A group of prominent economists led by Nobel prize-winner Joseph Stiglitz warned on Thursday the world economic crisis was far from over, and urged rich nations to provide funds to help poorer countries avoid a steep crash.
The experts called on the G8 industrial nations and leaders of major developing countries, who will gather in Italy in July to discuss the crisis, to boost lending by the International Monetary Fund and remove its tough conditions on government deficits which have worsened economic crises in the past.
They called for global co-ordination to avoid competition to cut taxes, and for a world-wide increase in tax on high earners. The group, which has dubbed itself the "Shadow GN", urged governments to opt for bank nationalisation''s rather than bailouts in order to drive the pace of fresh lending.
"While the worst consequences of the freezing of credit markets as a result of the failure of Lehman Brothers is now easing it would be wrong to think that the global economic downturn is over," Stiglitz told a news conference, dismissing those who saw "signs of spring" in the world economy.
"There is every reason to be concerned and in particular (a need) for a continuation of governments'' efforts to stimulate their economies and to resuscitate the financial system."
The group, which included economists from leading developing nations like India and China, said Central and Eastern Europe was being worst hit by the crisis but Sub-Saharan Africa, Latin America and some East Asian countries would suffer recessions as bad or worse than industrial countries. Despite the large increase in government spending and bond issuances, the experts saw no risk of steep price rises. "Deflation, not inflation, is for the moment the more likely threat," said a document distributed after the two-day meeting.
BIG BANKS - BIG RISKS Among their conclusions, the experts backed wider regulation of financial institutions, including hedge funds, and tighter capital requirements. A wide-ranging overhaul of the IMF was necessary and a move away from the dollar to a multi-currency reserve system, they said.
Leaders from the G20 group of industrial and developing nations pledged at a summit in London in April to provide the IMF with $500 billion in additional funding.
Fiscal stimulus should be focused on areas which left governments which tangible assets, like roads, they said. Stiglitz warned that in the United States, the government''s bailout of struggling banks and businesses risked overloading the public sector with debt. The economists said restructuring the banking system had served to make some of its problems worse, and they urged governments to consider breaking up the biggest banks.