Future IMF chief economist relatively upbeat on global economy

May 28, 2008

, WASHINGTON, May 28 – The International Monetary Fund\’s future chief economist, Frenchman Olivier Blanchard, says he is “relatively optimistic” about the global economy, despite a financial crisis and surging oil prices.

“I am relatively optimistic,” Blanchard said Tuesday in a phone interview with AFP after being named the top IMF economist by his compatriot, IMF managing director Dominique Strauss-Kahn.

“I have the impression that the problems facing us are little understood,” he said, citing the collapse of the US housing bubble, the credit squeeze and skyrocketing commodity prices.

“After the initial phase which lasted during the second half of last year, during which time one was a bit lost … I believe that policies were put in place that were appropriate,” said this specialist in macroeconomics, an economics professor at the Massachusetts Institute of Technology (MIT).

Blanchard is to take up his position at the 185-nation institution on September 1.

The current IMF chief economist, Simon Johnson, director of research services since late March 2007, announced in early May that he was leaving the IMF to rejoin MIT.

“I wanted this job and I\’m delighted to have it,” Blanchard told AFP several hours after his nomination was announced.

The 59-year-old French economist, a native of Amiens, the capital of the Somme department in northern France, has spent his career in the United States.

After earning a doctorate at MIT in 1977, he taught at Harvard University before returning to MIT in 1982, where he became a professor.

Blanchard said the US Federal Reserve, by coupling interest rate cuts and massive injections of cash into the financial system, had mitigated the damage of the credit crunch. “It isn\’t enormous,” he said.

The meltdown in the US housing market, which most analysts predict will not begin to recover before the end of the year, is not a rare crisis, he said.

“It is one of the most common crises that one can have,” he said. “One has seen many of them in the past, one will see them in the future, one can use interest rates from the macroeconomic viewpoint to stabilize things and I think one has done that.”

The surge in oil, which hit record highs Thursday above 135 dollars a barrel, will have limited consequences, he added.

Even though the current situation is “not very pleasant,” he underscoored that “one does not have to have a \’replay\’ of the 1970s,” when the world reeled from an oil price shock.

Little interested in joining the debate over whether the United States will slip into recession, Blanchard acknowledged that a slowdown will have taken place.

As to its magnitude, “I haven\’t the faintest idea,” he said cautiously. “I don\’t think that it\’s going to be worse than what one is forecasting right now.”

According to the latest IMF forecasts, the world\’s largest economy will grow a meager 0.5 percent this year, after a 2.2 percent pace in 2007.

The nomination of Blanchard to one of the IMF\’s most important positions comes as the 64-year-old institution, battling to remain relevant, is undertaking a long-planned reform that has failed to convince those inside and outside the IMF of its effectiveness.

His arrival could herald a change in the way the IMF conducts its research, which is at the heart of its activities.

“The research department should be the place where there is the best world expertise on all the important subjects of the moment,” Blanchard said. “It seems to me that that had not been done in an optimal way until now.”

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