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IMF warns of economic pain from bird flu pandemic

Written by: Staff

WASHINGTON, Mar 14 (Reuters) A deadly bird flu pandemic will likely cause significant harm to the global economy with widespread disruptions in work places, trade and payment systems and could prompt a surge in demand for cash, the International Monetary Fund warned.

''If the pandemic is severe, the economic impact is likely to be significant, though predictions are subject to a high degree of uncertainty,'' the IMF said in a preliminary assessment of the economic risks if bird flu, currently affecting mainly birds, started to spread from person to person.

''Once the pandemic has run its course, economic activity should recover relatively quickly,'' the global lender said.

The H5N1 strain of the deadly bird flu virus has spread into Europe, Africa and resurfaced in Asia, with Myanmar and possibly Afghanistan also reporting infections.

The World Health Organization has confirmed that 176 people have been infected with bird flu around the world since 2003, and 98 have died. So far, the virus remains in birds, but experts fear it could change into a form easily transmitted from person to person and sweep the world, killing millions.

The IMF said the biggest impact on economic and financial activity will come from high absenteeism, as people stay home to deal with infections or to avoid them.

It also warned there may be disruptions to global trade and transportation as countries impose restrictions on exports to control the spread of the virus.

The fund said capital flows to emerging markets may be temporarily reduced and some governments may be forced to draw on their reserves to ease balance of payments pressures.

It said capital flows to emerging markets may be affected ''as a result of some combination of possible operational disruptions in the financial systems, loss of confidence in more vulnerable countries, and abrupt shifts in risk preferences.'' It said commodity prices could decline amid weaker aggregate demand and warned there may be supply disruptions for key commodities such as oil.

''Although these effects are likely to be temporary, asset price declines could put the balance sheets of some financial institutions under stress and they may face challenges in meeting regulatory norms,'' the IMF cautioned.

''Market operations could become more disorderly in the case of a breakdown in the trading infrastructure, leading to limited or intermittent trading,'' it added.

The fund said increased spending on health and public safety would likely put pressure on government fiscal balances and monetary policy may need to be eased temporarily.

''In response, allowing a temporary easing in the fiscal stance would be appropriate in most cases,'' it said, adding that central banks should ensure they have enough cash on hand to deal with a possible surge in liquidity demand and shock-related price increases.

Reuters SK VP0420

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