Social crisis ahead: World Bank, IMF

Narayan Lakshman

Washington: Even as the World Bank and International Monetary Fund annual Spring Meetings kicked into top gear, IMF Managing Director Dominique Strauss-Kahn made a strong case for reducing global inequality if economic growth was to be sustained.

Speaking earlier this week at the Brookings Institution, Mr. Kahn said, “Because growth beset by social tensions is not conducive to economic and financial stability, the IMF cannot be indifferent to distribution issues. And when I look around today, I am concerned in this regard.”

Mr. Kahn argued that because unemployment was at “record levels,” the global economic recovery under way was “not creating jobs and is not being shared broadly,” as a result of which many people across nations faced a social crisis that was every bit as serious as the financial crisis.

Arguing that the youth were being hit particularly hard by the crisis, Mr. Kahn warned that “what should have been a brief spell in unemployment is turning into a life sentence, possibly for a whole lost generation.”

The ongoing meetings of the Bretton Woods institutions also coincided with the release of several key policy reports such as the Global Financial Stability Report, 2011, which argued that despite the transfer of risks from the private to the public sector during the crisis, confidence in the banking systems of many advanced economies had not been restored and “continues to interact adversely with the sovereign risks in the euro area. Further in the United States, a “lacklustre” housing market, legacy mortgage problems, and a backlog of foreclosures continued to put pressure on the banking system, limiting credit creation and a return to a fully functioning, mortgage market, the GFSR 2011 argued.