IMF CHIEF IDENTIFIES KEYS TO WORLD ECONOMY

IMF CHIEF IDENTIFIES KEYS TO WORLD ECONOMY

Japan and West Germany could make for a sounder world economic system by adopting more market-oriented policies, Michel Camdessus, the International Monetary Fund's managing director, said.

West Germany, he said, should consider liberalizing its labor market policies and should remove industrial subsidies. Japan, he said, ought to open its market distribution system and alter its land use rules.Such policy changes, he told the Overseas Development Council, a Washington-based research group, offer perhaps the best hope for faster economic growth and better payments balances among the world's industrial nations.

According to Mr. Camdessus, the IMF's latest estimates suggest that, under present policies and exchange rates, the massive payments imbalances among the United States, West Germany and Japan will continue to be very large over the medium term.

He voiced concern that the buildup of U.S. foreign debt - an outgrowth of these imbalances - is not being matched by a willingness by private foreign interests to increase their U.S. investments.

This trend, he said, risks renewed disturbances in financial markets . . . increased protectionist pressures and a weakening in global economic activity.

The United States, he said, must constrain its domestic spending so that it grows significantly less rapidly than output for an extended period. Japan and West Germany, he said, must seek to boost domestic demand faster than output.

But, Mr. Camdessus said, Japan and West Germany have limited room to maneuver in both their fiscal and monetary policies.

The key, then, is that they reform some basic domestic policies, such as industrial subsidies, work rules and market distribution practices.

Prospects for faster output growth in the industrial world in the 1990s will depend essentially on the success of such efforts, he said.