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Wednesday, 17 September 2008

More banks may close: IMF

CAIRO - THE global financial crisis is not over and more banks could close, possibly leading to the disappearance of the independent investment houses, IMF chief Dominique Strauss-Kahn said.

'The fact that a certain number of banks in the United States are restructuring shouldn't lead to panic,' he said in an interview in the wake of Monday's collapse of major US investment bank Lehman Brothers.

'But these events add to the uncertainty, and financial tensions cannot be excluded in the short term,' with banks other than Lehman Brothers also in a bad position, he said.

Predicting 'a narrower global financial sector', the International Monetary Fund managing director said certain 'players will disappear', particularly in the United States, with the possible gradual disappearance of independent investment banks like Lehman or Merrill Lynch.

Lehman Brothers was seen in financial markets as one of the big four United States investment banks, along with Morgan Stanley, Goldman Sachs and Merrill Lynch, which announced on Monday it is to be taken over by Bank of America in a 44 billion dollar deal.

'We are facing an unprecedented financial crisis,' Mr Strauss-Kahn said, because it stems from 'the heart of the system', the United States, and not from its 'periphery' and has affected the whole world simultaneously.

'Some parts of the world are more or less affected, but the slowdown is general,' he said, adding: 'The entire global economy will slow down by between a half and two per cent', including in China and Europe.

'Something new is more dangerous than something that happens repeatedly, but a difference with (the stock market crash of) 1929 is that we have instruments which don't allow us to avoid the crisis but to soften the consequences and correct their effects', in particular the IMF, he said.

The IMF boss said European banks, which combine several different functions, were less likely to be affected and did not risk 'being brought to the ground' like their American counterparts.

Global equities tumbled for a second day running on Tuesday as anxious investors waited to see if US insurance giant AIG would suffer the same fate as Lehman.

The IMF chief praised the European Central Bank for taking strict measures.

'Honestly, the ECB has done its work, by avoiding inflationary tensions.'

He said that faced with rising prices, 'it is normal that it undertakes a strict policy'.

Mr Strauss-Khan pointed to some positive developments, including the oil price which has dropped below 100 dollars a barrel and said the IMF would predict an economic upturn in 2009 in its next forecast in October.

'The current turbulence adds to the uncertainty but we still predict an upturn in 2009,' he said, adding that 'the economy is much more resilient than we had anticipated.'

Created in 1944 to organise a global financial system, the Washington-based body today also offers financial and technical assistance to its member states.

Mr Strauss-Kahn was in Egypt for talks with officials, including President Hosni Mubarak, on the country's economic reform programme.

Investment banks specialise in organising finance for businesses rather than providing services to the general public. Some have become enormous corporations amid the rapid worldwide economic growth in recent years. -- AFP

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