IMF CHIEF SEES LIMITS TO FREE MARKET

Washington, April 5- The liberal theories that have guided the global economy for the last 30 years need to be overhauled, according to the head of the IMF -an institution long seen as their chief cheerleader.

The International Monetary Fund's Dominique Strauss-Kahn, in a speech on Monday said the "Washington Consensus" -a set of liberal theories that stress the efficiency of the free market- were antiquated.

"The Washington consensus is now behind us," Strauss-Kahn told students in Washington, reflecting on lessons learned from the 2008-2009 financial crisis.

"In designing a new macroeconomic framework for a new world, the pendulum will swing -at least a little- from the market to the state," he said.

The IMF has long championed free-market policies, calling on member countries to privatize state-run industries and to ease rules for businesses.

"Don't get me wrong -the old pattern of globalization delivered a lot- lifting hundreds of millions out of poverty," he said.

"But this globalization had a dark side - a large and growing chasm between rich and poor. While trade globalization is associated with lower inequality, financial globalization -the big story of recent years- increased it”.

Strauss-Kahn, who is widely expected to leave his post soon to lead France's Socialist Party in 2012 presidential elections, said more focus on social cohesion as well as tighter rules were needed.

"Over the longer term, sustainable growth is associated with a more equal income distribution," he said. "The new global governance must also pay more heed to social cohesion”.

"We need a tax on financial activities to force this sector to bear some of the social costs of its risk-taking behavior”.

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