Leaders Vow Concerted Action
October 12, 2008
At a meeting on Saturday, Oct. 11, in Washington, the IMF's 185 member countries also pushed for more coordination with developing nations which are beginning to feel the effects of the global credit crunch.
With global stock markets plunging and access to credit severely curbed across the globe, tackling the crisis required "exceptional vigilance, coordination and readiness to take bold action," read a statement from the International Monetary and Financial Committee (IMFC), the IMF's policy-guiding body.
IMF head Dominique Strauss-Kahn said the world's reeling financial system was teetering on "the brink of systemic meltdown."
"The first coordination between advanced countries and the rest of the world is now on track," he said at a news conference on the first day of annual International Monetary Fund and World Bank meetings in Washington.
Gloomy forecasts for world economy
Earlier, finance ministers and central bank heads from the Group of Seven (G7) industrial nations promised to use "all necessary tools" and adopt a five-point action plan help stabilize the global financial system.
US President George W. Bush, who met Saturday with the G7 finance ministers, said the world's economic powers "will stand together in addressing this threat to our prosperity" and "do what it takes to resolve this crisis."
Global stock markets suffered record declines over the last week amid gloomy forecasts from the IMF and others over the state of the world economy.
The IMF forecast global growth of 3.9 percent in 2008 and 3 percent in 2009. All eyes will be on the reactions of investors at Monday's market openings in Asia and Europe.
In another bleak prediction Saturday, IMF chief economist Olivier Blanchard told Italian daily Corriere della Sera that stocks could fall another 20 percent in the coming weeks.
Critics of the G7's meeting Friday said their commitments lacked specifics, but Strauss-Kahn said Saturday's endorsement of the G7's action plan marked the "first big success of coordination" on an international level.
He pointed to the G7's promise to keep "important financial institutions" in their countries from collapsing and said he expected the moves would help free up banks to start bringing in new capital.
"In the coming days, what I expect is that the reaction by the different (financial) institutions will be positive enough to unfreeze the credit market and to restore the necessary funding," Strauss-Kahn said.
Germany to unveil British-style rescue package
A number of Western countries are working on rescue plans to keep their own financial sectors afloat.
US Treasury Secretary Henry Paulson on Friday said it was "naive" of investors to expect countries with different financial, economic and political systems to come up with the same policies to stabilize their own financial sectors.
The US was preparing to buy equity stakes in banks as part of a $700 billion bail-out package already passed by Congress and signed into law. Britain has passed its own rescue plan, and Germany will unveil its own version on Monday.
The German plan is expected to resemble the British rescue package that would offer the finance industry interbank guarantees worth "triple digit" billions, according to various German media.
German Chancellor Angela Merkel said Germany may inject capital into its banks but it was not planning to take permanent stakes in them.
"Only action by the state is capable of restoring the necessary trust," Merkel was quoted as saying by the Bild am Sonntag. "In this it is important that countries do not act unilaterally, but that we coordinate at European and international level and then implement the measures within our national responsibilities."
Media reports said Germany's rescue package could be adopted "in days" using accelerated legal proceedings, and that the cabinet aimed to approve the measures on Monday.
Sarkozy and Merkel paved the way on Saturday for European measures to tackle the global financial crisis but revealed little about their plans.
Sarkozy, whose country holds the rotating six-month presidency of the European Union, has called an emergency meeting on Sunday of the 15 countries that have the euro as their currency, to take coordinate action to temper the financial storm.
IMF vows to help developing nations out of crisis
Strauss-Kahn said the IMF was ready to make emergency money available to developing countries with critical budget shortfalls.
Some poorer countries have already seen slowing exports and investment at home due to the sharp economic downturn in wealthy nations.
Developing countries have urged industrial nations to keep them in the loop about plans to address the financial crisis and warned against cutting back aid commitments.
"Who is going to compensate the innocent countries? Who are likely to suffer from this debacle through no fault of their own?" asked Kenyan Finance Minister John Michuki.
The Group of 20 -- a wider bloc of advanced and emerging economies -- was meeting Saturday evening to discuss the crisis.