Washington: The head of the International Monetary Fund, Dominique Strauss-Kahn, on Thursday warned of worsening global economic conditions, saying the impact of the global financial crisis had not yet fully reached the real economy.
“The problem is that the effect on the real economy, for the most part, is still to come,” Strauss-Kahn told IMF Survey, an internal online publication. “2009 will certainly be a rather bad year for growth, not only for the advanced economies, but also for the emerging economies,” he said ahead of weekend meetings of Group of Seven industrial nations in Rome.
Strauss-Kahn urged countries that had approved stimulus packages to now move quickly to implement them. He referred to the $789 billion package approved this week in the United States, and those in most European countries.
“So the question is no more to convince the governments to move today, but for them to implement the policies they need to manage,” said Strauss-Kahn, who recently warned that unless governments got rid of bad assets on banks’ balance sheets the stimulus “will just go into a black hole.”
He said most governments realized they needed to fix their financial sectors, including removing the toxic assets from banks, to stabilize the situation.
He also warned that the risk of protectionist solutions to the crisis was “very big.”
“You may have protectionism coming through the back door, especially in the financial sector,” Strauss-Kahn said. “To give you an example, when governments provide some new resources or recapitalization of banks, they may add some comment saying that the money should stay at home.
“Or you may have in different stimulus packages some comment or amendment saying that this money also should be used to buy national products, and these kinds of things. So this kind of protectionism may come back,” he added.
The US economic stimulus bill requires all public works projects funded by the package to use only US-made goods, including iron and steel. To ease foreign anxiety, it also requires the provision be implemented consistent with US trade obligations but countries such as China and Russia could still be shut out.