IMF: Global Meltdown Worse Than Expected

By Stefan Bos

Budapest
14 January 2009

The Managing Director of the International Monetary Fund, Dominique Strauss-Kahn, warns that the world economy will further decline this year. Strauss-Kahn says Germany's biggest stimulus package since World War II offers some hope, although he cautions that Europe lags behind the United States in enacting measures to stem the economic crisis. He spoke after meeting officials in Hungary, which has received a multi-billion dollar rescue package.  

The International Monetary Fund's Managing Director, Dominique Strauss-Kahn, offered reporters a grim outlook for the global economy this year.

He said the world economy is slowing more than the IMF had predicted and he warned that this will have a severe impact on Central and Eastern European economies.

"All of us are worried and concerned about the future," said Dominique Strauss-Kahn. "The reason for that is that the forecasts, the global forecasts, on a global level for 2009 are rather bad forecasts. The IMF is going to release its own, new set of forecasts in a couple of days. I already know that it will show a sharp decrease in the estimates we have for global growth. And a decrease for global growth means a decrease [for] everybody - including in Central Europe and in Hungary."

In November, the International Monetary Fund lowered its projections for world economic growth to a little more than two percent, and said industrialized economies were headed for the first full-year of economic decline since World War II.

But the IMF says Germany's economic stimulus package should help not only Germany, but also much of Western and Eastern Europe.

The $67-billion rescue plan, unveiled by German Chancellor Angela Merkel on Tuesday, includes investment in schools and infrastructure, simpler rules for creating temporary jobs and up to roughly $130 billion in loan guarantees for struggling firms.

But the IMF's Dominique Strauss-Kahn made clear that Europe's response to the economic crisis lags behind U.S. efforts, as President-elect Barack Obama seeks approval to disburse the second half of a $700 billion economic rescue package.

"As you know, the U.S is planning, the new administration is planning, a huge stimulus plan," he said. "And, answering your question, what has been decided on at a European level, is in line, but probably a little behind the curve. Of course, the new German plan, which comes on top of the rest, makes us more comfortable. So I have to see a little more what there is in this 50 billion euro [$67 billion plan]. But obviously, it is a strong effort made by the German government and it would be very much helpful."

Strauss-Khan spoke after talks with the struggling Hungarian government about its troubled economy. Hungary has received an IMF-led $25- illion rescue package, but Strauss-Kahn said other former Communist countries, including Ukraine, will also need help.

He praised Hungary's efforts to jump start its economy, but said Budapest and other regional capitals will need to implement "structural reforms".

Just outside Hungary's parliament building where Strauss-Kahn spoke, people have mixed feelings about the IMF's role in their country.

Banker Bela Viszontaly say he does not expect people's lives will improve soon.

"I think it doesn't depend on the IMF," said Bela Viszontaly. "The life was difficult, and is difficult. This year, we await unemployment of about 10 percent."

Attorney Roberta Pal says she believes Hungary's economy can improve only if the billions of dollars in loans from the IMF are spent wisely.

"I don't know," said Roberta Pal. "It depends on the political leadership. But if we don't change our approach on deciding on what we spend, then these amounts, it's just a waste of money and a waste of time."

For now, experts say governments across the globe will likely ask for more cash from the IMF to help rescue their struggling economies.