IMF: "If the banking system doesn"t recover, the financial crisis will worsen"

The economies of developed countries are already in a depression, and the financial crisis could worsen, if the banking system doesn"t recover, according to a statement made by the Head of the IMF, Dominique Strauss-Kahn. He said last weekend: "The worst alternative can not be excluded. There is a great risk of economic decline".

The IMF official said that the stimulus packages will not prevent the onset of recession if the trust in the banking system does not return.

Dominique Strauss-Kahn said: "All these elements will work if and only if every country will do what must be done for the restructuring of the banking sector. This hasn"t happened so far". Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, (the weakest pace since World War II).

The U.S. economy, the greatest in the world, has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period.

The U.S. Senate is due to vote this week on an economic stimulus package totaling at least $780 billion needed to prevent the U.S. economy from sinking into a deeper recession. Asian nations have pledged more than $685 billion on their own government spending programs, and in Europe - The Central European Bank left the benchmark interest rate unchanged last week, in order to support the economy. But Strauss-Kahn says: "We"re probably not very far from the point where the question of interest rates is not the most important question. "Providing direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates."

Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The IMF has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.