IMF: Politics Threatening Global Financial Stability

Posted September 21st, 2011 at 10:51 am (UTC-5)
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The International Monetary Fund warns “time is running out” to take care of financial problems that could throw the global economic recovery into reverse.

The IMF issued its bleak assessment Wednesday as part of its semi-annual Global Financial Stability report. It said political bickering and rising debt levels are the biggest problems, and are combining to make the global financial system more vulnerable than it has been in years.

The report comes just days before the 187-member group holds its annual meeting in Washington.

It said the financial crisis is moving into what it termed “a new, more political phase,” with leaders in advanced economies often at odds over how to stabilize their economies. The report said this ongoing political squabbling is causing investors to question the ability of lawmakers to act.

The IMF report specifically cited “growing doubts” over the political process in the United States, which saw Washington teeter on the edge of default. It also said differences among European countries have blocked a lasting solution to sovereign debt problems there.

The health of the banking system is also a key concern.

The IMF report warned banks – and especially European banks – have been hit hard by the ongoing debt crises in many countries. It said many banks need to boost their cash reserves to survive additional financial shocks.

The IMF said, in contrast to many advanced economies, emerging economies have what it called a “brighter growth prospect” and have been able to attract investments. Still, IMF officials warned emerging economies need to be wary of overheating their economies.

The IMF also pointed to possible problems for banks in emerging economies.

It said banks in Latin America are vulnerable to sudden changes in exports and imports, while banks in Asia and emerging Europe could be at risk from increased borrowing costs.