IMF Survey: World Finance Chiefs Back Action Plan to Combat Crisis

IMF News, October 11, 2008

Source details

Canonical URL: IMF Survey: World Finance Chiefs Back Action Plan to Combat Crisis

Publication date: October 11, 2008
World financial leaders endorsed an action plan announced by the Group of Seven (G-7) advanced economies to combat the international financial crisis.
IMF Managing Director Dominique Strauss-Kahn called the endorsement the "first big success in coordination" to halt the downward spiral in world markets and support the global financial system.

The International Monetary and Financial Committee (IMFC), the policy-setting body representing the IMF's 185 member countries, met on October 11 amid increasing strains in the global financial system caused by the spreading credit crisis triggered by the U.S. subprime meltdown.
The 24-member ministerial committee endorsed the G-7 plan announced on October 10.
IMFC chairman Youssef Boutros-Ghali said the meeting showed the "resolve, unity, and focus" of the world community to address the crisis and that "no tools will be spared" in addressing it.
The IMFC called for "further intensive Fund engagement across the membership to discuss and develop robust policy responses to the crisis."

The IMFC stated the depth and systemic nature of the crisis called for "exceptional vigilance, coordination, and readiness to take bold action."
Strauss-Kahn characterized the IMFC endorsement of the G-7 plan as the first concrete step in coordinated global action by emerging markets, low-income countries, and the advanced economies to combat the crisis.
Both Boutros-Ghali and Strauss-Kahn acknowledged that actions taken by individual governments would vary, depending on their situation and structure of the financial system.

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.
Strauss-Kahn emphasized: "The IMF has the resources and we are ready."
The Fund stands ready to lend quickly through its emergency financing mechanism to any member country in financial difficulty.

In a speech on October 10, Strauss-Kahn proposed a four-point action plan to help stem the downward spiral in world markets and begin to rebuild confidence:
- temporary government guarantee of liabilities
- government action to take out troubled assets and force the recognition of losses
- government provision of capital to the financial system
- a high degree of international cooperation

The IMFC asked the IMF to take the lead in drawing the necessary policy lessons from the current crisis and recommending effective actions to restore confidence and stability.
The IMF should focus discussion, and enhance cooperation, with a wide range of perspectives with the Financial Stability Forum, the Group of Twenty, and others in an inclusive setting.
The Committee asked the IMF to start this initiative immediately and to report to the IMFC at the latest at its next meeting, which will be in April.

Strauss-Kahn emphasized that the world should not forget the "other" crisis facing developing economies—the problem of high food and energy prices.
He urged donor countries not to abandon promises of aid to the developing world because of the financial crisis, warning that otherwise many of the world's poorest would starve or suffer from malnutrition: "We are in a big crisis, but don't forget the other one."
The difficult global financial environment, including elevated food and fuel prices, adds to the challenges for emerging market and developing countries to preserve macroeconomic stability, sustain growth, and make progress on poverty reduction.

IMF Survey: World Finance Chiefs Back Action Plan to Combat Crisis