IMFSurvey Magazine: In the News
GLOBAL FINANCIAL TURMOIL
IMF Welcomes Euro Zone Plan to Combat Crisis
IMF Survey online
October 12, 2008
- Advanced economies agree on measures to halt financial spiral
- IMF welcomes fourth stage of coordinated action
- Strauss-Kahn says U.S. plan should be implemented quickly
IMF Managing Director Dominique Strauss-Kahn welcomed a plan by the 15 European countries that use the euro to halt the financial crisis and said the U.S. rescue plan should be implemented "the sooner the better."
After a hectic weekend of discussions among financial leaders in Washington DC and Paris, leaders of advanced economies had put together a series of statements and plans to end the hemorrhaging of financial markets and prop up the battered financial system.
In Washington, world financial leaders gathered for the IMF-World Bank Annual Meetings endorsed on October 11 an action plan announced by the seven leading advanced economies to combat the international financial crisis.
This was followed by Sunday's Paris announcement of agreement by euro zone countries that governments would buy into banks to boost their finances and guarantee inter-bank lending until the end of next year. British Prime Minister Gordon Brown said after leaving the meeting "I believe that in the next few days confidence in the banking system will be restored."
Welcoming the eurozone move, Strauss-Kahn told a press briefing after a meeting of the IMF-World Bank Development Committee that "obviously coordinated action is now taking place." He said the European action represented the fourth stage of policy coordination, following earlier moves by the G-7 group of advanced industrial countries; the International Monetary and Financial Committee (IMFC), the IMF's policy guidance panel; and the G-20, which groups advanced and developing countries.
"We at the IMF have been arguing for months, asking for coordinated actions," Strauss-Kahn told a press briefing on October 12. "So really I couldn't agree more with the heads of state and government in their approach. Not only is this action coordinated, it also proposes some details. We've already had details in the United States of the so-called Paulson plan, we've had for a few days details of what is going to happen in the United Kingdom; obviously what was missing was details of what's going to happen in the euro zone.
"Now we have it, and we can say almost all advanced countries are now covered by the plan; it will be even more the case in a few days when the European Council will meet and what has been done in the euro zone will possibly be extended to the rest of the European Union," he added.
The former French finance minister said that the financial crisis could not be tackled in a piecemeal fashion. "We were asking for a comprehensive plan and the fact that the eurozone has produced this comprehensive plan is very helpful. So, altogether I think we are going in a good direction."
Need for bold steps
The IMFC, the policy-setting body representing the IMF's 185 member countries, had met on October 11 amid increasing strains in the global financial system caused by the spreading credit crisis triggered by the U.S. subprime collapse.
The 24-member ministerial committee, representing advanced, emerging market, and developing economies, said the IMF had a critical mandate to foster the multilateral cooperation needed to restore and safeguard international monetary and financial stability.
IMF ready to lend quickly
Strauss-Kahn, who took over as Managing Director of the IMF almost a year ago, has stressed that the Fund stands ready to lend quickly through its emergency financing mechanism to any member country in financial difficulty. "The IMF has the resources and we are ready," he said.
The IMF's Emergency Financing Mechanism was set up in 1995 and has been used on six occasions—in 1997 during the Asian crisis for the Philippines, Thailand, Indonesia, and Korea; in 2001 for Turkey; and this year for Georgia.
The IMF has more than $200 billion of loanable funds and can draw on additional resources through two standing borrowing arrangements.
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