International Monetary Fund managing director Dominique Strauss-Kahn said the global economic downturn is slowing and a turnaround is likely next year, though not before “deeply negative” growth this year.
"The freefall in the global economy may be starting to abate, with a recovery emerging in 2010, but this depends crucially on the right policies being adopted today," Mr Strauss-Kahn said today in a speech at the National Press Club in Washington.
Still, he said, the world economy will probably "enter deeply negative territory" later this year and the human consequences of the crisis could be "devastating."
Mr Strauss-Kahn's comments come before the IMF and World Bank hold semi-annual meetings in Washington next weekend. The gathering also will include finance ministers from the Group of Seven industrial economies.
A turnaround in world financial markets, Mr Strauss-Kahn said, must come by way of banks purging their balance sheets of distressed debt, while avoiding pressures to favour domestic lending.
He also called for stronger regulation, saying "all systemic institutions should come under prudential rules - covering capital, liquidity, orderly resolution and early intervention."
Earlier today, the IMF released a report saying the global economy is in the grip of a "severe" recession with "worrisome parallels" to the Great Depression, and a recovery will probably be weak.
"The downturn is likely to be unusually severe, and the recovery is expected to be sluggish," the Washington-based lender said in a portion of its
World Economic Outlook, released in a briefing.
"The current downturn is highly synchronised and associated with a deep financial crisis, a rare combination in the postwar period."
Mr Strauss-Kahn reiterated his call for the IMF to restructure its lending criteria so that it can "become more flexible and better tailored to country circumstances". The approach, he said, is designed to encourage nations in financial trouble to "approach the IMF early on, hopefully before the crisis takes a toll on their economies".
Leaders of the Group of 20 industrial and emerging economies met in London earlier this month, where they tripled the IMF's lending power to $750 billion.
In the past six months the Fund has approved more than $55 billion in loans to help countries including Ukraine, Iceland and Pakistan.
While fiscal stimulus programs announced by the G20 top $2 trillion, such efforts "need to be sustained in 2010, because we are not out of the woods yet," Mr Strauss-Kahn said in the speech.
Responding to audience questions, he said he saw no likelihood another currency will replace the US dollar in its current global role.
Bloomberg