IMF chief says bank cleanup too slow
The world’s advanced economies are moving too slowly in ridding banks of problem assets, which could jeopardize a global economic recovery in 2010, the head of the International Monetary Fund said.
The warning by IMF Managing Director Dominique Strauss-Kahn comes as the Fund now believes the global economy will be gripped by a “Great Recession” in 2009 and contract below zero.
In January the IMF said world growth will come to a virtual standstill this year at 0.5 percent, but Strauss-Kahn said just over a month later the IMF had to cut that forecast following worse-than-expected fourth-quarter data.
Strauss-Kahn said on Wednesday the IMF is still projecting the world economy will recover from mid-2010 but only if governments move quickly to implement stimulus measures and banks’ balance sheets are cleared of toxic assets.
“On the (bank) restructuring side things are really lagging,” Strauss-Kahn told Reuters in an interview after an IMF conference on African economies. “If it goes that way for two or three more months then recovery in 2010 will be difficult.”
Extra writedowns and a large U.S. tax fine forced UBS to revise up its 2008 net loss, the biggest in Swiss corporate history, the bank said on Wednesday, after it had earlier received a state subsidy.
And news of an asset insurance scheme in Britain has been coming out piecemeal in the last few days, as the country aims to limit losses banks face on troublesome assets saving account payday loan.
The new U.S. administration has outlined a plan to remove toxic assets from banks’ balance sheets. “The U.S. needs to say exactly how they’re going to do it,” Strauss-Kahn said.
He said he would take this message to a meeting of Group of 20 finance ministers in Britain on Friday and Saturday.
U.S. Treasury Secretary Timothy Geithner on February 10 outlined the bank plan, but offered few details on how it would work.
Since then, the Treasury has agreed to a third rescue effort for Citigroup by agreeing to convert preferred shares to common equity, bolstering the bank’s capital base.
Limiting the losses of banks and insurers on risky assets is widely regarded as the key next step to restoring confidence in the financial system.
MORE STIMULUS
Strauss-Kahn said actions by various governments to stimulate their economies had been more coordinated and responsive although he said “there is still some room to have some more stimulus.”
The IMF has proposed that governments that can afford it should act together to roll out a global fiscal stimulus equivalent to about 2 percent of world gross domestic product (GDP) or around $1.2 trillion. Currently total fiscal stimulus plans amount to around 1.5 percent of world GDP.
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