MercoPress. South Atlantic News Agency

IMF calls for stimulus plans to extend until 2011

The world should adopt economic stimulus plans that carry well into 2010, and possibly 2011, to ease a global recession and must expand financial regulation across all sectors to prevent a similar crisis in future, said the International Monetary Fund.

IMF warned that the world economic crisis was showing no signs of letting up, and urged greater international coordination ahead of a G20 summit next month in London of the world's leading economies.

While many governments have stimulus packages in place for 2009, most “don't have much in the works” beyond this year, IMF chief economist Olivier Blanchard told reporters in Washington.

“What is clear now ... it's going to take a long time before output goes back to normal,” Blanchard said. “It seems to us that at this stage that governments should be thinking about doing more in 2010, maybe in 2011.”

The IMF has forecast world growth of only 0.5% in 2009 - which is rated as a global recession - and could lower that prediction even further in the coming months as trade and consumer demand have come crashing to a halt around the world.

The call for more stimuli comes despite many governments already facing massive budget holes. Advanced economies are running fiscal deficits of 8% of gross domestic product on average, up from just 2% of GDP in 2007, the global financial watchdog said.

Ahead of the G20 meeting, the IMF released a series of papers drawing some lessons from the financial crisis, which largely originated in the United States but has sent most of the world's economies and stock markets into a tailspin.

The IMF said financial institutions had been subject to “fragmented” regulations that allowed many complex areas such as hedge funds to fall through the cracks.

In addition, many Western governments had in place tax incentives that encouraged a culture of debt that is largely faulted for the collapse.

Financial firms took unnecessary risks, especially in the US mortgage market, which left them without enough cash on hand to survive a US housing crash that exposed them to hundreds of billions of dollars in losses.