IMF chief calls for tax on financial sector

The head of the International Monetary Fund yesterday called for a tax on the financial sector to protect the world economy from the "systematic risk" it creates.

Dominique Strauss-Kahn was speaking in Turkey before the IMF-World Bank annual meetingson building a stable world after the economic crisis.

He said it was "just fair" that the financial sector contributes to an insurance-style scheme to cover the risks it creates: "Having some money coming from the financial sector to create a kind of fund for insurance or funding for low-income countries is something that we are going to consider."

The IMF's first deputy managing director, John Lipsky, is preparing a report for the G-20 on the issue. "It is widely accepted that deposit insurance should be funded by a tax on the banking system," Mr Lipsky said.

He added: "This can be viewed as a mandatory insurance plan. In the wake of the current crisis, it is appropriate to consider the same issues more broadly across the financial system."

There has been much speculation over the introduction of a "Tobin tax" on foreign currency transactions, but Mr Strauss-Kahn ruled it out yesterday for "technical reasons".

The IMF head said the recovery from deep recession was under way but warned that unemployment would continue to drag. "Growth resuming is one thing, but it doesn't mean that the crisis is behind us."

The fund believes global economic activity will grow by 3 per cent next year after a 1 per cent contraction in 2009, but Mr Strauss-Kahn warned that a premature withdrawal of fiscal and monetary support "could kill the recovery".