Finance crisis ‘far from over’
IMF says banks have to work harder to clear bad debts but predicts recovery in 2010.
They also come as the World Bank, which is also scheduled to meet over the weekend, said on Thursday it would provide $45bn over the next three years to support road building and other infrastructure projects in poor nations.
Robert Zoellick, president of the World Bank, said the money would support job creation and “help jump start a recovery from the crisis.”
He also said the US and Europe should “reconsider old prerogatives” and allow developing countries a greater voice in management of the World Bank.
Recovery ‘in 2010’
Strauss-Kahn said he was confident that some form of recovery would take place in the first half of 2010.
Any recovery however, he said, relied on banks ridding their balance sheets of bad loans, accumulated during the US subprime housing crisis that undermined confidence and froze credit across the globe.
“You never recover before you complete the cleaning up of the balance sheet of the financial sector,” he said.
“The recovery in 2010 relies a lot upon the effort that still has to be made in this domain. So, I’m again asking on the eve of these meetings for more effort to be made in this direction.”
The IMF estimates that the US, European and Japanese banks will have acknowledged only a third of their losses on such bad assets between mid-2007 and 2010.
Response defended
Strauss-Kahn defended the IMF’s response to the global crisis, pointing to its increased lending to emerging market countries hit hard by both the credit crisis and the subsequent collapse in trade and saying “we did what we had to do”.
However, he acknowledged that the IMF needed to become more effective in monitoring economies and warning of potential crises.
In a separate speech, also on Thursday, he said the organisation must change its governance structure to give more influence to emerging market nations or risk losing legitimacy.