Reuters
Mar 23, 2009
* Economic crisis
dire, risk of unrest and war - IMF
* Recovery depends on cleaning up bank balance sheets
(Recasts, adds
quotes, details, background)
By Jonathan
Lynn
The crisis will
push millions into poverty and unemployment, risking social unrest and even
war, and urgent action is required, IMF Managing Director Dominique
Strauss-Kahn said.
"Bluntly
the situation is dire," he told a meeting on the crisis at the
International Labour Organisation,
a United Nations agency representing unions, employers and governments that
studies labour issues.
Strauss-Kahn
was talking less than two weeks before a summit of the G20 leading nations on
April 2 to tackle the crisis.
As the crisis
spills over into developing countries, millions of people will be pushed back
into poverty and hardship, Strauss-Kahn said.
"All this will
affect dramatically unemployment and beyond unemployment for many countries it
will be at the roots of social unrest, some threat to democracy, and may be for
some cases it can also end in war," he said.
REVERSAL
Strauss-Kahn
confirmed that the IMF would shortly update its economic forecasts to show the
world economy contracting by between 0.5 and 1.0 percent this year -- the first
reversal in more than 50 years of sustained growth.
Developed
countries would shrink by a post-war record of about 3 percent, he said.
But the IMF still
believed recovery was possible in 2010 provided bold policies were followed.
Firstly this
involves boosting demand, but monetary policy -- moving interest rates -- has
reached its limits, even with the unconventional tools central banks are using,
he said.
That is why
the IMF had called for governments around the world to pump money in the
economy to the tune of 2 percent of gross domestic product, he said. (They are
demanding 2% of US gross product this is a hundred or so billion
)
He noted that
this did not mean that all countries should provide this fiscal stimulus, as
some were in too fragile a financial position to increase spending.
But so far
those countries that could afford it had pumped in about 1.6-1.7 percent of
world GDP.
"I do
believe there is still some room to go further in some countries, but taking it
all round it's not that bad," Strauss-Kahn said, adding this showed that
international coordination was working well.
But the
prerequisite for success was the restoration of a healthy financial sector, he
said.
Although
bailing out banks was politically unpopular, businesses and households could
not survive without a working banking system, he said.
The IMF's experience of 122 banking crises around the world had
taught it that economic recovery was impossible until banks were cleaned up,
whether this was done quickly or slowly.
"You can
put in as much stimulus as you want. It will just melt in the sun as snow if at
the same time you are not able to have a generally smaller financial sector
than before but a healthy financial sector at work," he said.
Despite the
need for many countries to run huge deficits, emerging countries must not
ignore the importance of rebuilding confidence in order to attract private
capital in a globalised world, he said. (Reporting by
Jonathan Lynn