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IMF: World on brink of 'financial meltdown'

(China Daily)
Updated: 2008-10-13 07:23

WASHINGTON: The International Monetary Fund (IMF) has warned that the world's financial system was near a meltdown, amid France promising that a meeting of European leaders in Paris would detail measures to keep a market panic from triggering the most severe global downturn in decades.

The Sunday Times newspaper said Britain will launch its biggest retail bank rescue today when the four largest - HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays - ask for a combined 35-billion-pound ($60 billion) lifeline.

The IMF said it backed a Group of Seven (G7) plan to stabilize markets and urged "exceptional vigilance, coordination and readiness to take bold action" to contain a firestorm that pushed global stocks to five-year lows on Friday.

US President George W. Bush (L) sits down to a G-20 Ministerial Meeting led by Brazil's Finance Minister Guido Mantega (R) at the IMF Headquarters in Washington, October 11, 2008. [Agencies]

France's Economy Minister, Christine Lagarde, said just before leaving Washington that the Sunday gathering would go beyond talking about remedies to "put meat, muscles on the bones of that skeleton and to develop, follow up and execute upon it."

The United States appealed for patience but the IMF said time was short after the G7 industrialized nations failed to agree on concrete measures to end the crisis at a meeting on Friday.

"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," IMF chief Dominique Strauss-Kahn said.

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Strauss-Kahn later expressed hope that government actions will prove powerful enough to persuade banks to resume lending and bring an end to a spreading credit crunch.

US President George W. Bush met with G7 economic chiefs and officials from the IMF and World Bank and said top industrial nations would work together to solve the crisis.

"The benefits will not be realized overnight, but as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions," Bush said.

The G7 - the US, Britain, France, Germany, Italy, Japan and Canada - met on Friday and then joined key emerging-market nations for a meeting of the Group of 20 (G20) on Saturday.

Emerging economies including China, Brazil, India and South Africa are now feeling the impact of the slump.

Bush made a surprise appearance at the G20 where he acknowledged the disruption originated in US mortgage markets but warned everyone must help to resolve it.

"It doesn't matter if you're a rich country or a poor country, a developed country or a developing country - we're all in this together. We must work collaboratively," he said.

European leaders were scheduled to discuss Sunday how to restore credit availability, with a British initiative to guarantee lending between banks as one of the topics, a source close to the French presidency said.

Lagarde sounded a cautious note about the British proposal, saying guarantees of bank-to-bank lending or bank deposits would have to be checked to ensure they do not distort European markets.

Britain's rescue plan, launched last week, makes available 50 billion pounds ($85 billion) of taxpayers' money for injection into its banks and, crucially, calls for underwriting interbank lending, which has all but frozen around the globe.

Agencies