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IMF may run out of cash to fight crisis in six months, Strauss-Khan warns

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Dominique Strauss-Kahn said the Fund needed an urgent cash infusion
if it was to continue bailing out troubled economies in the future.
Mr Strauss-Kahn also indicated that the world’s advanced economies
were now tipping from recession into full-blown depression,
cementing fears about the scale of the economic slump in rich nations.
The IMF head made the comments in Kuala Lumpur in Malaysia
over the weekend, where he is attending a meeting of central bankers
from Southeast Asia. The Fund has bailed out a number of countries
including Iceland, Latvia and Pakistan but Mr Strauss-Kahn said
there would be many others in need of help in the months ahead.
“Today, the IMF’s resources are enough to face the situation but because
we are facing a global crisis, the needs may be much bigger than previously,”
he said.
“We have to intervene in Asia, Africa and Central Europe, Latin America,
and maybe elsewhere. I can’t promise that in six to eight months from now,
we will have enough resources.”
The Fund is seeking pledges from nations with large current account
surpluses and foreign exchange reserves to donate it cash to help bolster
troubled countries. At the World Economic Forum in Davos late last month
deputy head John Lipsky is understood to have spent time meeting with
various heads of state and of sovereign wealth funds for precisely this purpose.
Japan has already offered to add $100bn to the Fund’s resources,
Mr Strauss-Kahn said.
“We need other countries to follow this generous example and provide funds
with the means to address the challenges arising from this global crisis,”
he added.
He warned that the economic crisis would intensify
unless the financial system was repaired, saying that although
he hoped the world could avoid a repeat of the Great Depression,
the “worst cannot be ruled out. There’s a lot of downside risk.”
The IMF recently slashed its world growth forecast to just 0.5pc
– the weakest since the Second World War, and warned that the UK
was facing the most severe slowdown of all developed economies.
Although Mr Strauss-Kahn said that government spending packages
and interest rate cuts would help, the health
of the banking system was a far more important factor.
“All 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,”
he said. “And today it’s not done.” The IMF has so far lent out $47.9bn
to countries affected by the economic crisis – mostly those in Eastern Europe.
Mr Strauss-Kahn said that the next victim could be Poland, which has
said it does not need assistance now, but may well do in the future.

Written by Michael Cooper

February 10, 2009 at 7:30 am

Posted in Uncategorized

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