IMF’s Lipsky warns of ‘unthinkable’ in global credit crisis

WASHINGTON, March 12, 2008 (AFP) – The International Monetary Fund on Wednesday warned authorities worldwide to “think the unthinkable” in planning to cope with a mounting crisis in the global financial system. John Lipsky, IMF first deputy managing director, called for “decisive policy action” amid a credit crunch that stems from the US real estate meltdown and is spreading throughout the financial markets.

The coordinated actions by the US Federal Reserve and other global central banks on Tuesday to further pump billions of dollars of liquidity into financial markets were “helpful” but stronger measures may be necessary.

Policy actions worldwide to date “may not prove to be adequate” to deal with the “low-probability but high-impact events” that may materialize and undermine global financial stability, Lipsky said in an address at the Peterson Institute for International Economics, a Washington think tank.

“Policy makers as a matter of course need to ‘think the unthinkable,’ and to consider how they would plan to react if contingencies arise. The need to prepare more systematically for potential risks has been demonstrated amply during the past few months,” he said.

“By now, there is little