MercoPress. South Atlantic News Agency

IMF ready for the rescue with seven recommendations

The International Monetary Fund (IMF) has activated an emergency finance mechanism to help countries hit by the financial crisis. IMF chief Dominique Strauss-Khan said the lending procedure would allow the IMF to react quickly to support countries facing funding problems.

The scheme, which was used during the Asian financial crisis in 1997, will help speed up approval of loans. He said the world was "on the cusp of recession", but could still recover. The IMF has already sent a mission to Iceland, where the government has taken control of its three biggest banks. Speaking ahead of meetings of the IMF and World Bank, Mr Strauss-Khan urged countries to act "quickly, forcefully, and co-operatively" to solve the global economic problems. A day after seven central banks around the world cut interest rates in an effort to calm financial markets, the IMF chief said further co-ordinated action was necessary. "All kinds of policy co-operation are to be commended," he said. But he issued a stark warning against countries acting unilaterally to fight the crisis, referring to recent isolated moves by certain European Union member countries. "There is no domestic solution to a crisis like this one." Finance ministers from the G7 group of wealthy nations are also meeting in Washington this weekend. It has been yet another turbulent week on world financial markets. Thursday key developments include: • Stock markets have lost ground despite initial gains, with the Dow Jones index sinking below 9,000 points for the first time in more than five years • US Treasury Secretary Henry Paulson is considering capital injections into troubled US banks, a White House spokeswoman said • The UK has condemned Iceland's handling of the collapse of its banks and its failure to guarantee British savers' deposits • The oil producers cartel Opec will hold an emergency meeting in Vienna on November 18 to discuss the impact of the financial crisis on oil prices, which fell below $87 a barrel Mr Strauss-Khan said the events of the past few weeks were beginning to take their toll on emerging economies as credit lines were cut and as trade was being hit by slowing demand in Western economies. He said the IMF was ready to assist any country in need of funding through its emergency aid mechanism, set up in 1995 to help Mexico stabilise its financial system after a crisis of confidence that led to sharp declines in the country's currency. The Philippines, Thailand, Korea and Indonesia also drew on the mechanism to access billions of dollars of loans after the eruption of the Asian financial crisis in 1997. Separately, World Bank president Robert Zoellick warned against letting the "financial crisis become a human crisis". He said a drop in exports combined with higher credit costs will trigger business failures in the poorest economies and, in some cases, "bankrupt" countries. Acknowledging there was no "silver bullet" to fix the global financial difficulties, he said it was up to the Group of Seven industrialised countries to work together to come up with a plan to solve it. "Countries will take different actions, customised to their circumstances, yet the actions need to target the same basic problems," he said. Finally Strauss-Kahn said the IMF had seven messages to convey on action to counter the global financial crisis: • All kinds of policy cooperation are to be commended. Unilateral actions should be avoided. • The crisis is serious and protracted, but a slow recovery should begin in the second half of 2009. • Following the activation of its emergency lending procedures, the IMF is ready to answer any request for support from countries facing problems. • While the IMF welcomed fiscal and monetary action to calm the turmoil, macroeconomic policies had to be combined with action on the financial front. • Policymakers should not forget "the other crisis"â€"the effects of the surge in food and fuel prices. Advanced countries should not respond to the financial crisis by cutting aid to the poorest and most vulnerable countries. • Authorities need to draw lessons from the crisis for financial regulation and supervision, including issues such as fair value accounting, changing rating agency behavior, closing loopholes in regulations, and filling gaps in information. "We need to come up with practical advice on how governments and central banks can use macroeconomic policies to puncture asset bubbles in good times." • The global financial architecture needs to be revamped to meet the need of 21st century globalized markets.