Global economic outlook has worsened, says International Monetary Fund chief

Paris: Head of the International Monetary Fund, Christine Lagarde, said on Saturday that the global economic outlook "is more likely to have worsened than improved in the last three weeks" and that emerging markets feared "contagion from advanced economies."

"If anything, the situation is more likely to have worsened than to have improved over the last three weeks and if markets have straightened up a bit in the last few days, certainly the overall economic situation has not improved. We heard loud and clear that the emerging markets in particular were very concerned about the risk of contagion from advanced economies to emerging markets and to low income countries,"
Lagarde said.

Following a second day of meetings with finance ministers from G20 nations in Paris, Lagarde told journalists that those involved in the meetings agreed that providing liquidity to governments was a priority.


Lagarde also said that the IMF will draw up a list of new tools that could be used to stop struggling countries from being pushed into a full-blown financial crises.

The move comes as some eurozone countries are calling for the IMF to play a bigger role in preventing the currency union's debt troubles from spreading to Italy and Spain.

Also speaking in Paris following the meetings, European Central Bank President Jean-Claude Trichet said the European Central Bank was striving to address the banking crisis through its scheme of extraordinary purchases of government debt.

National finance ministers of the Group of 20 rich and developing nations also said they would ensure the International Monetary Fund had the resources it needed to help stabilise the world economy - a hint that they might be open to a bigger role for the fund in the Eurozone debt crisis.

However, there was still resistance to boosting the IMF's funding from several countries - including the United States. Discussion of the IMF's funding is expected to continue when G-20 leaders assemble in Cannes, France, in early November.

As debt troubles in the Eurozone threaten to spin out of control, France and some other countries have pushed for the IMF to help Europe keep the crisis from spreading to economies such as Italy and Spain.
Those two countries are considered too big to be bailed out by other euro countries.

Their financial collapse could drag the currency union back into recession, cause numerous bank failures and send shock waves around the world similar to what happened after the 2008 bankruptcy of US investment bank Lehman Brothers.

"We have been very supportive of an exceptionally large role by the IMF in the programme countries to date and as I said, and our position will remain this, that we are prepared to continue to support an effective strategy in Europe, with the IMF," US Treasury Secretary Timothy Geithner said at a news conference.

"If there is a compelling case for more IMF resources, more use of the existing resources of the IMF, alongside a more effective substantial European strategy, then we will be supportive of that," he said.

Until now, the IMF has funded about a third of the bailouts of Greece, Ireland and Portugal, but helping the eurozone to stem contagion would require a broader use of resources, such as buying bonds on the open market, that go far beyond the fund's traditional role of providing rescue loans to cash-strapped countries.

A precondition to any expansion of the IMF's role is for the eurozone itself to take more radical action on stemming the crisis at a summit on 23 October.

DNTV