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February 8, 2009

Global lender urges action on stimulus, bank clean-up
The roll-out of stimulus packages and the clean-up of banks must be accelerated, the head of the International Monetary Fund said Saturday, urging action to avert "a repeat of the Great Depression".

Stimulus measures announced so far were nearing the IMF's goal of about 2.0 percent of global GDP, AFOP quoped IMF managing director Dominique Strauss-Kahn as saying.

"But the reason I'm worried is that implementation takes time," he said, citing delays in the United States caused by the political transition, and in Europe because of the EU's political processes.

"On top of that I'm worried that all this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector," he told a press conference.

Strauss-Kahn said there were still losses in the banking sector that remained undisclosed, and that until the balance sheets are cleaned up confidence in the financial markets will not return.

"Loss of confidence is now the central problem. Governments and central banks should credibly commit to measures sufficient to eliminate the risk of a repeat of the Great Depression," he said.

The IMF boss endorsed Washington's stimulus package -- which aims to pump at least 780 billion dollars into the ailing US economy -- saying it was the "correct size" and mix.

But he added that it needed to be implemented at the same time as the restructuring of the banking sector. Strauss-Kahn said the European Central Bank, which left interest rates unchanged this week, was more concerned about inflation than other parts of the world and there could be room for cutting interest rates.

However, measures such as cleaning-up banks could be a more effective tool for Europe than lower interest rates. Strauss-Kahn said Asia could recover rapidly next year once the rest of the world had emerged from recession.

But he said that while central banks in the region have cut interest rates aggressively and many countries have introduced fiscal stimulus measures, "there is still room for more".

He said the IMF currently has enough resources to face the crisis, but that as problems deepen its needs "may double" and it might need more funds within six to eight months. Strauss-Kahn played down the risk of ballooning deficits as governments spend big to avert or alleviate recession, saying it was inevitable that most nations would incur an increase in public debt.

Of the risk of excess liquidity as interest rates tumble, he said today's problems had to be addressed before tomorrow's. "When you have a fire in the house, you first need to put out the fire and then you see how you evacuate the excess water. So that's exactly the situation we're in," he said.

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