Former IMF Chief De Rato Says Global Credit Crisis Nearing End

Former IMF Chief De Rato Says Global Credit Crisis Nearing End

By Cherian Thomas and Naga Munchetty

May 4 (Bloomberg) -- Former International Monetary Fund head Rodrigo de Rato said the worst of the credit crisis is over and that the recent strengthening of the dollar is justified.

``The markets are telling us that's true,'' Rato told Bloomberg News in an interview in Madrid today, when asked whether the turmoil is closer to an end. ``I think some of the lessons have been learnt. Central banks are not only reacting, injecting liquidity, but also taking a more focused approach.''

The Dow Jones Industrial Average and the FTSE 100 Index have almost recovered the losses suffered in the first three months of the year on optimism record cash injected by the Federal Reserve and European central banks will restore confidence in the banking system. De Rato said the short-term fix must be followed up with better regulation.

``The credit crisis requires not only short-term measures, but also medium-term enhanced credibility measures,'' he said. ``And that requires not central bank or monetary policy, but it also requires structural reforms in the U.S. and Europe regarding some of regulatory rules and infrastructure.''

De Rato joins Treasury Secretary Henry Paulson and the heads of Wall Street firms including JPMorgan Chase & Co. and Lehman Brothers Inc. in viewing the credit turmoil as nearer an end.

``We are closer to the end of this problem than we are to the beginning'' and the U.S. economy will keep growing, Paulson said in a Bloomberg Television interview April 30. Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said May 3 the global credit crunch has eased for bankers.

Stability Program

De Rato said the IMF during his tenure had asked the U.S. to accept a financial stability program, and they did so only toward the end of last year. The exercise will help the U.S. to benchmark itself against the best international practice, he said.

``I think it will be very useful if all the countries like the U.K. and Japan agree to such a financial stability analysis,'' said Rato, who stepped down as IMF managing director in October after 3 1/2 years.

Paulson last month urged the Washington-based lender to adapt quickly to the growing complexities of the global financial system and improve its monitoring of currency markets.

Rato today defended the IMF, saying it sent ``clear messages that complacency was becoming a risk'' a year before the crisis erupted.

``The question is when the price of risk is very low, complacency does not look like a danger,'' Rato said. ``And once again we have seen when the economic cycle changes, complacency becomes a danger.''

Dollar Recovery

The dollar rose the most against the euro since March and reached a two-month high versus the yen as traders bet the Federal Reserve will stop cutting interest rates and the U.S. lost fewer jobs in April than economists forecast.

The U.S. currency increased 1.3 percent to $1.5424 per euro last week, from $1.5630 on April 25. It rose 0.9 percent to 105.40 yen, from 104.42 a week earlier.

``Probably recent months' weakness'' in the dollar ``has been too strong,'' Rato said. ``Recent days reaction of the markets could be a more measured approach to the monetary policy in the U.S. I think it's positive.''