Worst of global crisis yet to come: IMF chief economist

The IMF’s chief economist is warning the global financial crisis is set to worsen and the situation will not improve until 2010, a report says.

Olivier Blanchard also warned that the institution does not have the funds to solve every economic problem.

“The worst is yet to come,” Blanchard said in an interview with the Finanz und Wirtschaft newspaper, adding that “a lot of time is needed before the situation becomes normal.”

He said economic growth would not kick in until 2010 and it will take another year before the global financial situation became normal again.

The International Monetary Fund (IMF) on Friday promised to help Latvia deal with its economic crisis after it assisted Iceland, Hungary, Ukraine, Serbia and Pakistan.

But Blanchard said the IMF was not able to solve all financial issues, in particular problems of liquidity.

Withdrawals of capital leading to problems of liquidity “can be so significant that the IMF alone cannot counter them,” he said, adding that massive withdrawals of investments from emerging countries could represent “hundreds of billions of dollars.

“We do not have this money. We never had it,” he said.

The IMF had spent a fifth of its $US250 billion ($A410.61 billion) fund in the last two weeks, Blanchard added.

He also urged central banks around the world to cut interest rates after the Swiss National Bank made a surprise one percentage point rate cut on Thursday.

The central banks “should lower interest rates to as close to zero as possible,” he said.

November 23, 2008 – 7:59AM

Source: The Sydney Morning Herald

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