IMF chief rejects theory credit crisis 'is American problem'

07-04-2008

IMF chief rejects theory credit crisis 'is American problem'
The head of the International Monetary Fund has poured water on the theory the credit crisis is merely a problem affecting the US markets.

In an interview with the Financial Times Dominique Strauss-Kahn insisted "the crisis is global".

Mr Strauss-Kahn warned the tightening of credit would in time spread to countries such as China, India and Brazil.

"The so-called decoupling theory is totally misleading," he told the FT.

The former French finance minister also called on international governments to take direct action to prevent the crisis developing further.

"I really think that the need for public intervention is becoming more evident," Mr Strauss-Kahn said.

Neither the US or British governments have intervened in financial markets since the collapse of the American subprime market last summer – the unravelling of Northern Rock and Bear Stearns both notable exceptions.

Mr Strauss-Kahn said a commitment to the securities and housing sectors would provide a "third line of defence".

"Effort has to be made on loan restructuring," he said. "With respect to the banks, if capital buffers cannot be repaired quickly enough by the private sector, use of public money can be examined."

The managing director's comments come ahead of the IMF and World Bank's spring meetings in Washington DC.

The IMF is widely-expected to indicate a hamstringing of global outlook due to market turmoil in its six-monthly forecast on Wednesday.

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