(updates with comments on currencies, food prices)
WASHINGTON (Thomson Financial) - The financial crisis facing the world economy demands 'strong action' and 'close cooperation' among the world's financial powers, the International Monetary Fund said today.
'The global crisis has to be addressed with a global view and by strengthening the role of multilateral institutions,' Tommaso Padoa-Schioppa, chair of the the International Monetary and Financial Committee (IMFC), the IMF's top policy-making body, told reporters in a briefing this afternoon.
In its joint statement, known as the communique, the IMFC said that 'policymakers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control.'
A recently approved economic stimulus package in the US should help limit the downside risks to growth, the IMFC said, while 'monetary policy should continue to aim at medium-term price stability, while responding flexibly to signs of a more pronounced and prolonged economic downturn.'
The IMFC statement welcomed the cooperation of the major central banks in helping to stabilize the financial markets. It called on major financial institutions to declare their losses and raise new capital promptly to help rebuild market confidence.
In a laundry-list of other recommendations, the IMFC called for 'safeguarding' medium-term deficit reductions in the US; product and labor-market reforms in Europe; more structural reforms in Japan; addressing supply bottlenecks in oil-exporting countries; and, finally, 'reforms to boost domestic consumption in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries.'
In response to a question on currency, Strauss-Kahn said the IMF is 'concerned' about global imbalances, and said currency regimes are a 'large part' of this problem. The G7 a day earlier issued its own communique expressing worry about large fluctuations in major currencies, and said G7 members would cooperate 'as appropriate.'
The IMF defended its downgraded forecasts for growth in the United States and the world. Earlier in the week, a senior US Treasury official dismissed the IMF forecast as 'unduly pessimistic.' The IMF cut its forecast for US GDP growth by a full percentage point to 0.5 pct growth for 2008, and reduced forecasts for most other major economies as well.
'Some judged them more pessimistic than their own,' Padoa-Schioppa said today of the IMF's forecasts, 'but I think it's useful that the Fund took a very dry and realistic view of the situation and prospects.'
Strauss-Kahn was more direct. 'I think we are right,' he said, although he quickly downplayed differences in the growth forecast and said all IMF members agree on the size and type of risk that economies face going forward.
'What's important is whether or not we agree on the risks... we have in front of us... and I think from this point of view there is no difference,' he said.
Strauss-Kahn said IMF members today continued an ongoing discussion on the damage rising food prices are doing to some countries, and warned that this problem 'may be the root of a lot of conflict in the future.'
'If food prices go on as they are today, then the consequences on the population... will be terrific,' he said.
Strauss-Kahn appeared pleased with how IMF members were able to agree on topics ranging from IMF reform to tackling the financial crisis that is threatening growth around the world. He said there was 'kind of a revival of the multilateral spirit' in this week's meetings. corbett.daly@thomson.com+pete.kasperowicz@thomson.com+tfn.newsdesk@thomson.com+dennis.moore@thomson.com+dennis.moore@thomson.com, pete.kasperowicz@thomson.com dem/pik/wash COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.