MercoPress. South Atlantic News Agency

IMF suggests more regulation to address financial imbalances

IMF Director D. Strauss-Kahn

International Monetary Fund Director General Dominique Strauss-Kahn called for a serious “response” to the risk of a United States recession and encouraged fiscal stimulus programs in some countries warning that monetary policy “is not enough”. He also supported more multilateral regulation.

Speaking in at the closing meeting of the World Economic Forum in Davos the head of the IMF said that "whatever the answer is on a recession, what is clear is there will be a serious United States slowdown and it needs a serious response". The IMF which for the last half century has usually encouraged reductions in public spending and austerity measures indicated that there is room for fiscal loosening in some big countries and interest rate cuts. He insisted that "we cannot rely only on monetary policy", adding that "some countries are not in a situation to increase the deficit, but other countries are in the position where there is some room for fiscal loosening" but declined to name the countries he had in mind. On interest rates Strauss-Kahn said that an expected economic slowdown would lead to falls in inflation which would allow some central banks to lower borrowing costs to boost the economy. The US Federal Reserve has slashed interest rates aggressively, but the European Central Bank is resisting pressure from some European politicians to act because it remains concerned about inflation. "There will probably even be more room (to lower rates) in the coming weeks or the coming months depending on the price of commodities and on the decreasing demand" said Strauss-Kahn who announced that the IMF next week would issue economic forecasts showing that emerging countries are doing "rather well" despite the problems faced by the US economy. "Emerging countries are doing very well, but they will be affected also because they are not immune" he said. Strauss-Kahn also called for a global solution to the current economic problems, which originated in the US housing market but have spread to infect the global financial system and financial markets. He warned that even the IMF would need an overhaul to tackle the crisis, reiterating earlier pledges of reform. "To address a crisis like this, which is probably one of the first multilateral or global crisis we need to have a multilateral or global answer and address all the imbalances" he said, adding that he approved the joint efforts taken so far by the Fed and other institutions to stem problems. Losses by banks which invested in complicated securities backed by high-risk US mortgages have led to a credit crunch in which bank lending has been restricted. Fear of losses and a lack of transparency about the extent of the problems have led to highly volatile trading on world stock markets. "All this shows that we need more multilateral regulation" Strauss-Kahn underlined. Renowned Hungarian-US financial guru-expert George Soros went even further suggesting the world "needs a new sheriff", which was interpreted as indicating that the US and the US dollar have come to an end of its long half century cycle. Strauss-Kahn said the gloomy sentiments over financial slowdown and tightening credit conditions had overshadowed the five-day Davos meeting, despite a worthy agenda aimed at seeking solutions to global warming, poverty, and disease. More than 2,500 members of the business elite, heads of state and celebrities including Microsoft's Bill Gates, rock star campaigner Bono and U.N. Secretary General chief Ban Ki-moon gathered for this year's forum.