus what they can safely borrow abroad.
"Some have borrowed excessively in highly liquid markets and now find their development efforts hampered by burdensome debt requirements," Larosiere said.
The IMF head acknowledged that further progress in reducing world-wide inflation will be difficult, and noted that, "In practice, it is difficult to attack inflation without some form of understanding being reached among the social partners. However difficult, the effort needs to be made because the stakes are high."
He added that an effective anti-inflation policy also depends on "credible measures on energy on a world-wide basis." Unless there is a believeable conservation policy coupled with development of alternative sources, "Energy could again become the effective constraint on output, and thus justify expectations of accelerating inflation," he said.