IMF sounds ‘meltdown’ warning

The International Monetary Fund has said that the world’s financial system is near meltdown.

The warning came hours before European leaders began a meeting in the French capital to tackle the deepening financial crisis.

“Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown,” Dominique Strauss-Kahn, the IMF chief, said on Sunday.

Spreading crisis

Strauss-Kahn expressed hope that government actions would prove powerful enough to persuade banks to resume lending and bring an end to a spreading credit crunch.

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“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,” he said.

Earlier, Australia announced that it would guarantee all bank deposits for three years and guarantee wholesale funding to Australian banks in an attempt to combat the credit crisis.

Australia would make $2.6bn available for mortgage-backed securities to help maintain liquidity for non-bank lenders, Kevin Rudd, the prime minister, said.

Amid the financial turmoil, markets in the Middle East continued to spiral downward on Sunday, the first day of the business week for most countries in the region.

The IMF said it backed a plan by the G7 most industrialised nations to try to stabilise markets and urged “exceptional vigilance, co-ordination and readiness to take bold action” to contain a firestorm that pushed global stocks to five-year lows on Friday.

Beyond talk

Christine Lagarde, France’s economy minister, said that the gathering would go beyond talking about remedies to “put meat, muscles on the bones of that skeleton and to develop, follow up and execute upon it”.

The US appealed for patience but the IMF said time was short after the G7 nations – which include the US, Britain, France, Germany, Italy, Japan and Canada – failed to agree on concrete measures to end the crisis at a meeting on Friday.

George Bush, the US president, met G7 economic chiefs and officials from the IMF and World Bank and said top industrial nations would work together to solve the crisis.

“I’m confident that the world’s major economies can overcome the challenges we face,” he said.

Ref: Al Jazeera

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