IMF Announces 2009 Will Be Worse Than Expected

Sources: IMF, World Faces Deepening Crisis, IMF Chief Warns; Daily Times, IMF Chief Warns World Faces Deepening Crisis

Last week, IMF Managing Director Dominique Strauss-Kahn announced that the credit crisis will continue to spread and slow down the global economy. In November 2008, the IMF predicted that the crisis would considerably affect developed economies, but that emerging markets would be able to weather the crisis during the start of 2009 and thus help strengthen the global economy. Strauss-Kahn now recognizes that the crisis has affected emerging economies such as China, India, and Brazil, and has promised that by January 28, the IMF will release new predictions for 2009 in a press conference in Washington, D.C. The new forecast will reflect the toll that the crisis has taken in emerging markets and the expected toll that it will take in other regions that have not yet been affected.

Where in late 2008 Strauss-Kahn expressed optimism for 2009, the Managing Director currently hopes for recovery in early 2010. Strauss-Kahn's statements also reveal that prospects will not only decrease in the U.S. and Europe, but will now look bleak in emerging economies as well. The crisis' effects on emerging economies is especially significant, given the history of expansion that these countries were experiencing until recently.

In terms of possible solutions to the continuing problems related to the crisis, Strauss-Kahn emphasized the importance of governments injecting funds into their economies. In his view, national governments have not spent enough money on stimulus packages. He specifically referred to Europe as one region in which stimulus spending was "behind the curve." In fact, the IMF is now proposing that countries who are in a position to do so combine forces to inject approximately $1.2 trillion into their respective markets. According to IMF officials, stimulus spending elicits greater reactions than tax cuts.

Strauss-Kahn concluded his comments by stating that he expects more countries to seek the IMF's assistance in the coming months; specifically, he expects Latin American countries to seek aid relatively soon. He described those countries as being on the verge of experiencing their own serious reactions to the crisis. Strauss-Kahn also predicted that if the crisis continues over the next six months (which he admitted was likely) the IMF will need more money, about $150 billion, to provide countries with the resources to cope with the credit crisis.