It is too early for a general exit though the global economy has made remarkable progress, said IMF Managing Director Strauss-Kahn on Monday.

He made the remark at the annual conference of the Confederation of British Industries (CBI). He said policymakers now stand at a critical juncture where the sustainability of the global recovery will depend on the decisions they make in the months to come.

"Today the storm has passed. The worst has been averted. And yet the economy remains very much in holding pattern -- stable, and getting better, but still highly vulnerable," said Kahn.

He called for global policymakers continue their collaboration to effectively face four key challenges.

According to him, the four key challenges refer to: exiting from accommodative policies, adapting to increasing capital flows to emerging markets, developing a new global growth model and designing and implementing financial sector reforms.

On exit strategies, Kahn stressed the importance of waiting for a sustained recovery in private demand, as well as clear indications of financial stability before accommodative measures are withdrawn. "We recommend erring on the side of caution, as exiting too early is costlier than exiting too late," he said, "Exit too soon, and you kill the recovery. Exit too late, and you sow the seeds for the next crisis."

Plans for fiscal consolidation should be the top priority, especially in advanced economies, he added. And monetary policy can afford to stay accommodative for some time, given little sign of inflation on the horizon.

As for managing capital flows to emerging markets, Kahn said many tools including lower interest rates, reserves accumulation, tighter fiscal policy and financial sector prudential could be considered in these markets. But he also warned that all tools have their limitations. "We should be pragmatic."

When talking about the new growth model, he said the old paradigm of growth generation based on households in the US was dead.

"If we are to have sustained global growth, somebody else need to step into the breach. The leading candidates are the surplus countries. We can see some shifts in the right direction. China and other emerging Asian economies are shifting from exports to domestic demand," he said, "But they have some way to go."

In the case of financial sector reform, Kahn emphasized that it was essential to break the link between risky behavior and compensation.

At the same time, he said financial institutions are still in poor shape while regulators seek to impose tough new standards that may jeopardize recovery. Therefore, he said the possible answer is to reduce regulatory uncertainty.

(Xinhua News Agency November 25, 2009)