The International Monetary Fund and the World Bank held their annual meetings in Washington Saturday in the thick of global financial chaos that has governments struggling to find a way out.
The meetings follow Wall Street's worst week on record, world-wide stock market plunges, central bank co-ordinated interest rate cuts and a pledge by the Group of Seven (G7) major economies late Friday to use "all available tools" to support major banks and prevent their failure.
Finance leaders from the twin institutions' 185 member nations descended on the US capital in search of common ground and answers to the financial meltdown that is bringing advanced economies to a standstill. US President George W. Bush, who hosted a G7 crisis meeting early Saturday at the White House, said the world's richest economies agreed the financial meltdown requires "a serious global response."
But Bush unveiled no new proposals after meeting G7 finance ministers from Britain, Canada, France, Germany, Italy and Japan, as well as International Monetary Fund chief Dominique Strauss-Kahn and World Bank president Robert Zoellick.
The fast-moving global financial crisis, the worst since the 1930s Great Depression, has sparked a new sense of urgency for international co-operation. Central bank chiefs and finance ministers of the Group of 20, a grouping that includes both rich and emerging nations such as Brazil, China, India and Russia are to hold a crisis meeting later Saturday in Washington.
French President Nicolas Sarkozy, the current president of the European Union, has called a eurozone summit in Paris on Sunday as European leaders appeared to move towards a British-style plan of partial bank nationalisation.
US Treasury Secretary Henry Paulson said Friday the US government plans to invest directly in US banks for the first time since the Great Depression, expanding the focus of the government's 700-billion-dollar rescue plan.
The US bailout had initially targeted the problem of liquidity for banks by offering to buy up their toxic assets. In a five-point action plan agreed late Friday, the G7 agreed to "take decisive action and use all available tools to support systemically important financial institutions and prevent their failure."
Paulson said late Friday he expected emerging nations in the G20 to sign up to the G7 plan. "I would be surprised ... if they didn't look at the action plans and didn't endorse them," Paulson said. "Never have all of us been so dependent on the other and so interdependent. We need to work together."
An international group of financial regulators claimed progress Saturday in implementing an agreed tightening of rules even as the crisis in the markets reached unprecedented depths and intensity. The aim is "to reconstruct the financial system to be immune to the root causes of the crisis ... we must have less debt and more capital," Bank of Italy governor Mario Draghi, who heads the Financial Stability Forum, said.
Germany called for the IMF to rethink and strengthen supervision of the world's finances as the only body capable of doing so. "It is important to create an entirely new and global supervision of finance by the IMF," Foreign Minister Frank-Walter Steinmeier said in an interview with the magazine Der Spiegel due to be published Monday.
But Paulson cautioned the IMF against casting its net too wide. "As it reviews its lending role, the Fund must keep its core mission in mind and resist seeking creative ways to boost lending for its own sake," Paulson told the IMF Saturday. "We are sceptical of proposals to significantly increase access levels for lending."
Amid the financial crisis there were growing worries that rich donor nations would curb aid to developing countries and the poor. World Bank president Zoellick this week warned the recent turmoil could prove a "tipping point" for many developing countries, "threatening not just to knock the poorest people down, but to hold them down." Kenya's finance minister hit out at rich countries at the source of the financial crisis on Saturday, reflecting anger about the consequences on the economies of developing nations.
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