SGHOUSING.COM 新加坡房地产网

Straits Times US Correspondent Bhagyashree Garekar interviewed IMF managing director Dominique Strauss-Kahn this week. The following is an edited excerpt from the interview.

The International Monetary Fund (IMF) has the mandate to oversee the international monetary system and monitor the economic and financial policies of member countries. Did you foresee what is happening?

It’s only a part of our mandate - and not the biggest - to be looking at problems inside the country. This crisis is mainly in the United States; it’s a problem in the domestic financial system. We don’t really have authority over this.

(As to whether we foresaw what is happening) the answer is yes and no. It would be pretentious to say yes. But

in our Global Financial Stability Report in April, we said the total losses in the American system would be about US$1 trillion (S$1.4 trillion). At the time, there was only US$300 billion in write-offs. What we said was there was more to come.

And that was probably the reason why our economic forecast in April was more pessimistic than those from other institutions like the European Union or the US Federal Reserve. We were criticised for this. But we were probably the only ones then to take into account the consequences of the financial crisis on the real economy. And that is why our forecast appears today to be the right one.

 Do you feel the US paid heed to what the IMF said?

It’s absolutely understandable that the government in any country, when the first wave hits, says that it’s a small wave and we’ll manage. And then comes a bigger wave and they say we’ll fix it. And then when the tsunami comes, it’s too late. So I understand the way the American authorities wanted to address this step-by-step.

Of course it’s easier to say now that the Americans should have chosen a more comprehensive plan earlier. The IMF did, in June, propose to the US a more comprehensive plan. It is in the report we made on the American economy under the Article IV consultations. We said things are going that badly that you should organise a comprehensive solution - like they are talking about today. And that was only three months ago.

People in Asia, watching the events unfold, are reminded of the Asian financial crisis and IMF’s role in it. They are wondering what is IMF doing now.

What originated in Thailand and spread to Korea, Indonesia and other countries was mainly a balance of payments problem. That was our core business. This crisis, even if it is a huge crisis, is different. It has had almost no impact on the exchange rate, on the dollar. You could have expected the dollar to fall but it did not. This is a different kind of crisis, so the solution to be applied is not the same. The main actors today are the central banks and treasuries; the main actors in the Asian crisis were institutions like the IMF.

There is a lot of debate in the US on whether the government should be involved in bailing out Wall Street firms. What is your view on this?

Obviously, this crisis is a crisis of regulation - a regulation failure, a supervision failure. There is no way to hide that.

Even when you are a free marketer, you need to have rules to organise the market. The market is perfect only on paper, not in the real world. In the last decade, especially, the financial sector has developed a lot - not only in magnitude but also in complexity - and the regulation system did not keep up. The crisis shows we need more regulation.

The US bailed out Fannie and Freddie, which looks like nationalisation. They decided to do it because there was no other way. One of the main lessons from this crisis is that the market did not manage to solve the problem alone. State intervention was needed.

Do you rate the US response as satisfactory?
It would have been better for the US to have implemented a systemic solution earlier, even if we can understand why they did not do that. What they are doing now is the right thing to do. Hank Paulson and Ben Bernanke are discussing the details with Congress. But the direction is a good one.

In your article in The Financial Times and The Straits Times this week, you sought a comprehensive solution. Are the steps undertaken to contain immediate fallout adequate?
It’s very difficult to say. There is obviously a need for a public entity to buy distressed assets. Beyond that, there is a need for the sector to be recapitalised. The amount needed for recapitalisation should not come from the state alone; it should come from the private sector.

But it’s very difficult to know how big this (crisis) is. In April, we estimated US$1 trillion losses. Now we are saying US$1.3 trillion. We are far from having the disclosure of all the losses. It is not clear that all the losses will be disclosed.

When you are a bank and you are holding a loan, you may say the probability for this loan to be repaid is very low and write down some losses. Or you may keep it till maturity, expecting five years from now maybe the borrower will repay. So even if today you have a loss, this may turn out to be a balanced situation or even a profit in a few years. The amount needed depends on technical questions for which we don’t know the answers.

How is the crisis impacting the real economy?
One of the effects on the real economy has been a sharp slowdown. Nevertheless it is only a slowdown, not a recession. Two or three years ago, if you had asked the experts, ‘We will have a trillion dollars of distressed assets in the financial sector - what will be the consequences on the world economy?’, many would probably have said there would be a huge recession. But we don’t contemplate that; we contemplate a slowdown.

The linkages between the financial sector and the real economy are not as easy to understand. The IMF is in a unique place to try to take into account this connection, and that is probably the reason why our forecast is more accurate.

We see recovery in 2009. The economy is more resilient than expected. Our forecast is that the commodities will stabilise in 2009, oil and food prices will not be as high as their peaks in past months. We see the US housing market finding a bottom in the coming months.

So we have good reason to expect that growth will come back. There are some downside risks, of course, from the financial sector and the (lack of) confidence in the corporate and housing sector. That’s why it was important to propose a comprehensive solution which appears reliable to people. When you are sorting the problems one after another, you don’t give the impression you are managing the whole problem. I hope the plan now being proposed in the US will restore investor confidence next year.

What are Asia’s growth prospects?
Asia is doing rather well. China’s growth this year will not be as high as it was last year. Our forecast is 2 per cent below what it was last year, but that is still high.

There is no part of the world that is immune from the crisis. The theory of decoupling is to my view totally wrong. The fact is through the trade channels, stock markets, capital markets, economies in the globalised world are confronted with the same kind of problems. But starting from a high growth rate, it is not surprising that most Asian countries are in better shape.

I have two kinds of worries. I see in advanced countries people losing their houses, and in less developed countries people not far from starving…The world economy is not working the way we wish. On a second front, I’m afraid of domestic solutions. What this crisis shows is that when you have a globalised crisis, you need global solutions, you cannot have only domestic solutions.

Source : Straits Times - 27 Sept 2008