IMF head warns of increased risks to world economy

Managing Director of the International Monetary Fund (IMF) Rodrigo Rato said on Thursday that the risks to the global economy have increased in recent months because of the surge in energy prices and massive global imbalances such as the huge trade deficit in the United States.

The IMF said in its latest World Economic Outlook released on Wednesday that spare oil production capacity will probably remain low and that, along with strong demand, will keep supplies tight. Thus, any unexpected supply disruption or change in demand could lead to gyrating prices.

At the press conference introducing the joint spring meeting of the IMF and the World Bank, Rato urged countries to deal with these problems now before they get more serious. "To wait for the environment to get less benign would be a huge mistake," Rato said.

The IMF leader also expressed his concerns about the low economic growth in the euro area.

"We believe and I believe that the Stability and Growth Pact has served Europe well" and the IMF would look at the reforms " with great interest," he said.

"In a very difficult moment of very low growth in many countries, the pact has been able to make a contribution ... to avoid an undesirable increase in public deficits in Europe," Rato said.

Speaking at a previous news conference on Thursday, President of the World Bank James Wolfensohn predicted "a pretty vigorous" discussion at the spring meeting on the issue of debt relief given the number of competing proposals being put forward by such economic powers as the United States, Britain and France.

"If my assumption is correct, my guess is that we will get some signals from this meeting but the actual announcements will come later," Wolfensohn said.

The joint spring meeting of the IMF and the World bank is holding at the coming weekend.