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Most rich nations stagnant or near recession - IMF

Fri Sep 19, 2008 5:21am IST
 
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By Lesley Wroughton

WASHINGTON (Reuters) - Most of the world's developed countries are at an economic standstill or on the brink of recession and policy-makers need to take aggressive action to avert a deep global downturn, a top IMF official said on Thursday.

"Nearing the end of the year's third quarter, most advanced economies are either virtually stagnant or on the verge of recession, while underlying inflation risks are becoming increasingly well-contained," John Lipsky, first deputy managing director of the International Monetary Fund, said in a speech to the Center for Strategic and International Studies.

A "damaging global recession" could still be avoided, he said, but any recovery would likely be gradual and public funds may be necessary to safeguard the financial system.

"A more systematic approach may be needed to deal with such basic issues as the disposition of distressed assets, the degree of protection offered to depositors, and the scale and scope of liquidity support that is offered to institutions and markets," he said.

As Lipsky spoke, news reports said the Bush administration is considering a plan to create a federal agency similar to the 1990s-era Resolution Trust Corp to take on problems assets from financial institutions.

Lipsky told reporters afterwards such a step would be one of the broad measures that would be appropriate at this time, especially during turbulent times that makes it difficult to value assets. "The need is for a broad approach, a consistent approach, one that is not piecemeal," he added.

Lipsky said more financial institutions will fail but he stressed that a systemic failure should be avoided.

"This is probably a moment in which we should take a step back and think broadly about what kinds of intervention might be needed to justify an attempt to look at this in a more coherent, more proactive way," Lipsky said, adding that events over the past several weeks have required quick judgments.  Continued...

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