The world is on the brink of financial meltdown, the head of the International Monetary Fund said Saturday. His bleak warning came as finance ministers tried to calm the frenzy in markets that saw share prices crash by more than 20 percent last week.
The IMF’s chief economist added to the gloom by predicting that shares could slump by another 20 percent before stabilizing. G7 finance ministers pledged to take all necessary steps to support the banking system and stave off an economic slump.
Dominique Strauss-Kahn, the IMF’s managing director, warned that the measures so far "have not yet achieved the goal of stabilizing markets and bolstering confidence."
He said: “Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” Countries would need to take further measures, including interest rate cuts and steps to bolster the banks.
Olivier Blanchard, his chief economist, said stock markets had further to fall. "At the worst, the governments will need another few weeks to make the right assessment and the stock exchanges could fall by another 20 percent; then there will be a turnaround,” he said.
The warnings came as G7 finance ministers met President Bush at the White House.
“We are in this together,” the president said. “We will come through it together.”