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IMF says crisis set to cost $1.4 trillion

(China Daily/Agencies)
Updated: 2008-10-09 10:20

The International Monetary Fund on Tuesday called for a "collective commitment" by finance officials around the world to combat the current credit crisis.

In its semiannual report, the IMF also raised its estimate of the total losses stemming from US loans and related securities that will be caused by the credit crisis to $1.4 trillion, up from April's estimate of almost $1 trillion.

A trader reacts at the New York Stock Exchange. [Agencies]

"Global losses could be higher should credit quality worsen and writedowns mount on non-US loans," the report said.

The "piecemeal approach has not alleviated market concerns", said Jaime Carauna, director of the IMF's monetary and capital markets department.

Instead, markets would "benefit from a publicly stated collective commitment by the authorities ... to address the issue in a consistent and coherent manner", the report said.

Officials in Europe have struggled to coordinate their response across the 15-nation euro zone and the 27 members of the European Union.

"We need a more comprehensive approach ... in Europe," Carauna said.

Without a more coordinated approach, he said, the credit crisis will likely cause greater harm to the broader global economy.

Strains in international financial markets "are expected to deepen the downturn in global growth and restrain the recovery", the report said.

The Federal Reserve, meanwhile, announced on Tuesday it plans to buy massive amounts of short-term corporate debts known as commercial paper in an effort to break through a credit clog that is imperiling the economy. Commercial paper is a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.

Carauna praised the $700 billion financial rescue plan enacted by US Congress on Friday, saying "it will benefit the financial system and the economy".

He said US officials should consider using some of the bailout funds to inject capital directly into banks. The rescue plan, which focuses on purchasing bad mortgage-related assets, allows for such an injection, he said.