IMF Members Vow to Confront Crisis, Prevent Escalation

IMF policy-setting body expresses strong collective resolve to combat dangers

Lack of confidence contributing to "precarious situation"

Backs IMF action plan to strengthen defenses

Although the epicenter of the current instability was in the euro area, the world faced “a combination of financial risks with a weakening global economy, and contributing to that is a problem of a lack of confidence, in particular, a lack of confidence in the credibility of policy actions to arrest the crisis,” said Tharman, who is chairman of the IMF’s main policy-setting body, known as the IMFC.

“We face a confluence of sovereign debt and banking risks, with the epicenter of that being the euro area. But it is underpinned and complicated by the fact that we also face a weakening global economy, especially in the advanced economies, including the United States, and there are signs of that already having effects in the rest of the world,” Tharman told reporters.

IMF Managing Director Christine Lagarde said she was struck by the common recognition and shared diagnosis of the problems, and the determination to act decisively. “There was no denial, no finger pointing, it was about recognition and support.”

Advanced economies at center of response

The International Monetary and Financial Committee (IMFC), which represents the Fund’s 187 member countries, said in a communiqué that the global economy had entered a dangerous phase, calling for exceptional vigilance, coordination, and readiness to take bold action from members and the IMF alike. “We are encouraged by the determination of our euro-area colleagues to do what is needed to resolve the euro-area crisis. We welcome that the IMF stands ready to strongly support this effort as part of its global role,” it said.

Advanced economies were at the core of an effective resolution of current global stresses. “The strategy is to restore sustainable public finances while ensuring continued economic recovery,” it said.

Critical is implementation by the euro area of a July 21 decision to increase the flexibility of the European Financial Stability Facility, maximizing its impact, and improve euro-area crisis management and governance.

Lagarde, attending her first IMF-World Bank Annual Meetings since becoming Managing Director last July, said the key to resolving the current difficulties in Europe, and particularly the Greek crisis, was “implementation, implementation, implementation.”

She presented an IMF...