The global credit squeeze is a “serious crisis” that is not over yet and will have an impact on government budgets, International Monetary Fund (IMF) outgoing head Rodrigo Rato said in an interview published on Monday.
Speaking to the Financial Times from Washington, IMF managing director Rato said: “Policymakers should not think that the problems will stay at the desk of the bankers.”
“Problems are going to come to the real sector, come to the budgets — that is something we keep telling people.”
Rato said that it would be “a few months, probably into next year”, before the availability of funds returned to normal levels in the markets, which was “going to have an impact on growth”.
He noted that the limitation on growth would mean that finance ministers would have to amend their budgets, but he told the Financial Times that it did not seem that many were willing to do so.
Rato added that the credit crunch, sparked earlier this year by concern in the financial markets over high-risk or subprime mortgages in the United States, was “not a storm in a teacup”.
“The US is going to slow down … Growth in Europe looks less strong than before, and in Japan too — though Japan will probably stay [at about] potential,” said Rato, who will be succeeded as IMF chief by former French finance minister Dominique Strauss-Kahn at the end of the month.
Emerging markets will also likely have some impact, Rato said, adding that while those countries were growing rapidly, “to what extent they will keep that momentum will depend on how long the slowdown is in the US and Europe”.
In Madrid on Monday Rato said the risks had grown considerably in the past six months.
“The risks are clearly much greater now that they were six months ago,” Rato told a Latin American conference organised by Spanish chambers of commerce.
“This turbulence in the credit market, if it continues, would obviously have a much more serious effect on the world economy,” he said. — AFP