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LONDON, Dec 21 (Reuters) - International Monetary Fund chief Dominique Strauss-Kahn said insufficient fiscal stimulus by governments to tackle the global slowdown may make a bad 2009 even worse, according to an interview released on Sunday.

Strauss-Kahn told BBC radio that the IMF may need to cut its next economic growth forecasts, due in January, referring to "2009 as really being a bad year".

"I'm specially concerned by the fact that our forecast, already very dark ... will be even darker if not enough fiscal stimulus is implemented," he said in an interview.

The IMF has called for higher government spending and temporary tax cuts worth $120 trillion, or 2 percent of global annual economic output, to fill the gap caused by slumping private demand following the credit crunch.

Britain has announced fiscal stimulus worth around 1 percent of output, and despite "disturbing" level of public debt, Strauss-Kahn said more public borrowing would be the lesser of two evils.

"The question of having social unrest has been highlighted by journalists and I can understand that, but it's only part of the problem," he said. "The problem is that the whole society is going to suffer." (Reporting by David Milliken; Editing by Tomasz Janowski)

Pakistan has agreed to borrow $7.6 billion from the International Monetary Fund to avoid adding an economic crisis to its struggle against Islamic militants, an official said Saturday.

Finance chief Shaukat Tareen said the IMF had agreed "in principle" to the bailout after vetting government plans to tackle Pakistan's yawning budget and trade deficits.

"We believe that we can see commencement of a steady stream of inflows from now on, thereby eliminating the air of uncertainty," Tareen said at a news conference.

Meanwhile, militants fired a mortar shell into a village near the troubled Pakistani city of Peshawar on Saturday, killing one soldier and wounding another, an official said.

The loan will top up Pakistan's foreign currency reserves, whose rapid rundown had raised the prospect of a run on the rupee and a default on the country's international debt.

That risk has already eroded confidence in Pakistan's government and economy, deterring badly needed foreign investment at a time of slowing economic growth and runaway inflation.

Tareen said the government would apply formally for the loan next week. The IMF has already signaled that it will consider the application quickly.

-- WASHINGTON AP) _ Seeking to combat a spreading global financial crisis, the International Monetary Fund said Sunday it had reached a tentative agreement to provide Ukraine with $16.5 billion in loans and announced that emergency assistance for Hungary had cleared a key hurdle.

More European banks may fail as government cash injections dry up and the region's economy grinds to a near-halt next year, the International Monetary Fund warned Tuesday.

The IMF said in its economic outlook for Europe that banks are still under severe pressure to reduce their high leverage -- the amount of debt they carry in proportion to their assets.

It said recapitalization was "now likely to slow" because cash-rich investors ---- such as sovereign wealth funds and institutional investors such as pension funds -- are now less interested in buying into banks. Instead, governments have decided to take equity stakes and become the provider of new capital.

The IMF said stock markets are watching leverage closely and that European banks tended to score less favorably than U.S. rivals.

This means that banks are now more reliant on government help, selling off assets and combining with rivals to shore up their capital, the IMF said.

A full-blown banking crisis in Europe is "improbable," the fund said, but it warned that trouble was far from over as borrowing costs and credit default spreads increase and credit becomes harder to get.

"Additional banks may fail, as implied by their very high risk spreads and market doubts about the viability of their business models," it said.

It called on European leaders to make "a decisive commitment to concerted and coordinated action to alleviate financial stresses" and avoid the serious risk of European banks retrenching to national markets, undoing efforts to join European economies more closely.

European Union governments have put up some 2 euros trillion ($2.6 trillion) in recent weeks in a bid to restore confidence in the troubled financial sector after banks froze lending to each other. The money includes guarantees that might not be spent, but also new capital injections in some countries such as Britain, France and Germany.

The countries have taken action individually on the basis of broad principles agreed to at an economic summit earlier this month.

The IMF predicts that the 15 nations that share the euro will barely grow next year, expanding just 0.2 percent. The largest economy in the region, Germany, will stagnate, it said.

Countries where a housing bubble is bursting will see sharper downturns, particularly Denmark, Ireland, Spain and Britain.

Business activity will be "very weak" in the second half of 2008 and the first half of next year, but should rebound in 2010, the IMF said.

