Decisive action needed to calm financial crisis, says head of World Bank

Last Modified: 24 Sep 2008
By: Faisal Islam

President of the World Bank, Robert Zoellick says the financial crisis could have dire consequences in developing countries unless action is taken quickly.

As US congressmen begin a second day of debate on the government's rescue package, the chairman of the Federal Reserve has urged them to "act quickly" to support the proposed bailout of the financial system.

Ben Bernanke warned there would be "very serious consequences" if action wasn't taken. The cost of the global financial crisis has been estimated at $1 trillion. But the International Monetary Fund said today it was more likely to be $1.3 trillion.

The president of the World Bank, Robert Zoellick believes the crisis in the financial markets could lead to a ripple effect in developing countries and is urging decisive action.

"The question now is what will happen and whether this will start to pull the system down"
- Robert Zoellick, World Bank President

World Bank President says US is "forcing the syste

The President of the World Bank, Robert Zoellick, has told Channel 4 News tonight, he is "concerned" that the "financial turmoil" of the last few weeks will lead to a ripple effect "more than the earlier stages" and "questions" at this next stage "whether this will start to pull the system down".

Mr Zoellick said "you already see this with the effects on their (developed countries) equity markets. You see this in the spreads for their corporate lending.... You can see the ripple effects affecting banking systems and others".

Mr Zoellick said at length:

"What I think is special about this, is in the past year you have had the developing countries hurt by food and fuel... but they have maintained growth and I think the question now is what will happen at this next stage and whether this will start to pull the system down"

Expressing his concern he said:

"I am concerned that the financial turmoil over the last couple of weeks is likely to ripple through developing countries more than the earlier stages of this. You already see this with the effects on their equity markets; you see this in the spreads for their corporate borrowing..."

Continued: "And if you get an economic slow down of a more serious nature, it will affect their exports. Much of their investment is related to productive capacity for the export market, so you can see the ripple effects affecting banking systems and others."

Saying that the current financial situation was the "most dramatic in my time" Mr Zoellick told Channel 4 News that the United States is "forcing through the system" and that it is "typical of the United States", saying at length:

"What you are seeing is in some ways a total difference between the way Japan handled this - Japan took a decade to slowly work its way through - the United States, and this is typical of the United States, is sort of forcing through the system, to try and clear out what are the loses, go through the re-capitalisation, and that created a real liquidity crisis."

Continued: "So what you saw Secretary Paulson and Ben Bernanke doing last week, was trying to say they had to move beyond individual interventions to this bigger step. And what people are debating now is how would that work? Not only to get some of the loans off the books but how does it relate to re-capitalisation..."