IMF chief sees rising threat of social and political instability

The world economy is beset by problems such as high unemployment and rising prices which could fuel trade protectionism and even lead to war within nations, the head of the International Monetary Fund warns.

SINGAPORE. (FEBRUARY 1, 2011)  REUTERS - Rising food and fuel prices in recent months have already hit poorer countries and are one of the factors behind massive anti-government protests in Egypt and Tunisia, whose president was ousted last month.

"As tensions between countries increase, we could see rising protectionism -- of trade and of finance. And as tensions within countries increase, we could see rising social and political instability within nations - even war," Dominique Strauss-Kahn said in a speech in Singapore.Strauss-Kahn noted two "dangerous" imbalances that he said could sow the seeds of the next crisis.

The first was the unbalanced recovery across countries, as emerging nations grow much faster than developed economies and possibly overheat. The second was the social strains within countries with high unemployment and widening income gaps.

Over the next decade, 400 million young people would join the global labour force, posing a daunting challenge for governments, Strauss-Kahn added.

Strauss-Kahn stressed the importance of Japan addressing its fiscal sustainability.

"It is certainly urgent for Japan to address this fiscal sustainability and on the other hand we have all been repeating that is is urgent for such a long time that is has becomes kind of a joke. What I am concerned about Japan is growth and what I am afraid of is that the small rebound in the growth we have experienced during the last quarters may not go on or will stay at the same level but not better, that is the real point," told the gathering in Singapore.