By Peter Johnson for BuenosAiresHerald.com Paul Krugman, the US economist who was awarded the Nobel Prize for economics for his research into globalization and trade patterns, and who is in Buenos Aires to attend a business congress, forecast that "the financial system of the future will be smaller, more regulated and will offer more guarantees."

"The financial system will be a lot smaller in the medium term, governments will apply more and better oversight and this will ensure that banks carry out their principal and most important role which is to accept deposits so as to be able to hand out loans, and the financial system of the future will be heavily regulated, highly guaranteed and even relatively boring," Krugman said in his speech to businessmen.

According to the economist, the international financial crisis was a consequence of the lack of sufficient controls and what is needed today are 21st Century versions of the regulations that were implemented in the 30s that enabled the world to overcome such a serious problem as the current crisis.

At a press conference after the business meeting, Krugman, who has at times been critical of the role that the International Monetary Fund played in many of the crisis in emerging markets, including Argentina, actually came out in their defence yesterday stating that they are one of the "unsung heroes" of the current financial crisis for having funneled liquidity, together with banks, into the financial system.

As to whether the IMF had learnt from past mistakes and undergone a structural change, the Nobel laureate voiced uncertainty.

"I can't make up my mind. Sometimes they sound more flexible and at other times they sound like the old IMF," Krugman said, adding however that there had been a "sea change in the direction of reality."

Also responding to a question about the future of the US dollar, Krugman said that it was not under threat from the euro, at least for the next 10 years, and it is unlikely that any Asian currency, especially China's renminbi, would threaten the dollar as the world's leading currency.

As to his views on the impact that the crisis has had on Latin American economies, especially Argentina, Krugman painted a positive outlook for the future.

"The slump has been milder here and recovery seems to be on the way, strongly in Brazil and even in Argentina. The recovery potential here is much stronger than in many other parts of the world."

The expert on globalization and trade was not happy at the protectionist measures that have sprung up as a reaction to the crisis although he admitted that "if there is no alternative" they should be applied, although in Argentina's case he stated that "it is difficult to see the necessity" for them.