Companies that are dependent on bank lending will be hit hard by the credit crunch, the report said, with default rates "expected to rise from their recent historically low levels." Highly leveraged firms and real-estate related businesses are particularly vulnerable, it said.

The IMF also warned that high oil prices -- at an average of $89 a barrel -- could slow growth over the longer term.

Latin American governments haven't yet turned to one traditional source of aid as they combat the global economic crisis: the widely vilified International Monetary Fund.

The IMF became the target of popular contempt across the region for conditioning billions of dollars in much-needed loans on a so-called Washington consensus of policy dictates, including privatization, deregulation and balanced budgets.

Many Latin American leaders blame those requirements for worsening economic hardships in the 1980s and 1990s rather than easing them, and pan what they consider the IMF's continued heavy-handedness.

"The fund is not giving the world what it needs," Argentine Economy Minister Carlos Fernandez said on behalf of six South American countries at an annual IMF meeting this month. "Its financial assistance fails to provide the services members seek, as it continues to send immediate negative signals (and) comes with too many conditionalities."

Raw memories of their experiences with the fund's tight lending terms make it unlikely that Latin Americans will run for IMF help again.

"There's definitely a feeling that the solution that was imposed on them often exacerbated the economic illness rather than helped with the cure," said Shannon O'Neil, a Latin America expert at the Council on Foreign Relations in New York. "There's a real hesitation to borrow from the IMF, because there were so many strings attached."

These days, Brazil, Mexico, Argentina, Venezuela, Uruguay and others have paid off their debts to the fund, winning greater independence in policy-making.

Even as global turmoil spreads, Latin American economies are now healthier than before. And should they need help, they have a greater variety of multinational lenders to choose from.

The Washington-based Inter-American Development Bank, the Bogota-based Latin American Reserves Fund and the Caracas-based Andean Development Corp. pledged US$9.3 billion in emergency loans last week to ease regional cash-supply problems.

"We're putting everything we've got on the grill," IDB President Luis Alberto Moreno said.

The governments of Brazil, Venezuela, Argentina, Uruguay, Paraguay and Bolivia have meanwhile formed a new Bank of the South to finance development themselves.

Elsewhere, countries such as Iceland, Hungary and Ukraine have suggested they might seek IMF financing to ease the current crisis. But the IMF says it has received no formal request for help from any Latin American nation, though it's ready to assist as soon as it does.

Created in 1944 to rebuild the world financial system after World War II, the IMF initially helped developed nations lend to one another. By the 1990s, it had evolved into a rescue fund for troubled emerging economies -- but gave them little say on the terms of their loans.

"In the mind of countries that were taking money, it became an almost imperialist group, because the IMF lent with a lot of one-size-fits-all conditions," O'Neil said.

In Argentina, those tight fiscal requirements ignored the need for anti-poverty measures and prevented the government from spending its way out of a recession, contributing to the country's 2001 economic meltdown, O'Neil said.

An IMF spokesman declined to be quoted for this article.

The current crisis is challenging the old balance of power: As the U.S. and European economies shudder, other regions of the world have growth rates and fiscal accounts that appear comparatively strong.

The Washington consensus wasn't all bad for Latin America. Many countries continued balancing budgets in recent years as commodity export income soared, helping them build foreign currency reserves and lower debt burdens. Those resources are now helping them combat the global downturn.

Still, some Latin American leaders claim the crisis has exposed a double standard at the IMF, whose rich-country backers have managed their economies in ways that poorer borrowing nations were never allowed.

"When Brazil had problems, every day the IMF was giving us tips, saying, 'Do this' or 'Do that,'" Brazilian President Luiz Inacio Lula da Silva said this month. "Where are the tips they're giving now on the American crisis? Where is the IMF? Why aren't they in Europe giving tips? It's because this is their crisis."

Brazil and other developing nations are calling for an IMF overhaul that puts less weight on what they consider failed U.S. and European policies. They want increased oversight of advanced economies and are demanding that emerging nations have a greater say in IMF decisions so that those most likely to borrow can help set lending terms.

Now that economic crisis is rattling wealthier parts of the world that haven't felt the pinch in years, O'Neil said, "I think we could soon see some of those rules changing."