The International Monetary Fund (IMF) has announced an emergency loan fund worth $200 billion which any of the 184 IMF member-nations could avail without the stringent conditions normally applied by the lender.
IMF says these loans would be disbursed within a fortnight to help deal with the global credit crunch.
The former French finance minister, Dominique Strauss-Kahn, now the IMF's managing director, said at a news conference in Washington yesterday, that he had activated emergency procedures so the IMF could respond quickly to "be able to answer problems that may happen in some of the emerging countries,'' and added that no country was immune from the crisis.
''It is fair to say that all of us have underestimated the strength of the financial crisis, problems in the financial markets and in the global economy can be solved if we act quickly, forcefully, and cooperatively'' he added.
He said that the IMF has about $200 billion of funds available immediately to lend to countries in need and could raise extra funds by asking wealthy member countries to contribute if the need arises. The IMF, he said was willing to provide financial assistance not only to emerging and developing nations, but also to Western countries.
Strauss-Kahn's comments came as finance ministers and central bank governors from the G7 leading economies converge in Washington today to restore confidence in the global market and discuss their future course of action to address the economic crisis.
Strauss-Kahn warned that the emerging nations are also witnessing slower growth as they struggle with falling demand for exports and their own inability to get loans.
In April this year (See: IMF predicts close to $1 trillion losses due to US sub-prime mortgage crisis) cut its global growth forecast to the slowest in six years; (See: IMF joins ADB in predicting slower growth in 2008) and estimated the accumulated losses due to the ongoing financial crisis at a staggering $945 billion, or close to one trillion dollars.
He said the IMF was ready to help developing nations, which were also struggling with an ongoing food and fuel crisis, with emergency loans where needed. The World Bank President, Robert Zoellick indicated it may expand its lending programmes this year as well.
Zoellick, in his own press conference, said he hoped the G7 would ''point towards coordinated actions to get ahead of the curve'' in dealing with the financial crisis, which took the world by surprise as it became into a full blown crisis in early September.
The IMF's emergency fund was initially formed in 1995 as a way of speeding up the approval of loans to countries in dire need of it and it was first used during financial crisis in 1997 in Asia by giving an $80 billion credit line to Thailand, Indonesia and South Korea as they were on the verge of default, as their currencies plunged thereby increasing the cost of foreign debt payments.
It has since helped Latin America overcome the debt crisis in the 1980s and has also bailed out Mexico, Asia Russia, and Brazil in the 1990s. It recently assisted Georgia after its conflict with Russia.
Countries that may require the IMF help could be Turkey and some Baltic states. Iceland, which is on the verge of bankruptcy, has said that an IMF loan could be an option (See: Iceland headed for bankruptcy; PM seeks $5.44-billion Russian loan)
Some commentators wonder whether a meagre $200 billion would be sufficient to solve the present global economic crisis compared to the trillions of dollars central banks and governments have poured into the financial system over the past few weeks.
Chancellor Darling of Britain has blamed the IMF for its failure to detect the risks being taken by the world's financial community which has brought the economic system to shambles. In his £500-billion bailout package announced on Wednesday, he said that the 'financial stability forum', which is a group of central bankers and regulators, should draw up a robust system to limit the excesses of the markets during booms (See: Britain unveils $906-billion bailout plan for banks)
Strauss-Kahn said the global financial crisis was due to regulatory and supervisory failures in advanced economies, in the risk management frameworks of major private financial institutions, and in market discipline mechanisms. The world is on "the cusp of a global recession," but if countries act together, the world economy would recover, he said.
A day after seven central banks around the world cut interest rates in an effort to calm financial markets, the IMF chief said further co-ordinated action was necessary.
Strauss-Khan urged countries meeting at this weekend's IMF and G7 meetings to co-ordinate their rescue packages.
In a rebuke to Chancellor Alistair Darling, who structured a unilateral £500 billion bailout of the British banking system he said: "All kinds of cooperation have to be recommended. All lonely acts have to be avoided, if not condemned."