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IMF insists main immediate goal is to clean-up banks

Wednesday, February 18th 2009 - 20:00 UTC
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IMF Dominique Strauss-Kahn IMF Dominique Strauss-Kahn

The International Monetary Fund (IMF) has warned that global recovery efforts are being undermined by the presence of “toxic” assets on banks' balance sheets. IMF managing director Dominique Strauss-Kahn said in an interview to French radio France-Inter that this undercuts stimulus efforts by various governments.

"I'm worried, because the plans that are being put in place are headed in the right direction, but don't go far enough," he said. The IMF chief went further: A clean-up of banks is the first task that governments need to address. Unless that is done, trust and, in turn, confidence cannot be restored. Stand-alone stimuli stand no chance in the current economic climate". "Yet, governments worldwide got into a sequencing problem: they rushed to launch economic and financial stimuli without cleaning bank balance sheets and recapitalizing them. Now, after committing huge sums to stimulus packages, they find their hands tied in spending more money on efforts to restore the health of their financial institutions", added the IMF Managing Director. "I favor action with dynamite, I want to blow up all fiscal paradises and sack all bank managers who've done a bad job, unless we want the crisis to continue", emphasized Strauss-Kahn. The IMF chief described as "outrageous" some of the pay packages of bankers and financers and said that those banks which are most misbalanced should fall, rescuing depositors' money. The paradox is that we must help the financial system, where the problem started, "but not the banks, we must help the people and make credit accessible again" he underlined adding that the "lack of regulations" is at the "heart of the crisis". "What shocks me, you see, what bothers me a bit is that in the international arena ... everyone agrees that we need to work and act together," he said. "Then when everyone goes home, everyone has his national constraints, everyone does things a bit differently and sometimes with a little contradiction, and it is for this reason that there are some risks," he said. Strauss-Kahn, who attended a Group of Seven gathering in Rome at the weekend, is scheduled to meet British Prime Minister Gordon Brown this week to prepare for the April summit on the global economic crisis. The talks will be part of intense diplomacy in preparation for the G20 meeting of advanced and emerging economies which Brown will host on April 2 in London. Strauss-Kahn said many countries were guilty of showing protectionist tendencies as they channeled public funds towards their fragile banks. Governments tended to tell lenders to keep the cash within national borders rather than to help other countries with their exports, he said. "This is another form of protectionism. This manner of seeking national solutions is human ... It is quite a natural reaction but it is not efficient". But what "is really necessary, because this is the first real global crisis ... is that the responses are much more coordinated." There was some coordination in Europe, but "we don't have enough," he added. "It is necessary to get to the bottom of the clean-up of banks' balance sheets. This is not happening quickly enough." Finally the IMF managing director said that he saw a glimmer of hope for next year. "2009 will in any case be difficult", but many people would lose their jobs. "If we do everything we need to, the end of the crisis could come at the start of 2010. If we do not do what is necessary, it will last" he forecasted.

Categories: Economy, International.

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