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IMF urges France to cut rates to stir expansion

WASHINGTON: International Monetary Fund Managing Director Michel Camdessus Thursday urged France to follow Germany's lead and cut interest rates to reinforce economic growth in the second half of this year.

Camdessus, clearly pleased by German action overnight to reduce its key interest rates by a half percentage point, said France could take advantage of the strong French franc and the progress it has made in reducing its budget deficit and cut rates too.

"I would ... suggest it (France) follow the lead of Germany and to continue its sustained policy of reduction of interest rates," he said.

U.S. Treasury Secretary Robert Rubin also welcomed the action by the Bundesbank, saying faster growth in Germany would not only benefit Europe but the world economy as well. "Europe ... growth has slowed and needs to be strengthened," he said.

Although lower German interest rates would tend to support the dollar, the move had been expected and the dollar gave up some ground as speculators took profits.

Germany has made it clear that it favoured a strong dollar on the grounds that it would make its exports more attractive overseas, adding to much needed economic vitality.

Camdessus and Rubin met separately with reporters in conjuction with the spring meetings of the IMF and World Bank.

Camdessus took the opportunity to announce completion of a major loan with Ukraine and to give reporters a progress report on nearly completed loan negotiations with Venezuela.

The loan for Ukraine is for $900 million and is designed to support a reform programme through the end of this year with the IMF monitoring progress on a month to month basis.

"It is my pleasure to tell you that an agreement has been reached in principle on a new standby arrangement (for Ukraine)," Camdessus said.

He said he will urge the IMF's board to approve the new assistance, noting that Ukraine had made significant progress in reforming its economy, cutting inflation in half, slowing the decline in economic output, tightening its fiscal belt and initiating needed structural reforms.

"The goals for 1996 ... will be to try and arrest the fall in output and set the stage for economic recovery," he said.-Reuter