A bad 2009 may become even worse, says IMF chief

International Monetary Fund (IMF) chief Dominique Strauss-Kahn said governments’ lack of fiscal stimulus to tackle the global slowdown may make a bad 2009 even worse, according to a recent interview.

Strauss-Kahn said that the IMF may need to cut its next economic growth forecasts, due in January, referring to “2009 as really being a bad year”.

“I’m especially concerned by the fact that our forecast, already very dark, will be even darker if not enough fiscal stimulus is implemented,” he said.

The IMF has called for fiscal stimulus—higher government spending and temporary tax cuts—worth $120-trillion, or 2% of global annual economic output, to fill the gap caused by slumping private demand following the credit crunch.

Britain has announced fiscal stimulus worth around 1% of output, and despite a “disturbing” level of public debt, Strauss-Kahn said more public borrowing would be the lesser of two evils.

“The question of having social unrest has been highlighted by journalists ... but it’s only part of the problem,” he said. “The problem is that the whole society is going to suffer.”

“The threat is that big today that I think that between two different problems, increasing deficit—which is never good—and fighting against recession—which is even worse—we have to choose the less bad solution,” he said.

Strauss-Kahn dismissed recent criticism of higher government borrowing by German Finance Minister Peer Steinbrueck and European Central Bank President Jean-Claude Trichet, saying both men had traditionally taken a strong stance against heavy government borrowing.

Strauss-Kahn said help was unlikely to come from further global interest rate cuts—or even a move to so-called quantitative easing, where central banks try to increase the volume of credit in the economy.

“We’ve probably reached a point today where the quantity of money in the economy is fine globally ...
but even with this liquidity banks are very reluctant to lend. The main thing we have to do today is to restore confidence,” he said.—Reuters

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