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Wed 7 Dec 2011 11:13 AM

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Arab Spring is at critical juncture, says IMF chief

Political change faces headwinds from economic woes, unemployment threat

Arab Spring is at critical juncture, says IMF chief
IMF Managing Director Christine Lagarde said the fallout from the Arab Spring must be carefully managed

The aftermath of the Arab Spring uprisings is at a critical juncture and needs to be managed in an orderly way so change benefits everyone, the head of the International Monetary Fund said.

IMF Managing Director Christine Lagarde said political change across the Middle East and North Africa faced headwinds from an economic slowdown across the oil-importing countries, which was pushing up already-high unemployment and increasing social tensions.

Popular uprisings across the Middle East and North Africa this year have toppled veteran rulers in Tunisia, Egypt and Libya, and forced Yemen's president to sign away his powers.

Syria is grappling with an eight-month-old anti-government protest movement and Bahrain is still dealing with the fallout from a crackdown on pro-democracy demonstrations in March.

"This is naturally a risky and uncertain period," Lagarde said in a speech at the Woodrow Wilson Center think tank in Washington.

"It is a period when hard choices must be made, when post-revolutionary euphoria must give some way to practical concerns. It also doesn't help that this is happening at a time of great turmoil in the global economy."

She said while governments tried to head off popular discontent by raising subsidies, wages and increasing spending, it was time to develop more lasting fiscal policies and reduce ballooning deficits.

But governments need to use resources "in a very careful and targeted way, not in a wide-ranging approach," which would free up more spending on such things as health and education, she added.

The IMF has $35bn available to lend to countries in the region that request financing, Lagarde.

An interim government in Egypt that has been lobbying for foreign funds for its growing budget deficit resigned last month and its new finance minister, Mumtaz al-Saeed, has said the country is not ready for a decision on IMF aid.

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Lagarde said the IMF was currently providing technical assistance to countries in the region. It was helping Egypt make its tax system more equitable, in Libya it was developing a modern system of government payments, in Tunisia it is helping to improve the financial sector, and in Jordan it is aiding fuel subsidy reform.

"My door is open, all we need is a request from a country to come in and help," Lagarde added.

Lagarde said the IMF could overcome its reputation in the region for imposing unpopular policies through its actions.

"The best way to convince we can be of help is to demonstrate through our technical assistance program we are not here to interfere, we are not here to take over, we are not there ... as power holders," she said.

She said governments in the region needed to encourage the private sector to invest by providing predictable and stable environments where legal and tax frameworks were clearly spelt out.

"The government must provide an enabling environment. It should put in place modern and transparent institutions to encourage accountability and good governance and ensure fair and transparent rules of the game. It should slay, once and for all, the dragon of corruption"

She said vested interests that benefited just a few of the business elite needed to be dismantled. "This would be a break from the past when generalized subsidies were used to appease the population while allowing the privileged to benefit from unfair practices," she added.