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World Bank, IMF urge quick action to avert new crisis

Global finance chiefs meeting in Washington over the weekend warned that instability in the Middle East and large public sector debt in the developed world could stunt a fragile recovery.

Oil rigs in Azerbaijan

Mideast turmoil could threaten oil supply

International finance leaders in Washington for semi-annual talks said the world's recovery from the worst economic crisis since the Great Depression in the 1930s could be jeopardized by unrest in the Middle East and a massive public sector debt in the United States.

"We are one shock away from a full-blown crisis," said World Bank president Robert Zoellick about the surge in basic food prices.

"The financial crisis taught us that prevention is better than cure. We cannot afford to forget that lesson," he said at the close of the annual spring meetings of the World Bank and International Monetary Fund.

The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said that the unrest in the Mideast demonstrates why sound economic stewardship is important for global stability.

"The example of the Middle East and North Africa [highlights] this questions that you may have good figures at the growth level without having the sustainability of growth, just because of the political problems behind it," he said.

Economic reforms in Arab nations like Egypt have generated growth while failing to create employment opportunities for its young population.

Criticism of Washington

A broker reacts at the stock exchange

Nobody wants to see a repeat of the global financial crisis

The US, which like some Arab countries has seen growth without jobs, was roundly criticized for not taming its massive public debt.

"Insufficient budgetary consolidation may spark off further escalation of debt sustainability issues, with repercussions on confidence and the still fragile financial sector," said Dutch Finance Minister Jan Kees de Jager.

"Debt dynamics in other advanced economies, including the United States, are a concern," he said.

Rapidly growing developing nations like Brazil also took aim at Washington for not implementing the austere economic policies it has called on other countries to implement for years.

"Ironically, some of the countries that are responsible for the deepest crisis since the Great Depression, and have yet to solve their own problems, are eager to prescribe codes of conduct for the rest of the world,” said Brazilian finance chief Guido Mantega.

In response, US Treasury Secretary Timothy Geithner said Washington was committed to putting its financial house in order.

"We are committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery," Geithner said.

Earlier in the week, the IMF released a statement saying the US budget deficit would likely hit 10.8 percent of the nation's economic output. That puts Washington's growing debt on par with Ireland and Greece, which have sought bailouts from the European Union and the IMF.

Greek bailout

Logo of IMF and World Bank spring meetings

The IMF warned that growth alone was not enough for durable recovery

IMF chief Strauss-Kahn rejected reports that Greece would have to restructure its debt burden in order to honor its financial obligations.

"We have built the Greek program with the government, following the assumption that they really want not to restructure their debt," he said. "That's the hypothesis around which the European program and our support program was built. Nothing has changed."

Greece, which has outstanding debts to the tune of 340 billion euro ($490 billion), has received financial assistance from the IMF and the EU to the sum of 110 billion euro ($158 billion).

German Finance Minister Wolfgang Schäuble had stoked speculation after saying in an interview with the daily Die Welt that "further measures" may be needed should Greece's ability to bear its debt burden come into question.

Author: Spencer Kimball (AFP, Reuters, dpa)
Editor: Toma Tasovac

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