World Fund Looks Optimistically Ahead

Horst Koehler owes US Treasury Secretary Paul O’Neill dinner.

The International Monetary Fund general secretary's pessimistic outlook for the world economy following the Sept. 11 attacks in the United States led to a bet between him and the decidely more optimistic US financial chief.

With the world economy on the verge of an upswing, Koehler has had to pay up and change his tune.

In its annual report released on Thursday, Koehler's organization predicts worldwide economic growth of 2.8 percent, a decidedly more optimistic prediction than the 2.4 percent it predicted in December. The United States will be the clear leader in growth, with an estimated 2.3 percent upswing this year and 3.4 percent next year.

"A recovery is underway now in the United States," Koehler said before the National Press Club in Washington D.C. "And this is already beginning to have a positive impact on the economies in other regions."

Europe needs to work harder

How long the recovery continues remains to be seen. Koehler said that oil prices, unrest in the Middle East and weak profits by some of the world's big corporations. Europe in particular, needs to work better on the latter.

The euro-zone – European countries using the euro currency – can expect growth of 1.4 percent in 2002. Germany, of just 0.9 percent, according to the report.

"I miss more ambition in Europe for achieving higher growth rates and stronger domestic demand," he said. As solutions he proposed an overhaul of the EU's labor market and social services.

Argentine deadlock

Koehler also touched on Argentina's woes, a topic that will dominate this weekend's IMF ministers meeting in Washington D.C. The general secretary said that he has been very involved in the negotiations between the IMF and the Argentine government.

The two sides are at currently at a deadlock because of the government's hesitancy to implement harsh IMF reforms that could cost hundreds of thousands of Argentines their jobs.

The general secretary reiterated that the solution had to be "home-grown" and one that is also politically feasible.

"But the right way certainly will not be a way which makes it easy for the people ... I have no better advice," he said. He said Argentines would have to swallow some "bitter medicine."

The finance ministers of the IMF's 183 members will meet for two days this weekend. Protesters are expected to be present as well but not in the tens of thousands that showed up the last time the IMF met in Washington D.C.in 2000.