IMF Prepared To Act If Effects Of Credit Crisis Worsen

The International Monetary Fund is prepared to meet the needs of economies in distress if the effects of an ongoing credit crisis spread, however, fund officials don't see that as likely at the moment, IMF Managing Director Rodrigo Rato said Thursday.

"I wouldn't give an amount, but the resources of the fund are vast, so I don't think there will be a problem," he said, noting the fund could resort to agreements with world central bank's if it were faced with the necessity. Rato made the comments after a meeting with Brazil's President Luiz Inacio Lula da Silva and Finance Minister Guido Mantega to discuss the world economic outlook and the proposed reform of the IMF. The IMF chief said he remained optimistic that the world economy could pull through the turbulence that has recently assailed major financial markets. "I don't believe we are before the risk of macroeconomic crises, but in the current circumstances we have to be especially vigilant," he said. "We think there will be repercussions in the world economy, but they will be greater in some countries and lesser in others." Rato praised the recent rapid action of major central banks in providing liquidity for world markets. The IMF official, however, also called upon financial institutions to clarify doubts about high risk credit lines that are at the root of recent turbulence. "The lack of confidence in new products requires rapid clarification from financial institutions," he said. "We need to recover confidence and change expectations." Rato said he believed that some smaller economies would be adversely affected by recent market turbulence. "We're not seeing spreading of credit sector risk toward sovereign risk," he said. "Debt spreads have increased but not in a significant way, and they have since corrected." The IMF chief also drew attention to positive growth trends in many European, Asian, Latin American and sub-Saharan countries as a factor that would help overcome the effects of the credit crisis in the U.S. "We can't ignore the positive things in the world economy, which are many," he said. He said that although doubts about the mortgage and credit sectors in the U.S. economy might persist, there was reason to believe those difficulties could be attenuated by other positive aspects of the U.S. economy. "The U.S. is doing well." he said. "It has low inflation, low unemployment, and high levels of investment with a very flexible and dynamic economic system." Regarding reforms at the IMF, Rato said he looked favorably at proposals from countries such as Brazil that would give emerging market countries more influence at the institution. Rato said the fund was concentrating on three themes in the reform, which would include devising a new formula for representation of member countries, creating a new fund investment plan and introducing a new instrument for prevention of crises in emerging market countries that are affected by contagion amid world market turbulence. Among ideas being studied, he said, would be to allow member countries immediate access to between 300%-500% of their participation in the fund in the event of necessity.