WASHINGTON -- The head of the International Monetary Fund said Friday that finance ministers and central bankers meeting here this weekend must agree on a comprehensive response to the worsening financial crisis.
"We can solve the problem we are facing. But we need, really, to act quickly, to act forcefully," Dominique Strauss-Kahn, IMF managing director, said in a speech to an audience of economists.
His remarks came as finance ministers from the G-7 nations — the U.S., U.K., France, Germany, Italy, Japan and Canada — prepared for a high-stakes crisis session.
In the days leading to the previously scheduled weekend meeting, timed to coincide with the annual meetings of the IMF and World Bank, financial markets have grown increasingly desperate for signs that policymakers can stem the bleeding.
"Empty promises will only exacerbate the panic," wrote Barry Eichengreen, a prominent economist with the University of California, Berkeley, in a paper urging action.
Earlier this week, the IMF estimated that financial institutions will lose $1.4 trillion on U.S. asset-backed securities. Those mounting losses have left banks unwilling to make new loans, crimping economic activity in the U.S., Europe and several developing countries.
The IMF says the world next year will flirt with a global recession.
To restore confidence in battered global banks, Straus-Kahn said governments must join in a broad array of aggressive measures, including the use of public funds to provide banks with new capital. And he said European nations in particular must put aside national interests and craft a cooperative response.
In recent weeks, as the crisis spiraled, the U.S. enacted a $700 billion federal bailout and individual European nations moved to save their embattled banks on a case-by case basis. Central banks in the U.S. and six other countries also teamed for an unprecedented, coordinated interest rate cut, hoping to stimulate lending.
But so far, nothing has worked.
"Piecemeal measures" will be insufficient, Strauss-Kahn said, adding that "some explicit guarantee of financial system liabilities is unavoidable."
Strauss-Kahn, a former French presidential candidate on the Socialist ticket, said any global rescue package should set out clear objectives and allow taxpayers to profit when the banks eventually return to good health. His remarks came in a speech at the Peterson Institute for International Economics.
This week's announcement by the United Kingdom that it will provide its banks with $87.5 billion in new capital is seen as a potential model for a global response. But replicating it elsewhere won't come cheap. In the U.S., a similar effort would cost $500 billion.