Wednesday, October 15, 2008

Internationally coherent actions urged as financial crisis threatens global economy

The International Monetary Fund and the World Bank concluded their annual meetings in Washington Monday, calling for internationally coherent and decisive actions to restore confidence in the global financial system and bolster economic growth.

WORLD ECONOMY TO SLOW SHARPLY

The world economy will slow down sharply this year and next, with the United States and some other advanced economies likely in recession already, reflecting mounting damages from the most dangerous shock in mature financial markets since the Great Depression in the 1930s.

According to the IMF's latest projections, the global economy, which grew by 5 percent last year, will lose a considerable speed, slowing to 3.9 percent in 2008 and weakening even more to just 3 percent, the worst showing since 2002, next year.

In the United States, the epicenter of the financial meltdown, the economy is projected to moderate from last year's 2 percent to just 0.1 percent in 2009, the worst showing since 1991.

The U.S. economy is now slowing fast and "is likely to contract in the current quarter and into early 2009," said the IMF in its semi-annual World Economic Outlook report. Contraction in two straight quarters meets a classic definition of recession.

The IMF also forecast a "significant slowdown" in activity across western Europe and that growth in Japan will cool to 0.7 percent this year from 2.1 percent in 2007.

"The major advanced economies are already in or close to recession," said the IMF.

Meanwhile, growth in emerging and developing economies is expected to decelerate, falling somewhat below trend during the second half of 2008 and early 2009.

"With a recession now looking increasingly likely, the key questions are, how deep will the downturn be, when will a recovery get under way and how strong will it be," the IMF noted.

INTERNATIONALLY COHERENT ACTIONS URGED AND BEING TAKEN

While the crisis, sparked by the U.S. subprime home loan collapse, is affecting the main advanced economies most acutely, emerging and developing countries are not immune from the global financial stress.

And with the credit markets frozen, the financial crisis is now spreading into the wider economy.

This extraordinary situation was a focus of attention at the annual meetings of the two international financial institutions.

Realizing from experiences in the past months that individual or unilateral actions alone can not stem the crisis from deteriorating, top financial officials from both developed and developing world put international cooperation top priority to restore financial and economic stability.

"The international community should make correct judgment on the situation and strengthen cooperation to jointly maintain world economic stability," said Li Yong, Chinese vice finance minister.

At same time, actions are being taken.

Leaders of the 15 eurozone nations agreed in Paris Sunday on a joint strategy to bolster market confidence by underwriting inter-bank loans and safeguarding financial institutions from collapse.

Last Friday, the Group of Seven major rich countries announced a plan of action to jointly fight the crisis, pledging "to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth."

In a rare coordinated move, the U.S. Federal Reserve, the European Central Bank and four other major central banks from around the world slashed interest rates last Wednesday in an attempt to prevent the financial crisis from becoming a global economic meltdown.

AVOIDING HUMAN CRISIS WHILE BATTLING FINANCIAL CRISIS

As the financial crisis threatens to undo economic progress made by developing countries, the international community has been urged not to forget problems faced by developing countries, the poorest ones in particular, while rich nations focus on their own problems.

At the meetings, officials from developing countries pointed out that the plight of poor countries has been "largely forgotten" even though their recent development gains are at risk as the crisis bites.

"The developing countries will suffer for no fault of theirs. They did not cause the contagion. Many are not well-equipped to face the consequences," Indian Finance Minister Palaniappan Chidambaram told the Development Committee of the IMF and the World Bank.

"The large surge in food and energy prices, and an associated rise in inflation, present major policy challenges for most countries, further compounded by the uncertain global conditions as the financial crisis unfolds," an update for the Development Committee also said.

In this regard, IMF Managing Director Dominique Strauss-Kahn warned last Saturday that it would be a mistake to forget the other crisis of soaring food prices and aid cutbacks faced by developing countries.

World Bank President Robert Zoellick also called for more attention to be paid to vulnerable countries in the world.

"Some 28 countries are already fiscally highly vulnerable from the twin shocks of food and fuel," he said last Thursday. "Currently, these countries, on average, are set to receive no increase in project and program aid."

Some 44 million additional people will suffer from malnutrition this year as a result of high food prices, the World Bank estimated. Zoellick urged major advanced countries to increase their aid, fulfilling the commitments they have made.

"We cannot let a financial crisis become a human crisis," the president stressed.

Source:Xinhua

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