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Fri, May 07, 2004 - Page 12 News List

IMF director warns high oil prices will hurt economy


Former Spanish economy minister Rodrigo Ratomade his debut on Wednesday as the new head of the IMF warning of the impact of high oil prices on the world economy.

In his first public statements since he was elected on Tuesday, Rato said that oil prices, which have hit a 14-year high, were an "essential variable" in the recovery of the world economy and were necessary for avoiding inflation.

Referring to earlier IMF findings, he told a press conference "the fund has calculated that an increase of US$5 a barrel over 12 months would have a [negative] effect of 0.3 percentage points on growth."

The forecast is based on the IMF's current benchmark oil price of US$30 a barrel.

Oil prices have been soaring recently amid concerns about security in key Middle East producer countries and stocks in big consumer nations such as the US.

In London on Wednesday a barrel of Brent North Sea crude shot up to US$36.30 from US$35.93 on Tuesday.

The worrisome spurt has come amid jitters over US gasoline supplies and violence in oil kingpin Saudi Arabia.

High oil prices have triggered mounting concern about the sustainability of a global economic rebound after several years in the doldrums.

The International Energy Agency warned on Monday in a study -- partly using IMF economic models -- that high oil prices could exacerbate inflation, spur unemployment and stifle growth.

The IMF officially named Rato, 55, as its new managing director on Tuesday for a five-year term. He replaced Horst Koehler who resigned to stand as a candidate for the German presidency.

Rato said the US was enjoying "strong and sustained growth."

While a recovery was underway in the eurozone, it lagged behind momentum elsewhere.

He was cautious on monetary policy trends, saying: "Interest rates may change in future, although not in a sudden manner."

The IMF forecast in a report released last month that US interest rates could start rising this year in response to strong growth. In the eurozone rates, it said, rates might need to be trimmed if the recovery became any weaker.

On interventions by central banks in foreign exchange markets, Rato said "changes in the [value] of currencies must reflect the economic realities."

He added that if there were corrections in exchange rates, they should be "orderly."

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