The current financial turmoil will likely hit emerging market countries hard, according to International Monetary Fund managing director Dominique Kahn.
But there is a solution.
"As bleak as the situation now looks, I am convinced that there is a way out of our shared predicament. The trick is to get policymakers around the world to pull in the same direction," Kahn writes in the Financial Times.
Kahn says world governments must immediately do five things:
• Provide temporary governmental guarantees on retail bank, interbank, and money market deposits that include safeguards against heightened supervision and limits on deposit rates that often accompany such guarantees;
• Remove troubled assets from the marketplace, issuing shares from the government if necessary;
• Match private capital with state capital;
• Close the many loopholes in global monetary regulations that allowed financial institutions to minimize capital while increasing risk; and
• Keep a large fund of money available that can be quickly deployed to emerging market countries under serious stress.
Countries already suffering food and fuel price inflation may now also see declines in exports, trade, and investment as a result of financial turmoil that is becoming increasingly global, World Bank President Robert B. Zoellick said at the institution's annual meeting.
"While people in the developed world are focused on the financial crisis, many forget that a human crisis is rapidly unfolding in developing countries. It is pushing poor people to the brink of survival," Zoellick said.
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