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IMF in global ‘meltdown’ warning

Sunday, 12 October 2008 / Published in News / 3,151 views

Dominique Strauss-Kahn said rich nations had so far failed to restore confidence, but he endorsed a new action plan by the G7 group.

He also said the IMF was ready to lend to countries in dire need of capital.

The 15 eurozone leaders will meet in Paris later to try to establish a common approach to the markets crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would present a number of proposals at the summit to ease the credit freeze that has caused the collapse of several leading international banks.

But after meeting in Paris on Saturday, the two leaders said the summit would not result in a joint financial rescue fund for Europe, in the model of a $700bn rescue by the US government.

French Economy Minister Christine Lagarde said the eurozone leaders would discuss the possibility of guaranteeing interbank lending and put “meat” on the “skeleton” of a five-point plan by the G7 group of most industrialised nations to resolve the crisis.

Intensifying concerns

Mr Strauss-Kahn was speaking in Washington after talks with US President George W Bush, G7 finance ministers and the World Bank.

Earlier, G7 ministers had released the five-point plan to free up the flow of credit, back efforts by banks to raise money and revive the mortgage market.

George Bush says the US will lead the response to the crisis

“Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown,” said Mr Strauss-Kahn.

He later told a news conference: “The first co-ordination between advanced countries and the rest of the world is now on track.”

The IMF chief’s strong words reflect a belief that the global financial crisis can be contained, says the BBC’s economics correspondent Andrew Walker in Washington.

Mr Strauss-Kahn was joined at the White House by finance ministers from the US, Canada, France, Germany, Britain, Italy and Japan, as well as World Bank President Robert Zoellick.

Following talks with the economic leaders, Mr Bush also pledged co-ordinated action, saying it was serious global crisis which demanded a serious global response.

Panic selling

The meeting came a day after Asian, European and US markets continued to panic sell despite rate cuts and cash injections by central banks, amid widespread fears of a global recession.

Late on Friday, US Treasury Secretary Henry Paulson said the US planned to invest directly in banks for the first since the 1930s, following a similar UK programme of partial bank nationalisation.

The G7 had earlier not ruled out adopting another part of the British plan – to guarantee borrowing between banks – as they issued their plan in Washington.

The G7 also left the door open to further reductions in interest rates, which six central banks this week jointly cut by half a percentage point.

But our correspondent says there is some disappointment that the G7 plan lacks detail.

Ahead of the emergency summit of eurozone leaders, UK Prime Minister Gordon Brown will hold talks with Mr Sarkozy.

Chancellor Merkel said governments must “redirect the markets so they serve the people, and not ruin them”.

The heads of the EU’s four biggest economies – Britain, France, Germany and Italy – held a first crisis summit last week, but were split over the need for a common plan.

Analysts say another week of plunging stock markets has focused minds and the real test of this weekend’s scramble by world leaders to shore up the international financial system will come once markets reopen again on Monday.
Story from BBC NEWS:

http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7665515.stm

Published: 2008/10/12 03:22:54 GMT

© BBC MMVIII

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