With recession looking a strong possibility, India today asked funding agency IMF to take the lead in resolving the financial meltdown, as a delay in addressing liquidity concerns could cause solvency problems.

“The recessionary trend is slowly becoming a reality with the twin threats of the financial markets crisis and consumer anxiety... crisis has triggered serious liquidity problems, with the money market interest rates shooting up.

“If not addressed with speed and determination, the prolonged liquidity concerns could turn into solvency problems, further jeopardising the stability of the global financial system,” Finance Minister P Chidambaram said in his formal statement to the International Monetary and Finance Committee.

His statement was read out in absentia by Reserve Bank of India Governor D Subbarao, as Chidambaram had to cancel his visit to assuage fears at home about the global financial storm hitting the Indian shores.

India said that although the Fund's role in the crisis was so far perceived to be "peripheral," the IMF should gear up to meet the borrowing needs of member countries engulfed by the crisis, which has its origins in defunct mortgages in the US.

"The financial institution (IMF) should have the mending instruments and the financing capacity to address potential borrowing needs," according to Chidambaram.

Admitting that emerging markets economies (EMEs) "are not islands of tranquility and the crisis could be transmitted to them through multiple channels," he felt external corporate and bank borrowing was becoming scarcer and dearer and housing and real estate markets are slowing down. "The current crisis holds important lessons for EMEs which they should factor in as they move forward on financial sector reform," he felt. According to Chidambaram's statement, growth in EMEs would slow to 6.9 per cent in 2008 and further to 6.1 per cent in 2009.

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