World stands behind G7 in tackling financial crisis: IMF

October 12th, 2008 - 8:42 am ICT by IANS  

Washington, Oct 12 (DPA) Members of the International Monetary Fund (IMF) have “strongly endorsed” a promise by the world’s advanced economies to do all they could to curb a financial crisis that has brought the world to the brink of a recession.The IMF’s 185 countries have also pushed for more coordination with developing countries, 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,” a statement from the International Monetary and Financial Committee read Saturday.

Finance ministers and central bank heads from the Group of Seven (G7) industrial nations met Friday, promising to use “all necessary tools” and adopting a five-point action plan to 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’s economy. The IMF forecast global growth of 3.9 percent in 2008 and 3 percent in 2009. Below 3 percent is considered a recession.

All eyes will be on the reactions of investors at Monday’s market openings in Asia and Europe. In another gloomy 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 that their commitments lacked specifics, but Egyptian Finance Minister Youssef Boutros-Ghali said all countries recognized the seriousness of the current downturn.

“This is a systemic crisis. The membership of the IMF is committed to systemic measures,” said Boutros-Ghali, who chairs the International Monetary and Financial Committee.

IMF Managing Director Dominique Strauss-Kahn said that 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.

A number of Western countries are working on rescue plans to keep their own financial sectors from collapse.

The US was preparing to buy equity stakes in banks as part of a $700-billion bail-out package already passed by Congress. Britain has passed its own rescue plan and Germany will unveil its version Monday.

US Treasury Secretary Henry Paulson 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.

Strauss-Kahn said that 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 on 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.

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