September 23, 2009 / 2:52 PM / 9 years ago

IMF chief warns of increased social instability

NEW YORK, Sept 23 (Reuters) - The head of the International Monetary Fund on Wednesday warned social instability, even war, would increase as unemployment and hardship rises in countries still reeling from the global economic crisis.

In a speech in New York coinciding with start of the UN General Assembly, IMF Managing Director Dominique Strauss-Kahn said while the world economy may be on the mend, for many people about to lose their jobs the crisis was just beginning.

“Unemployment might very well continue rising next year, even as the economy bounces back,” Strauss-Kahn said. “In many countries, particularly those without adequate social safety nets, poverty will persist. And with this comes risks to social stability,” he added.

The IMF chief said global financial conditions have improved — the IMF forecasts a global recovery in the first part of 2010 — but cautioned that labor markets may take a while to catch up, as firms generally tend to respond slowly to economic turnarounds.

“We can see light at the end of the tunnel even if the crisis is by no means over,” he said. “But even if growth recovers, it might take some time for unemployment to follow,” he added.

The International Labour Organisation (ILO) said in May it expected the number of unemployed worldwide to rise to 210 million to 239 million people this year

The stakes are high in the world’s poorest countries in particular, which have not only been hit by the global recession and a contraction in global trade, but also by higher world food prices, Strauss-Kahn said.

The United Nations and World Bank estimate that up to 90 million people in developing countries might be pushed into poverty because of the crisis.

“In many areas of the world, what is at stake is not only higher unemployment or lower purchasing power, but life and death itself,” Strauss-Kahn said.

“Economic marginalization and destitution could lead to social unrest, political instability, or a breakdown of democracy. We could see war. This is what we must avoid.”

He said cooperation among developed and developing nations during the crisis had avoided another Great Depression and urged political leaders to maintain those efforts to ensure a lasting recovery.

“We don’t just care about growth for growth’s sake, we also want to safeguard peace and prevent war,” Strauss-Kahn said, adding: “Indeed, when low-income countries were doing well over the past decade or so, the incidence of war declined significantly. The great fear is that this trend could be reversed.” (Writing by Lesley Wroughton; Editing by Padraic Cassidy)

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