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IMF: Worst of financial crisis may lie ahead

Analysis

The worst of the financial crisis may still lie ahead and more major financial institutions may face trouble in coming months, IMF director general Dominique Strauss-Kahn said on Wednesday.

The crisis risks weighing on the world economy, he said, though both developing and developed countries were showing signs of resilience, Strauss-Kahn told reporters after a meeting with Gulf Arab finance ministers and central bank governors. “It is a very serious financial crisis,” he said. “The consequences for some financial institutions are still in front of us. We have to expect that there may be in the coming weeks and coming months other financial institutions with some problems,” he said.

Strauss-Kahn spoke the day after US authorities engineered an $85 billion rescue American International Group Inc, staving off bankruptcy for the insurance giant and bringing a measure of calm to shell-shocked global markets. “What we are experiencing these days is an increase in the downside risk and uncertainty, but we still believe that the world economy will recover in 2009,” Strauss-Kahn said. “What is important to see is that it has an influence on the real economy but that the real economy is very resilient both in developed and emerging countries.”

The AIG bailout came just two days after US authorities refused to rescue investment bank Lehman Brothers Holdings Inc, forcing it into bankruptcy protection despite pleas from Wall Street’s chiefs. The Fed stepped in amid worries that a collapse of AIG could cause far-reaching damage to the global financial system, although some market players argued that the government’s move brings just a short-term respite and could do long-term harm. (Reuters)

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