IMF’s Lagarde not ruling out possibility of another financial crisis

DUBAI: The International Monetary Fund’s managing director Christine Lagarde did not discount the possibility of another financial crisis and has called on finance ministers and policymakers to act with caution and prepare in case it happens.
“There may, one day, be another crisis,” Lagarde told CNBC, responding to comments earlier made by US Federal Reserve chairwoman Janet Yellen that she did not believe that there will be another financial crisis for at least as long as she lives, because of reforms of the banking system after the 2007-2009 financial crash.
“I plan on having a long life and I hope she (Yellen) does, too, so I wouldn’t absolutely bet on that because there are cycles that we have seen over the past decade and I wouldn’t exclude that,” Lagarde said.
The IMF last week said that global growth should hit 3.5 percent this year and next year, but cautioned that leaders needed to address several financial vulnerabilities.
Lagarde, in a blog post to accompany the IMF report, said that “financial vulnerabilities present an immediate concern.”
“After a long period of favorable financial conditions, including low-interest rates and easier access to credit, corporate leverage in many emerging economies is too high. In Europe, bank balance sheets still need repair following the crisis. In China, a faster-than-projected expansion — if it continues to be fueled by rapid credit and increased spending — would potentially lead to unsustainable public and private debt in the future,” the IMF official said.
She likewise urged participants of the G20 summit in Hamburg to use the current period of growth as an opportunity “to further safeguard the financial sector — by building up capital buffers and strengthening corporate and bank balance sheets; to address the issue of stagnant real wages — which can undermine the recovery and fuel discontent; and to confront the problem of excessive current account imbalances — with both surplus and deficit countries playing their part.”
The G20 leaders’ summit was set up after the 2007-2009 financial crash to provide a broader and more inclusive institution than the G7 group of rich economies.
Its membership represents about 85 percent of global GDP and includes Argentina, Brazil, Canada, China, India, Turkey and several EU countries.