October 12, 2008 / 12:25 AM / 11 years ago

Finance leaders endorse G7 plan to calm markets

WASHINGTON (Reuters) - Finance leaders from the International Monetary Fund’s 185 member countries on Saturday endorsed a plan by major economies to chart a course out of the credit crisis, hoping the broader support will calm markets.

President George W. Bush (R), Treasury Secretary Henry Paulson (C) and Federal Reserve Bank Chairman Ben Bernanke sit down to a G-20 Ministerial Meeting at the IMF Headquarters in Washington, October 11, 2008. REUTERS/Jonathan Ernst

Egyptian Finance Minister Youssef Boutros-Ghali, who chairs the IMF’s policy-steering committee, said the fact that 185 countries, including emerging and developing economies, supported the Group of Seven plan should help restore confidence in financial markets.

“We are committed to the plan of action,” Boutros-Ghali said, “This is an essential element for restoring confidence,” he added.

The G7 on Friday vowed to take all necessary steps to unfreeze credit markets and ensure banks can raise money, and the IMF warned that concerns about more bank failures was pushing the global financial system to the brink of meltdown.

“This is a systemic crisis and therefore it requires systemic measures,” Boutros-Ghali, the new chairman of the International Monetary and Financial Committee, told a news conference.

In a communique, the panel said the size and scale of the crisis called “for exceptional vigilance, coordination, and readiness to take bold action.”

The financial crisis has dominated weekend meetings of the IMF and the World Bank, and distracted from Boutros-Ghali’s appointment as the first finance minister from an emerging economy to head the IMF panel after years of European dominance.

“The mood in the IMFC was a mood of resolve, of unity, of focus, and of a decision by the membership that this requires cohesion. And that cohesion has been achieved today,” Boutros-Ghali told the news conference with IMF Managing Director Dominique Strauss-Kahn.

Strauss-Kahn talked up the significance of the committee’s statement supporting G7 action, calling it the first “coordination between advanced and the rest of the world.”

Asked whether the G7 plan was enough, Strauss-Kahn said: “In the coming days ... what I expect is that the reaction by the different institutions will be positive enough to unfreeze the different markets and to restore the necessary funding.”

TAKING THE REINS AGAIN

He said the committee had agreed the IMF should take the lead in drawing lessons from the crisis and to suggest actions to restore confidence, while also coordinating with other global institutions.

Strauss-Kahn also won member countries’ backing for the IMF to activate emergency plans to help the institution respond quickly should a country need help.

Given the fund’s universal membership it was the right body for the job, he added.

Strauss-Kahn said the IMF had sufficient resources to help any country in financial peril. Earlier this week he said the fund could also assist major economies, which have traditionally shunned the IMF advice.

In the communique, the IMFC cautioned that the crisis could spill over to emerging economies and pointed to the need for more coordination between advanced and emerging economies.

Earlier in the day, Strauss-Kahn said unprecedented actions by major economies, including simultaneous rate cuts by their central banks, had so far failed to ease panic and fear in markets.

“The measures have not yet achieved the goal of stabilizing markets and bolstering confidence,” he said. “Thus, additional moves will likely be needed in the coming months.”

International Monetary Fund Managing Director Dominique Strauss-Kahn speaks at a news conference of the annual IMF-World Bank meeting in Washington October 11, 2008. REUTERS/Yuri Gripas

He warned that financial conditions were likely to remain very difficult, restraining global growth prospects, while credit conditions should tighten even more.

The IMF has already warned the world economy will slow sharply next year and the recovery will be unusually slow, with Europe and the United States either in or close to a recession.

The immediate challenge for financial policy-makers is to regain control of the financial system, while also nursing economies through the downturn and keeping inflation under control, Strauss-Kahn said.

Additional reporting by Alister Bull and Emily Kaiser, Editing by Chizu Nomiyama

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