http://www.bloomberg.com/apps/news?pid=20601080&refer=asia&sid=a6aaWZ8ab8yU
IMF Says Advanced Economies Already in Depression (Update1)
Email | Print | A A A
By Angus Whitley and Shamim Adam
Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.
âThe worst cannot be ruled out,â Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. âThereâs a lot of downside risk.â
Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone wonât succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.
âAll this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,â he said. âAnd today itâs not done.â
The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macyâs Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.
âThere is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,â said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. âBut there is still the risk it can be short-circuited by further financial turmoil.â
$780 Billion Package
The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.
The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.
Governments should be ready for âfull-fledgedâ intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the regionâs banks, he said.
Borrowing Costs
âWeâre probably not very far from the point where the question of interest rates is not the most important question,â Strauss-Kahn said. âProviding direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.â
In Asia, âthereâs still room for bigger stimulus packages,â the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than Novemberâs 7 billion-ringgit ($1.9 billion) plan, he said.
Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last monthâs update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.
Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fundâs forecast for a recovery to start in 2010 is âvery uncertain.â
Demand for Loans
Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.
Strauss-Kahn said he agreed with Poland that the eastern European nation isnât in need of assistance from the fund now, but may require financial aid in the future.
The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.
âSome need for precautionary arrangements may appear,â he said, without naming specific countries.
Critics of the fund say itâs failed to keep up with the pace of change as the worldwide recession deepens.
The IMF and similar institutions are âincapableâ of coping with the global financial crisis, because their resources canât keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.
Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.
The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.
To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.netAngus Whitley in Kuala Lumpur at awhitley1@bloomberg.net
Last Updated: February 7, 2009 04:38 EST
IMF Says Advanced Economies Already in Depression (Update1)
Email | Print | A A A
By Angus Whitley and Shamim Adam
Feb. 7 (Bloomberg) -- Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.
âThe worst cannot be ruled out,â Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. âThereâs a lot of downside risk.â
Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone wonât succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.
âAll this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,â he said. âAnd today itâs not done.â
The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macyâs Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.
âThere is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,â said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. âBut there is still the risk it can be short-circuited by further financial turmoil.â
$780 Billion Package
The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.
The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.
Governments should be ready for âfull-fledgedâ intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the regionâs banks, he said.
Borrowing Costs
âWeâre probably not very far from the point where the question of interest rates is not the most important question,â Strauss-Kahn said. âProviding direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.â
In Asia, âthereâs still room for bigger stimulus packages,â the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than Novemberâs 7 billion-ringgit ($1.9 billion) plan, he said.
Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last monthâs update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.
Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fundâs forecast for a recovery to start in 2010 is âvery uncertain.â
Demand for Loans
Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.
Strauss-Kahn said he agreed with Poland that the eastern European nation isnât in need of assistance from the fund now, but may require financial aid in the future.
The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.
âSome need for precautionary arrangements may appear,â he said, without naming specific countries.
Critics of the fund say itâs failed to keep up with the pace of change as the worldwide recession deepens.
The IMF and similar institutions are âincapableâ of coping with the global financial crisis, because their resources canât keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.
Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.
The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.
To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.netAngus Whitley in Kuala Lumpur at awhitley1@bloomberg.net
Last Updated: February 7, 2009 04:38 EST
