Crisis worst for 50 years, says Clinton

PRESIDENT BILL Clinton yesterday launched a new plan to halt the growing international economic crisis, and warned that it posed the most serious threat since the Second World War.

"Today, the world faces the most serious financial challenge in 50 years," the President said. He will address world financial leaders on Tuesday at the annual meetings of the International Monetary Fund (IMF) and the World Bank to spell out his ideas. His words helped to prop up financial markets and usher in a new stage in America's attitude to the crisis, even though the scheme leaves much to the imagination.

The President's three-stage plan aims to provide new resources to help countries under attack in financial markets. The main proposal is for a "new mechanism, anchored in the IMF, to provide contingent finance to help countries to ward off global financial contagion". This was "what you might think of as a line of credit ... that countries could call on when they need it," said the United States Treasury Secretary, Robert Rubin.

Mr Clinton also said he wanted development institutions such as the World Bank to "develop a new emergency capacity to lend quickly". And he promised to boost the efforts of US businesses to invest in and sell to emerging markets, through new credit facilities.

Such plans depend on new money for these institutions, and the IMF is hampered badly by the refusal of the US Congress to stump up cash. "This is inexcusable and we need the money now," the President said. "We can lead back away from this financial precipice, but we need the resources to do it."

He said half the world is in recession or experiencing very low economic growth. "We don't have to have a worldwide recession if those of us that enjoy growth will take the initiative and move now. But we cannot afford to dally around here."

His Republican enemies in Congress contend that the IMF simply props up inefficient banks and nations that have made economic mistakes.

The President's speech, timed both to gain the initiative in Washington and impress financial markets, hit the spot in Wall Street. The Dow Jones industrial average closed up 152 points, or 2 per cent, at 7,784.69. But markets have been badly shaken by crises in Asia and Russia, which now threaten to engulf Latin America, and more than pounds 20bn has been wiped off UK shares, ending the worst week in 11 years for the stock market.

The plunge in stock markets has wiped at least $4.3 trillion of wealth off the value of securities - more than half the annual economic output of the United States - in two months, according to HSBC Securities European strategist Sharon Coombs.

The shares freefall in London continued yesterday with the FTSE 100 index dropping 157 points to 4,750.4, as fears of wholesale liquidations by hedge funds hit confidence once more.

Gordon Brown will also lead action to avert a slump this weekend. Speaking before the meeting of finance ministers from the Group of Seven leading industrialised nations, which opens in Washington today, he called on the main economic powers to "share the burden" of restarting the world economy.

One of the main themes of the weekend is likely to be the need for cuts in borrowing costs. The Chancellor of the Exchequer hinted broadly that he thought the Bank of England should lower interest rates next week, saying:"I'm not going to second-guess the Bank, but everyone subscribes to the view that the balance of the risks in the world economy has shifted. We have already seen action in the US and Canada [which cut rates earlier this week]."

Mr Rubin said that there would be discussion of the need for lower interest rates when ministers meet today.

But countries that have hit trouble will also be queuing up for new funds, with Russia anticipating an extra dollars 2.5 billion in loans, the country's finance minister said yesterday. "We count on receiving $2.5 billion in loans from the IMF, the World Bank and the government of Japan by the end of this year," said Mikhail Zadornov. Brazil is trying to negotiate a $30bn deal. And packages of cash are being worked out for Latin America and East Asia. It is still unclear who will foot the bill.

The White House was last night building support for its proposals, and Downing Street said that Mr Clinton had spoken with the Prime Minister, Tony Blair, about his ideas. Mr Rubin said that the US had held "constructive" talks with its G7 partners.

Mr Clinton will attend a special session of finance ministers and central bankers from industrialised and developing countries on Monday, which aims to sketch out a new financial architecture which is more robust in the face of massive capital flows. Mr Blair has already made some suggestions, including a closer relationship between the World Bank and the IMF, and Mr Brown has proposed that financial market regulators hold special meetings to co-ordinate their approach more carefully.

But others, too, have their own schemes, and there is a risk that the meeting will degenerate into an idea-swapping session with little practical impact.