IMF calls for decisive actions to restore confidence in global financial system

WASHINGTON, Oct. 7 (Xinhua) -- The International Monetary Fund (IMF) called Tuesday for decisive actions to restore confidence in the global financial system.

"With financial markets worldwide facing growing turmoil, internationally coherent and decisive policy measures will be required to restore confidence in the global financial system," said the IMF in a semi-annual Global Financial Stability Report (GFSR).

"Failure to do so could usher in a period in which the ongoing deleveraging process becomes increasingly disorderly and costly for the real economy," it said.

The IMF report followed a global plunge in stocks Monday, when the Dow Jones industrials recorded their biggest loss ever during a trading day. The sell-off came despite the 700-billion-dollar U.S. government bailout package which was signed into law Friday.

"The strains afflicting the global financial system are expected to deepen the downturn in global growth and restrain the recovery," the IMF said.

Moreover, it said, the risk of a more severe adverse feedback loop between the financial system and the broader economy represents a critical threat.

"The combination of mounting losses, falling asset prices, and a deepening economic downturn, has caused serious doubts about theviability of a widening swath of the financial system," it said.

To restore financial stability, the IMF suggested, the authorities of the affected countries should employ measures that are "comprehensive, timely, and clearly communicated."

Its second suggestion is to aim for a consistent and coherent set of policies to stabilize the global financial system across countries in order to maximize impact while avoiding adverse effects on other countries.

Still another suggestion is to ensure rapid response on the basis of early detection of strains. "This requires a high degree of coordination within each country, and in many cases across borders, and a framework that allows for decisive action by potentially different sets of authorities," the IMF said.

Meanwhile, it should be assured that emergency government interventions are temporary and taxpayer interests are protected.

In addition, measures should be taken with the medium-term objective of a more sound, competitive, and efficient financial system, the IMF said.

The IMF and its sister institution World Bank will hold their 2008 annual meeting in Washington on October 13.