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International finance leaders see ‘very dark’ year ahead

Vol. XXII, No. 107 [ BusinessWorld Online ]

Tuesday, December 23, 2008 | MANILA, PHILIPPINES

LONDON — International finance leaders delivered a grim forecast for 2009 on Sunday, warning next year could be even worse than this one despite a slew of government stimulus plans.

International Monetary Fund chief (IMF) Dominique Strauss-Kahn predicted a "very dark" 2009 which 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% of gross domestic product (GDP), equivalent to roughly $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 added.

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 three-million-job creation goal to kickstart the world’s biggest and ailing economy.

Vice President-elect Joseph Biden also confirmed the Obama team was working on a second economic stimulus package which could top a trillion dollars according to some media reports.

"What we’re doing is putting together what we think will be the economic package that will do two things. One, stem the hemor-rhaging of the loss of jobs, and begin to create new jobs," Mr. Biden told ABC television’s This Week programme.

"At the same time, we provide continuing liquidity for the financial markets."

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

Japan, too, took another step to jumpstart its moribund economy, drafting a record 88.55-trillion-yen ($1.01 trillion) budget for fiscal year 2009 — up 6.6% from the initial budget for this fiscal year.

The increase reflects an emergency economic package that Prime Minister Taro Aso announced earlier this month in a fresh bid to stave off a prolonged recession in the world’s second-largest economy.

In Europe, the Irish government said it was injecting 5.5 billion euros ($7.6 billion) to recapitalize three major banks: Anglo Irish Bank, Bank of Ireland and Allied Irish Banks.

The government’s move follows revelations last week that Anglo Irish’s chairman and former chief executive, Sean FitzPatrick, failed to disclose an 87-million-euro loan from the bank. He resigned on Thursday.

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

Kaupthing Luxembourg was placed in suspension of payments in October following the near collapse of Iceland’s once-booming financial sector. — AFP


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