Global Financial Crisis To Have 'Far-Reaching' Impact: IMF

Source : Channel NewsAsia, 24 September 2007

WASHINGTON : The turmoil stemming from the US sub-prime property market and tighter credit will have a "far-reaching" impact on the world economy, the International Monetary Fund said Monday.

"Downside risks have increased significantly and even if those risks fail to materialise, the implications of this period of turbulence will be significant and far reaching," the IMF said in its latest "Global Financial Stability Report".

The IMF said that since issuing the April 2007 report, "global financial stability has endured an important test" in the meltdown of the risky US sub-prime mortgage that rocked the global financial system in August.

"Markets are recognising the extent to which credit discipline has deteriorated in recent years - most notably in the US non-prime mortgage and leveraged loan markets, but also in other related credit markets," the 185-nation financial institution said.

The rapid deterioration in global credit conditions as risk was repriced led to "extraordinary" liquidity injections by a number of central banks to ease market operations.

"The potential consequences of this episode should not be underestimated and the adjustment process is likely to be protracted," it said.

The IMF said in the context of a benign global economy and "a long period of abnormally low market volatility" there was a lack of due diligence in the credit market and an over-reliance on ratings agencies to analyze risks in complex financial instruments.

"So far, despite the significant ongoing correction in financial markets, global growth remains solid, though some slowdown could be expected." - AFP/ch