IMF managing director Dominique Strauss-Kahn speaking at a press conference in Beijing, Nov 17, 2009

The head of the IMF (Internatioal Monetary Fund) has welcomed China’s pledge to continue with its stimulus package in 2010 and said the Chinese people would gain from a rebalancing of their economy.

At the end of a six-day trip to Asia, Dominique Strauss-Kahn told reporters on Tuesday, in the Chinese capital, Beijing, that the decision by Chinese authorities to continue with fiscal and monetary stimulus was “exactly the right policy to implement.”

“The main goal is to help with public demand, weak private demand. And the reason why we have to continue with stimulus is because a self-sustaining private demand is not yet visible,” he said.

Asian rebalancing

During his trip to the region, the IMF managing director has been highlighting the Fund’s call for Asian countries - - including China - - to rebalance their economies, relying less on exports for growth and instead stimulating domestic consumption.

“The main reason why the rebalancing organized by the Chinese authorities is so useful is (because) it is in the interests of the Chinese people themselves, because it is a more sustainable model of growth,” said Strauss-Kahn.

The IMF head said part of the package to encourage domestic consumption included allowing the Chinese currency, the yuan or renminbi, to strengthen in value. He said it would boost the buying power of Chinese households and would be a part of necessary reforms in China

“Allowing the renminbi and other Asian currencies to rise would help increase the purchasing power of households, raise the labor share of income, and provide the right incentives to reorient investment,” he said

Asia’s post-crisis role

Strauss-Kahn has said his trip to Asia is a reflection of the IMF’s renewed focus on Asia as it leads the world to recovery. The Fund expects Asia's GDP growth to be 5.75 percent next year - - almost double the 3 percent rate forecast for the global economy

During an earlier stopover in Singapore, the IMF head called on the region to use its increasing economic importance and prominence to help mould the future of the world’s economy.

“I believe that Asia should play a leadership role in guiding the global economy to a new, more sustainable path for growth. This is not only appropriate given Asia's economic weight but also necessary, since Asia is such an important part of the solution."

Strauss-Kahn identified three priorities for reshaping the post-crisis economy including global rebalancing, strengthening the international monetary system and creating a safer and more stable financial system:

IMF and the global economy

On the reform of the global monetary system, the IMF head said the absence of an adequate insurance facility led many emerging markets to self-insure by building excessively large foreign reserves. This contributed to global imbalances and more instability. Strauss-Kahn said the IMF had the potential to serve as an effective and reliable provider of such insurance.

“However to serve as a truly dependable global lender of last resort, the Fund will need considerably greater resources,” he added.

During a speech to students in Beijing, Strauss-Kahn said his organisation had done well in issuing warnings about the depth of the slump on the eve of the downturn. The IMF was uniquely placed to warn of the consequences of global crises, he suggested.

“Why are we so good in forecasting the consequences? Because this crisis is a crisis of the linkages between the real economy and the financial sector,” he said.

“No other institution in the world works on these linkages."

IMF chief and APEC

Last weekend, Strauss-Kahn joined heads of state and government - - including U.S president Barack Obama who was on his own region-wide tour - - at the Asia-Pacific Economic Cooperation (APEC) forum where leaders pledged to continue with economic stimulus policies until recovery is assured.

"Economic recovery is not yet on a solid footing. We will maintain our economic-stimulus policies until a durable economic recovery has clearly taken hold," governments said in a statement ending their annual summit in Singapore.