11:24am UK, Sunday October 12, 2008

The International Monetary Fund has warned the world’s financial system is near meltdown and has put its weight behind an urgent Group of Seven plan to stabilise markets.

The IMF met in Washington to discuss the worst economic crisis since the 1930s

It urged “exceptional vigilance, co-ordination and readiness to take bold action” to contain a crisis that pushed global stocks to five-year lows on Friday.

The head of the IMF, Dominique Strauss-Kahn, said: “Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.”

Mr Strauss-Kahn later expressed hope that government actions would prove powerful enough to persuade banks to resume lending and bring an end to a spreading credit crunch.

“In the coming days… what I expect is that the reaction by the different institutions will be positive enough to unfreeze the different markets and to restore the necessary funding,” he said at a news conference.

The lending institution said in a statement after a day-long meeting that it had given full support to the course of action approved on Friday by the wealthy G7 nations.

G7 ministers said they had developed an “aggressive action plan” to tackle the looming recession.

Following the G7 meeting, President Bush promised: “We will do what it takes to resolve the crisis and the world’s economy will emerge stronger as a result.”

During past crises Mr Bush said some countries had sought to “wall themselves off from the world” or gain advantage over one another.

“This time is different. The leaders gathered together in Washington this weekend are all working together,” he said.

Today European leaders will discuss how to restore credit availability, with a UK initiative to guarantee lending between banks understood to be one of the topics.