IMF warns of global "Great Recession"

DAR ES SALAAM Tue Mar 10, 2009 11:53am EDT

People queue to buy bread directly from the plant where it is produced in Russia's southern city of Stavropol, March 4, 2009. REUTERS/Eduard Korniyenko

People queue to buy bread directly from the plant where it is produced in Russia's southern city of Stavropol, March 4, 2009.

Credit: Reuters/Eduard Korniyenko

DAR ES SALAAM (Reuters) - The International Monetary Fund warned on Tuesday that the world economy will likely contract this year in a "Great Recession" and African leaders said the financial crisis could undo hard-won social-economic gains.

"The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes," IMF Managing Director Dominique Strauss-Kahn told African political and financial leaders in the Tanzanian capital.

"Continued deleveraging by world financial institutions, combined with a collapse in consumer and business confidence is depressing domestic demand across the globe, while world trade is falling at an alarming rate and commodity prices have tumbled," Strauss-Kahn added.

As advanced countries focus on problems in their own economies, Strauss-Kahn called on the international community not to forget Africa, where regional growth is expected to slow sharply to 3 percent this year, half the rate of the past five years.

That forecast may "even be too optimistic", he said.

"Even though the crisis has been slow in reaching Africa's shores, we all know it is coming and its impact will be severe," he said. "We must ensure that the voices of the poor are heard. We must ensure that Africa is not left out," he added.

The IMF chief warned that millions of people in Africa will be thrown back into poverty by the crisis, while fragile political systems will be tested.

"This is not only about protecting economic growth and household incomes - it is also about containing the threat of civil unrest, perhaps even war. It is about people and their futures," he added.

He said the combined impact of economic and financial shocks on Africa's growth will be severe. Financial flows are becoming more scarce, trade financing even scarcer and more expensive and foreign investment in Africa's stock and bond markets has fallen, he added.

Tanzania's President Jakaya Kikwete said the crisis posed the biggest threat to the region in recent history.

"So far, Africa's voice on this unnerving situation has been muted as witnessed in different global initiatives and processes, which have emerged to respond to the crisis," he told the 300 delegates at the conference.

He said a meeting of the Group of 20 leaders in London on April 2 was an opportunity to send a clear message to the world on Africa's concerns about the crisis.

The big challenge going forward he said was how to maintain and sustain the gains in economic stability in Sub-Saharan Africa.

Former United Nations Secretary General Kofi Annan said Africa was facing "the equivalent of a tsumani" and the threat comes as the region was just getting into its stride, attracting more private-sector investment, lowering its debts and building stronger democracies.

He said Africa needed immediate financial support and any reversal of aid promises by rich donor nations would be a breach of trust at a time when the world needs to unite.

Still, he said Africa could not sit back and feel sorry for itself over a crisis that was not of its own making.

"For our agenda to be credible, Africa must live up to its own commitments," he said, adding that countries should abide by the rule of law, transparency and accountability.

"Insisting that partners keep their promises, if we don't keep ours, won't work," he added.

Annan said as G20 developing and developed countries prepare to meet, it should be aware that while it has considerable influence it does not speak for the whole world.

"Whatever they come up with, it will require a certain legitimacy to make the rules for the world and that will have to be done either through the IMF or the United Nations," he said.

(Reporting by Lesley Wroughton, editing by Stephen Nisbet)

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