IMF says banks well-capitalized, eyes social unrest

NEW YORK (Reuters) - The head of the International Monetary Fund on Wednesday said banks are well capitalized despite the massive losses caused by the financial crisis, but more balance-sheet transparency is needed.

Dominique Strauss-Kahn, the IMF's Managing Director, also told Reuters the worst of the financial crisis may be past, but added that for people in both emerging and industrialized economies who are about to lose their jobs, the crisis was just beginning.

"I think most banks today are well-capitalized. Still, we have a lot of losses which have been ... recognized and we need to go on in having more transparency in the balance sheets of many financial institutions," he told Reuters.

Strauss-Kahn warned in a speech coinciding with start of the UN General Assembly that social instability, even war, would increase as unemployment and hardships rise in countries still reeling from the crisis.

Economic stability and peace go hand in hand, he told the U.N.'s Global Creative Leadership Summit, adding if you lose one, you are likely to lose the other.

While the banking system has regained some of its strength, he said he thinks there is still a lot of repair work needed.

"If you look at the way the financial sector is supposed to provide credits in the economic system, then I think the cleansing of the balance (sheets) has not been enough," he told Reuters.

Strauss-Kahn will join the leaders of the Group of 20 summit of world leaders from developed and emerging economies in Pittsburgh, September 24-25 to discuss the latest proposals on fixing the global economy.

The United States is proposing a rebalancing of the global economy, calling for exporting countries to consume more and debtors like itself to boost savings.

But it is being left to the IMF to figure out if member countries are consistent with balanced growth.

"I'm not looking for a victor" in Pittsburgh, Strauss-Kahn said.

"Of course it is easy to have countries cooperating when they are scared by the crisis and the more the crisis is behind us, the more it will be difficult to have this kind of cooperation," he said.

The biggest take-away Strauss-Kahn said would be for leaders to continue cooperating even as things get better.

RECOVERY

The IMF has forecast a global recovery in the first part of 2010. However, Strauss-Kahn cautioned that labor markets may take a while to catch up, as hiring generally tend to respond slowly to economic turnarounds.

As a result, countries without adequate social safety nets will endure more poverty and risk an increase in social instability, he said.

"We can see light at the end of the tunnel even if the crisis is by no means over," he said. "But even if growth recovers, it might take some time for unemployment to follow," he added.

The International Labour Organization (ILO) said in May it expected the number of unemployed worldwide to rise to between 210 million to 239 million people this year

The stakes are particularly high in the world's poorest countries which have been hit by the global recession and a contraction in global trade as well as higher world food prices, Strauss-Kahn said.

The United Nations and World Bank estimate that up to 90 million people in developing countries might be pushed into poverty because of the crisis.

"In many areas of the world, what is at stake is not only higher unemployment or lower purchasing power, but life and death itself," Strauss-Kahn said.

"We don't just care about growth for growth's sake, we also want to safeguard peace and prevent war," he said, adding: "Indeed, when low-income countries were doing well over the past decade or so, the incidence of war declined significantly. The great fear is that this trend could be reversed."