Finance ministers encouraged but wary over economy
WASHINGTON ” Finance ministers see signs the global economy is stabilizing but are cautioning it will take until the middle of next year for the world to emerge from the worst recession in decades.
In a daylong session of the International Monetary Fund, many ministers said stimulus packages, bank recapitalization and other actions taken by governments and central banks to deal with the crisis are beginning to show results.
“We can see a break in the clouds,” Egyptian Finance Minister Youssef Boutros-Ghali, the chairman of the IMF’s policy-steering committee, said Saturday.
He said some financial markets are trending up and other economic indicators are improving “but there are still downside risks.”
“Things will continue looking negative for a while but at a lesser and lesser pace,” Boutros-Ghali said. “Toward the end of the year, we will start seeing the light, start seeing movement toward stabilization and then recovery” by mid-2010.
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Last week, the IMF said the global economy is likely to shrink by 1.3 percent this year, the first such decline in six decades.
More assessments of the global economic situation are expected Sunday as the policy-steering committee of the IMF’s sister institution, the World Bank, meets and ministers and central bankers then begin heading home.
The head of the IMF, Dominique Strauss-Kahn, said ministers expressed satisfaction with measures various governments took to stimulate their economies, calling early disagreements over the extent of spending needed childish.
He said all agree also that a global economic recovery depends on “the absolute necessity of cleansing the financial system” of bad debts or toxic assets on many bank balance sheets. Such a step is expected to unfreeze credit markets.
In their communique, the ministers said they agreed on an immediate increase of $250 billion for the IMF’s lending coffers so that it can “continue acting promptly to make available, under adequate safeguards, substantial resources to member countries with external financing needs.”
They said a further $250 billion will be added later to an “expanded and more flexible” line of credit known as the New Arrangements to Borrow.
President Barack Obama is seeking congressional approval for up to $100 billion for the NAB, matching commitments for the same amount made by Japan and the European Union.
In a victory for emerging economic powerhouses such as China and Brazil, Strauss-Kahn said the IMF will sell bonds to raise funds to lend to struggling nations. The emerging economies pushed for the move as an alternative to providing longer-term loans to the IMF.
The IMF has never issued bonds before, although the idea was explored in the 1980s. Both the bonds and loans would require the IMF to pay interest.
In his remarks to the IMF committee, Treasury Secretary Timothy Geithner urged world finance ministers to follow through on pledges made at the G-20 London summit April 2 to provide an extra $1.1 trillion to the IMF and other international lending institutions.
While the IMF committee met Saturday, more than 100 demonstrators angered by how world leaders have handled the economic crisis took on police outside the headquarters of the IMF and World Bank three blocks from the White House.