IMF confident in ability to aid crisis victims

IMF confident in ability to aid crisis victims
By Chris Giles in Davos
Published: January 30 2009 13:37 Last updated: January 30 2009 13:37

The International Monetary Fund expressed confidence on Friday that its members would ensure the fund remains adequately funded and able to support any country that might be hit by the global financial crisis.
Speaking to the Financial Times at the World Economic Forum in Davos, John Lipsky, the deputy managing director of the IMF, said the institution was seeking to double its financial firepower to come to aid any country that needs its support in the downturn.

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It has already received a pledge of $100bn of contingent reserves from Japan last November and is seeking another $150bn to enable it to lend to countries facing sudden capital flight.
“I am very confident our membership will not allow the situation to emerge where the fund has insufficient resources to fulfil its mandate and responsibilities,” Mr Lipsky said.
Predictions from the Institute of International Finance this week showed the net capital flows to emerging are likely to fall to only $165bn this year, less than a fifth of the level two years ago with banks making a net withdrawal of capital.
Such potential repatriation of cash will place many emerging economies in a vulnerable position, especially those countries with large current account deficits who rely on large capital inflows, Mr Lipsky said.
The IMF wants to make its finances bullet proof so that it can lend to any emerging economies that experience a sudden withdrawal of funds.
In recent weeks, attention has been drawn to the possibility of Southern European countries, Ireland and the UK being vulnerable to a sudden flight of international capital.
Although the IMF does not see signs of imminent need to get involved in any of these countries, officials are making contingency action plans should the need arise. It thinks that the better its finances, the more confidence it can bring to markets, making any intervention a much more remote possibility.
Mr Lipsky downplayed the possibility of the financial crisis morphing into an external financing crisis for large industrial countries. He continued to urge countries to act quickly with necessary reforms to remove uncertainty from financial institutions and to provide stimulus for their economies. “In current circumstances it is preferable to commit errors of commission rather than omission,” he said.
Mr Lipsky reiterated the fund’s pessimistic view of economic prospects in the world for 2009, which is likely to record the slowest rate for world output growth since the second world war.
But he stressed there were forces for recovery – lower energy prices, China’s expected growth, the continued spending of oil exporting countries even as energy prices fall, the lack of leverage of non-financial companies – which would help the world emerge from recession in 2010.
Refusing to discuss the aggressive comments of Tim Geithner, the US Treasury secretary, regarding the Chinese currency, he nevertheless pointed to the failure of all the world’s leading economies to address trade imbalances before they contributed to the current economic crisis. He said the policies agreed by the US, eurozone, China, Saudi Arabia and Japan, in 2006 and 2007 to deal with global imbalances “were applied with insufficient vigour”.
In this respect he praised the Chinese stimulus package as something the IMF was counting on to restore global growth. “The [Chinese] policies put in place are consistent with its long-term interests,” he said because they would encourage domestic expansion rather than the previous focus on exports.

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