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Tue, Dec 23, 2008 - Page 10 News List

Global finance leaders see a ‘very dark’ year ahead


International finance leaders delivered a grim forecast for next year on Sunday, warning that next year could be even worse than this one despite a slew of government stimulus plans.

IMF chief Dominique Strauss-Kahn predicted a “very dark” year that could be worse than expected if states failed to take sufficient action to fight the crisis facing economies big and small.

“Our forecasts are already very dark, but they will be even darker if not enough fiscal stimulus is implemented,” he told BBC radio in London, predicting recession for advanced economies and decreasing growth for emerging ones.

“I can see that some measures have been announced, but I’m afraid it won’t go far enough,” he said.

The IMF has called for global fiscal stimulus of about 2 percent of GDP, equivalent to roughly US$1.2 trillion.

The governor of the Bank of Spain was even more pessimistic, warning the world faced a “total” financial meltdown unseen since the Great Depression of the 1930s.

“The lack of confidence is total,” Miguel Angel Fernandez Ordonez said in an interview with Spain’s El Pais newspaper.

He noted that the inter-bank lending market was not functioning, spawning “vicious” cycles with economic activity among consumers, businesses, investors and banks essentially frozen.

“There is almost total paralysis from which no one is escaping,” he said.

Still, there was fresh movement to stop the meltdown, with a decision by US president-elect Barack Obama to boost by 500,000 jobs a 3 million job creation goal to kick start the world’s biggest and ailing economy.

US vice president-elect Joseph Biden also confirmed the Obama team was working on a second economic stimulus package, which could top US$1 trillion, some media reports said.

Stopping the meltdown

• IMF calls for global fiscal stimulus of about 2 percent of GDP, equivalent to roughly US$1.2 trillion.

• US president-elect to boost job creation plan by 500,000 to 3 million.

• Washington is preparing a second stimulus package, which could exceed US$700 billion, for public works to follow the US$700 billion package signed by US President George W. Bush to help Wall Street.

• Group of Arab investors offers rescue for Luxembourg subsidiary of Icelandic bank.

• German banker calls for optimism.AFP

“What we’re doing is putting together what we think will be the economic package that will do two things. One, stem the hemorrhaging of the loss of jobs, and begin to create new jobs,” Biden told ABC television’s This Week program. “At the same time, we provide continuing liquidity for the financial markets.”

Biden put no firm figure to the package that would follow the US$700 billion Wall Street rescue deal signed by US President George W. Bush in October — and which has failed to reverse the plummeting US economy.

“There’s going to be real significant investment, whether it’s US$600 billion or more, or US$700 billion. The clear notion is, it’s a number no one thought about a year ago,” he said.

In Europe, the Luxembourg subsidiary of embattled Icelandic bank Kaupthing got a rescue offer from a group of Arab investors, the Luxembourg government has confirmed.

“Besides the signature of the Belgian state, this agreement needs the acceptance of the creditor banks,” the government said in a statement on Saturday about the offer.

Kaupthing Luxembourg was placed in suspension of payments in October following the near collapse of Iceland’s once-booming financial sector under the weight of the worldwide credit crunch. Deposits in both Luxembourg and Belgium have been frozen ever since.

At least one German banker, however, thinks the doom-and-gloom forecasts are overblown.

“Some compare the situation to that of 1929, others talk about the worst crisis in near memory,” said Wolfgang Sprissler, head of the German bank HypoVereinsbank in an interview with the Sueddeutsche Zeitung to appear yesterday.

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