That is why the FMI had called for governments around the world to pump money in the economy to the tune of 2 percent of gross domestic product, he said.
He noted that this did not mean that all countries should provide this fiscal stimulus, as some were in too fragile a financial position to increase spending.
But so far those countries that could afford it had pumped in about 1.6-1.7 percent of world GDP.
"I do believe there is still some room to go further in some countries, but taking it all round it's not that bad," Strauss-Kahn said, adding this showed that international coordination was working well.
But the prerequisite for success was the restoration of a healthy financial sector, he said.
Although bailing out banks was politically unpopular, businesses and households could not survive without a working banking system, he said.
The FMI's experience of 122 banking crises around the world had taught it that economic recovery was impossible until banks were cleaned up, whether this was done quickly or slowly.
"You can put in as much stimulus as you want. It will just melt in the sun as snow if at the same time you are not able to have a generally smaller financial sector than before but a healthy financial sector at work," he said.
Despite the need for many countries to run huge deficits, emerging countries must not ignore the importance of rebuilding confidence in order to attract private capital in a globalised world, he said. (Reporting by Jonathan Lynn) |