Developing countries backed a G7 plan to tackle the financial crisis on Saturday, a “first” step in global coordination to restore order to global markets, IMF managing director Dominique Strauss-Kahn said.
Strauss-Kahn bluntly said the world’s reeling financial system was teetering on “the brink of systemic meltdown.”
“It is so important that the first coordination took place today in the IMFC [the fund’s policy-guiding body, the International Monetary and Financial Committee] when emerging market economies and low-income countries agreed with the principles and actions decided by the G7,” he said at a news conference on the first day of annual IMF and World Bank meetings in Washington.
PHOTO: AP
“The first coordination between advanced countries and the rest of the world is now on track,” Strauss-Kahn said.
The IMFC said it considered the multilateral institution was ready to lend rapidly to countries in need of capital in the desperate crisis.
“Using its emergency procedures, the fund stands ready to quickly make available substantial resources to help member countries cover financing needs,” the IMFC said in a statement.
It called for “further intensive fund engagement across the membership to discuss and develop robust policy responses to the crisis.”
Its statement came as the twin multilateral institutions meet in the throes of the worst financial crisis since the 1930s Great Depression.
The meetings follow Wall Street’s worst week on record, worldwide stock market plunges, central bank coordinated interest rate cuts and nationalization of collapsing financial firms in several countries.
“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,” Strauss-Kahn said.
The IMFC said the crisis “underscores that the fund has a critical mandate to foster the multilateral cooperation needed to restore and safeguard international monetary and financial stability.”
The IMFC “strongly endorsed” the five-point action plan agreed by the G7 on Friday, in which the G7 major economies pledged to use “all available tools” to support major financial institutions and keep them from failing.
The finance chiefs of the G20 rich and emerging countries, huddled separately on the sidelines of the IMF meeting, also backed the G7 plan.
G20 members “committed to using all the economic and financial tools to assure the stability and well functioning of financial markets,” the group, which includes Brazil, China, India and Russia, said in a statement.
“The fund has asked for weeks, if not months, for more coordination in action, arguing that in such a crisis, cohesion and coordination was absolutely necessary,” Strauss-Kahn said, stressing how serious the situation was for policymakers.
He also warned that the “other crisis” developing countries face from soaring food prices should not be forgotten while the world grapples with the financial crisis.
Strauss-Kahn said that although food costs had moderated in recent months, they are still much higher than they were “and this bill is still unaffordable for poor countries.”
Donor country budgets are being strained as the financial crisis rips through markets and banks, slowing the economy, but Strauss-Kahn called on them not to cut back on their aid commitments.
Poor countries “absolutely need this money to avoid starvation.”
The IMFC recognized that a number of emerging countries are vulnerable to the impact of the financial crisis, even if they have pursued sound economic policies in recent years.
The fast-moving global financial crisis has sparked a new sense of urgency for international cooperation. French President Nicolas Sarkozy, the current president of the EU, called a eurozone summit in Paris yesterday as European leaders appeared to move toward a British-style plan of partial bank nationalization.
Britain is not a member of the eurozone but Sarkozy said he would meet British Prime Minister Gordon Brown separately at the Elysee Palace just two hours before the main summit in order to “maximize the chances” of full European cooperation.
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