Ahead of the G-20 Summit in London next week, the International Monetary Fund (IMF), on Friday urged the participating world leaders to make cleaning up the financial sector as their top priority and ensure that the stimulus money is available next year too.
Observing that the world is at a crossroads now as it faces the greatest economic crisis in 60 years, the IMF Managing Director Dominique Strauss-Kahn said at a news conference that the G-20 leaders have the opportunity to spur a recovery next year if they take the right action.
Asserting that cleaning up the balance sheets of banks and getting the financial sector working again was critical to reviving world growth, Strauss-Kahn said: "Countries can do it in different ways, but they have to do it and do it now."
Responding to questions from reporters in London, Paris and Washington through video conferencing, he said the governments around the world had done very well in announcing stimulus plans to counter the current downturn and create jobs.
But they now needed to ensure that efforts were sustained in 2010, he said.
Strauss-Kahn said though the crisis did not start with emerging markets, the collapse of trade finance and drying up of capital flows is hurting many emerging markets.
The IMF needs enough resources to assist emerging markets; otherwise a collapse in emerging economies would have a devastating impact on developed economies, reinforcing the crisis. He also called for aiding low-income countries.
Terming it a crucial meeting for resolving the world economic crisis, Strauss-Kahn said it is vitally important that the G-20 leaders reach agreement at the April 2 meeting in London. "If there's a big clash it will not be good for confidence," he declared.
Hoping that the meeting would show unity and leadership, the IMF chief said the changes agreed in London could amount to the same strategic shift that took place with the creation of the IMF and the World Bank at Bretton Woods, New Hampshire toward the end of World War II.
In addition to endorsing his five-point IMF agenda, he wanted to see steps agreed to start reforming the international financial system, including regulation of tax havens, rating agencies, and hedge funds. "I'm not expecting something very new. What I expect is the commitment of world leaders to take a step forward and to make it rapidly."
Global activity is now projected to contract by 0.5-1 per cent in 2009 on an annual average basis¿the first such fall in 60 years, the IMF has said.
Global growth is still forecast to stage a modest recovery next year, conditional on comprehensive policy steps to stabilize financial conditions, sizeable fiscal support, a gradual improvement in credit conditions, a bottoming of the US housing market, and the cushioning effect from sharply lower oil and other major commodity prices.
As the crisis gets prolonged, emerging market and low-income countries are suffering more. So far the IMF has lent $50 billion to help a number of crisis-affected countries and is in talks to lend far more, which is why the multilateral institution is attempting to dramatically increase its lendable resources.
