'Global intervention needed on credit crisis'

Government intervention at a worldwide level is needed to address the credit crisis, the head of the International Monetary Fund said yesterday.

"I really think that the need for public intervention is becoming more evident," IMF Managing Director Dominique Strauss-Kahn told the Financial Times in an interview.

Strauss-Kahn's comments come just days before world finance ministers and central bank governors gather in Washington for the meetings of the IMF and the World Bank, where steps to address the crunch in financial markets will be discussed.

Strauss-Kahn told the paper that government intervention - in the securities market, the housing market or the banking sector - would act as a "third line of defense" to support monetary and fiscal policy.

"Effort has to be made on loan restructuring. With respect to the banks, if capital buffers cannot be repaired quickly enough by the private sector, use of public money can be examined," he said.

Finance officials and central banks from a host of countries have been putting their heads together in past months to find ways to tackle the crisis, to prevent it from spiraling out of control and to stop such conditions from recurring.

Strauss-Kahn said the credit crisis was far more than an American problem.

"The crisis is global," he said. "The so-called decoupling theory is totally misleading."

He added that the IMF this week will revise down its global economic forecasts to below the current private and official consensus.

"The forecasts we are going to release in a few days are not very optimistic. The downside risks we underlined in the last world economic outlook have materialized," he said.

He said central banks around the world were constrained in their ability to battle the growth risks by high commodity prices, the paper said.

The IMF's twice-yearly World Economic Outlook is due to be released tomorrow.

The fund said on Thursday it had cut its 2008 outlook for world economic growth for the second time this year, in a move that acknowledged housing and credit problems in the United States were exacting a heavy toll on the global economy.

Agencies

(China Daily 04/08/2008 page17)