Global crisis costs US$4t

The IMF's previous update in January of a projected loss of US$2.200 trillion was based exclusively on US-originated assets, as had been the October 2008 GFSR estimate of US$1.4 trillion. -- PHOTO: AGENCE FRANCE-PRESSE

WASHINGTON - THE International Monetary Fund has raised its estimate of losses from the global financial and economic crisis to more than US$4 trillion (S$6 trillion) due to writedowns on soured credit.

The IMF on Tuesday said the total estimated cost of US$4.054 trillion includes US$2.712 trillion in losses in US-originated assets.

Losses on European-originated assets were estimated at US$1.193 trillion and those of Japanese-originated assets at US$149 billion.

The total cost represents what was needed and would be needed by financial institutions because of the deterioration in credit, in particular in the plunge in the value of equities backing credit, such as mortgage loans, as the global economy suffers the worst contraction in six decades.

The estimate, which covers the period from the beginning of the financial crisis in mid-2007 to 2010, was published in the IMF's latest semi-annual Global Financial Stability Report (GFSR).

The IMF's previous update in January of a projected loss of US$2.200 trillion was based exclusively on US-originated assets, as had been the October 2008 GFSR estimate of US$1.4 trillion.

'The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries,' the IMF said.

'Shrinking economic activity has put further pressure on banks' balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending,' the 185-nation institution said.

The IMF projected that banks will bear US$2.470 trillion, or 61 per cent, of the total losses and said that two-thirds of them have yet to be declared.

'Loss recognition is incomplete and capital is insufficient under a recession scenario,' the IMF said. 'Other financial institutions including pension funds and insurance companies also have significant credit exposures,' it added. -- AFP