Britannia Radio

REUTERS   15.12.08

IMF sees risks of prolonged global crisis

By Andrew Hay

MADRID (Reuters) - The global economy could fall into prolonged 
crisis, spreading social unrest unless governments expand and 
implement promised stimulus packages, the IMF Managing Director 
Dominique Strauss-Kahn said on Monday.

Growth is plummeting in China as the global economy suffers an 
unprecedented fall in output and veers toward recession, raising 
risks of more civil unrest like that seen in Greece, Strauss Kahn said.

Without greater urgency on the part of governments, the beginning of 
a global recovery in late 2009 or early 2010 could be delayed, he said.
"A lot remains to be done and if this work is not done it will be 
difficult to avoid a long lasting crisis that everyone wants to 
avoid," he said during a conference on IMF-Spanish relations.

He saw violent protests spreading unless the financial system was 
reorganized to benefit everyone, and not just a small elite.
"If we are not able to do that, then social unrest may happen in many 
places, including advanced economies," he added.

The IMF will probably cut its current 2.2 percent forecast for global 
growth next month as governments prove unwilling or unable to budget 
sufficient public funds to restore economic confidence, Strauss Kahn 
said.

He singled out the European Union's stimulus package, worth 1.5 
percent of gross domestic product, as insufficient.

Strauss-Kahn said European leaders were using pre-crisis budget 
deficit limits to design the package instead of adopting new rules to 
fit the size of economic problems.
"We are facing an unprecedented decline in output and we have 
evidence of substantial uncertainty limiting the effectiveness of 
some fiscal policy measures, he said.

The IMF recommends global governments spend a combined 2 percent of 
global gross domestic product or $1.2 trillion to reduce the risk of 
a damaging global recession.

It backs hefty government recapitalization of banks to restore 
financial system confidence.

"A lot has been announced but I believe the follow up isn't going 
fast enough, and that is one of the components of the lack of 
confidence," Strauss-Kahn said.

A symptom of that is sagging growth in China, he said.
"We started with China at 11 pct growth then 8 then 7 then China will 
probably grow at 5 or 6 percent. The possibility of a global 
recession is real, we realize something must be done," said Strauss-
Kahn.

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