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Fischer sees U.S. recovery
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January 31, 2002: 2:06 p.m. ET
Top IMF official Stanley Fischer sees signs of U.S. economic recovery.
By Staff Writer Kim Khan
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NEW YORK (CNN/Money) - A senior International Monetary Fund official in New York for the World Economic Forum told CNN/Money Thursday the United States economy is very close to coming out of a recession and is currently the sole driver of a global recovery.
On his last day as advisor to the IMF before moving to Citigroup, Stanley Fischer said that although is it difficult to time an economy recovery, he sees indications the U.S. is at the end of its decline.
"The Fed clearly believes we've reached bottom or will reach it in a month or two," Fischer said. "They believe there's a lot of expansion in the pipeline from the very low interest rates and from the fiscal expansion."
"There's sufficient promising signs in the economy to believe we're probably very close to the bottom of the decline, that is to say very close to the turning point and the beginning of the recovery," he said.
The U.S. economy received positive signals Wednesday when the Commerce Department said gross domestic product, the broadest measure of the U.S. economy, grew at a 0.2 percent annual rate in the fourth quarter after shrinking at a 1.3 percent rate in the third quarter, and the Federal Reserve left short-term interest rates unchanged for the first time in over a year.
But the outlook turned mixed early Thursday after the government said that personal incomes posted their biggest increase since last summer in December but consumer spending still edged lower and new jobless claims rose.
Fischer said the U.S. is currently carrying the entire burden of a world economic recovery.
"Unfortunately the global economy seems to be depending totally on the U.S. at the moment," he said. "Europe could be growing more rapidly but it seems now it will be a few months behind."
He said once Europe and the U.S. start to recover the global economy will see a huge positive force, but added a Japanese recovery was tougher to forecast.
"Japan, of course, is much harder to predict, but if that ever started growing again we'd have a really big positive surprise that would help the global economy a lot," he said.
Fischer says Argentina will float, cut spending
As for Argentina, the biggest problem currently facing the IMF, Fischer said he believes the Argentine government will be "driven by the logic of the situation" and move to float the peso, which currently trades with a floating and a fixed exchange rate depending on the transaction.
He also said Argentina will move to make the spending cuts necessary for further IMF aid and the Argentine public will oppose attempts to fund programs by printing money.
"This is a society that has been so burned by inflation, that no politician who produces inflation by any magnitude is going to survive, so they can't afford it," Fischer said. "And if they can't afford it that means they can't print large amounts of money so they're going to have to get the budget in some sort of order."
He denied the IMF was pressured into loaning more money to Argentina than was prudent; pointing out that the government had a plan to balance its budget last August so that a "last chance" loan was warranted. He also said at that time Argentina was in lock-step with Brazil, so the loan was the right thing to do in terms of minimizing contagion.
"I believe the IMF should go the extra mile to help a country, it shouldn't go the extra two miles," he said.
Importance of IMF transparency
Fischer said during his seven years as the top economist at the IMF the most important economic developments have been pegged exchange rates disappearing from emerging market countries and increased transparency in the IMF.
"We've had eight huge crises in the last seven years, every one of them involved pegged exchange rates and every one of (the pegged rates) has gone," he said. "Floating exchange rates do not get rid of crises but they sure reduce the probability that you'll be in an dramatic crisis of the type we've seen in the last decade."
He also said the IMF lifting its veil of secrecy has helped the institution.
"It published essentially nothing in 1994 before the Mexican crisis, but it makes almost everything public now," he said. "It demystifies the IMF in a way that reduces its effectiveness, but it keeps the world informed and in that way it increases its effectiveness and I think the latter effect is the dominant one."
Fischer will now join Citigroup as a vice chairman, but declined to comment on specifics of his upcoming duties. 
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