IMF chief cites risks for global economy

WASHINGTON - The global economy faces a period of uncertainty, with risks to continued growth much higher than they were six months ago, the head of the International Monetary Fund said yesterday.

Spain's Rodrigo de Rato said recent turbulence in credit markets, the worst in a decade, was a warning that the continually expanding global economy of recent years could not be taken for granted.

"We still do not know the full extent of the decline in the house market and the subprime problems of the U.S. economy," he said, referring to risky mortgages made to borrowers with spotty credit or low income. That problem has spread to the overall credit market, making it more difficult for companies and individuals to obtain loans at affordable interest rates.

As a result of the turbulence, he said the IMF expected "a slowdown in growth but not a recession in the United States, and a smaller slowdown in other advanced economies."

Separately yesterday, Randall Kroszner of the Federal Reserve's Board of Governors said the Fed would do whatever was necessary to prevent damage to the economy from the credit crunch that had gripped Wall Street. But he cautioned that it would take time for financial markets to fully recover from the strains. His comments came at a Washington meeting of the Institute of International Bankers.

De Rato, who spoke at the closing meetings of the IMF and its sister institution, the World Bank, likened the turmoil in credit markets to an earthquake. "Like most earthquakes, it has been something distant for most people, something they read about in the newspapers," he said. "But there is still a risk of aftershocks, and the full effects of the disruption we have already had will only be felt over time."

Speaking for the host country, U.S. Treasury Secretary Henry M. Paulson Jr. said innovations in financial markets over the last five years had made them more complex.

"We need to continue to be vigilant because all of our capital markets are not functioning normally. As we move to address current problems, we must also address policy issues to prevent a repeat of recent excesses," he said.