The massive debts of governments in wealthy countries pose a threat to the hard-fought stability of financial sectors and could even spark a second global credit crisis, the International Monetary Fund (IMF) warned today, according to dpa. While the world economy may be recovering from recession, the IMF said ballooning budget deficits could trigger a "new phase" in the credit crisis as fearful banks raise borrowing rates or limit loans to debt-happy governments. The private sector by contrast is doing better, with financial firms mostly stabilized since teetering on the brink of collapse in October 2008. But a public debt crisis would spill back into the financial system, with private firms also struggling to get loans. The IMF said it expects total bank write-downs of 2.3 billion dollars related to the credit crisis, down from an October forecast of 2.8 billion dollars as many economies stage a recovery. Two-thirds of those write-downs have already been reported. Lowering budget deficits now marked "the most daunting task for governments in the near term," the IMF wrote in its semi-annual Global Financial Stability Report. The Greek debt crisis and wider euro-zone troubles were an example of the potential dangers. But Jose Vinals, who leads the IMF's Monetary and Capital Markets Department, said the "fiscal concerns are not confined to one country." "Worries about default risks have risen and could undermine financial stability," Vinals said, pointing out that the debt levels of many advanced economies were nearing the highest levels since World War II. Public debts, if left unchecked, "run the real risk of undermining the recovery." Wealthy countries were forced - at the IMF's urging - to inject large sums of public cash into their economies as they plunged into a deep recession in 2008. But the IMF warned that most had now "reached the limit of public sector support" and must begin offering concrete and credible plans for getting themselves out of debt. But the IMF also cautioned emerging powers in Asia and Latin America, where most economies quickly recovered from the global recession. Their fast growth has attracted the eye of foreign investors disturbed by the sluggish situation in wealthier countries. -- SPA
