Sunday, September 17, 2006

IMF predicts tough times for Asia

IMF is making all the right noises without saying that the global economy is heading for a financial crash. It is saying that Asian economic growth faces increased risks next year, including a likely slowdown in the U.S. economy, although the region will probably emerge largely unscathed amid strong growth in China and India.

The IMF also said that rising income inequality in Asia threatens to undermine the sustainability of the region's growth.

The widening income gap is becoming a political issue in the region. In Japan, the opposition blames the economic policies pursued by Prime Minister Junichiro Koizumi for the worsening inequality between the rich and poor. South Korea's President Roh Moo Hyun has pledged to narrow the gap by spending on job creation and social welfare.

The latest burst of growth in Asia has been driven by technological change, which tends to favor skilled workers and exacerbates inequalities.

Instead of redistributing wealth via the tax system, the IMF recommended governments lift spending on education to increase the number of skilled workers able to benefit from technological change.

The IMF also called for more spending on transport infrastructure, helping to connect poor and remote regions to the market for their goods.

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