Those who are using apocalyptic language to describe the current global financial crisis are neither doomsayers nor religious nuts - they are simply realists.

On Wednesday, the International Monetary Fund (IMF) had to update both its Global Financial Stability Report (GFSR) and its World Economic Outlook (WEO) report, issued just a couple of months ago. The IMF now projects that global GDP will slump to just half a percentage point, its lowest since World War II.

"Despite wide-ranging policy actions, financial strains remain acute ... Financial market conditions have remained extremely difficult for a longer period than envisaged in the November 2008 WEO, despite wide-ranging policy measures to provide additional capital," mourns the IMF.

The IMF's chief economist, Olivier Blanchard, has said bluntly, "We now expect the global economy to come to a virtual halt."

The GFSR says, "In spite of extensive policies, the global financial system remains under intense stress. Moreover, worsening conditions are producing new large write-downs for financial institutions. Risks to financial stability have intensified since October 2008."

worsening credit conditions

The IMF now says "worsening credit conditions affecting a broader range of markets" have led the institution to revise its estimate of potential deterioration of US-originated credit assets from US$1.4 trillion to US$2.2 trillion.

On Wednesday also, the International Labour Organisation (ILO) issued its annual Global Employment Trends Report in which it forecasts that as many as 51 million workers could be thrown on the unemployment heap this year. The ILO also says that the number of working poor - defined as those earning less than US$2 a day - might rise to 1.4 billion, some 45 per cent of the employed labour force. Up to 20 per cent of those now marginally above poverty could slide into extreme poverty, the ILO warns.

And "The Worst is Yet to Come", according to five well-known economists who write in the latest issue of Foreign Policy magazine (January/February 2009). In the first article, the highly regarded economist and financial expert Nouriel Roubini says, "Severe vulnerabilities remain in financial markets: a credit crunch that will get worse before it gets any better; de-leveraging that continues as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus leading to cascading falls in asset prices, margin calls and further deleveraging; other financial institutions going bust ...".

Roubini says, "Unfortunately, the worst is not behind us. This will be a painful year. Only very aggressive coordinated and effective action by policymakers will ensure that 2010 will not be even worse than 2009 is likely to be."

first important lesson

And this brings us to the first important lesson from this global economic crisis: The need for coordinated international action, for reforms of the international economic and financial system - for a New International Economic Order (NIEO) and a new international financial architecture.

In the Cold-War era of the 1970s when people like Michael Manley and other Third-World leaders led a valiant and intellectually unassailable struggle for global reforms, they were ridiculed, lampooned and dismissed as communists making excuses for their own alleged policy failures.

I have had to listen to a lot of drivel locally from uninformed commentators talking about irresponsible Third-World leaders wanting to get something for nothing, who were just wasting time taking about global reforms. What they should be doing is setting their economic house in order, unshackle the private sector, encourage free markets, liberalise their economies and encourage production and foreign investments. Just get the economic fundamentals right and stop all this nonsense and mendicancy about pressing for changes to global institutions. Just set your own house in order.

reducing systemic risks

Now the voices calling for coordinated international action are coming from the very citadel of international capitalism. The December 2008 issue of the IMF's quarterly journal, Finance and Development, devoted itself to the financial crisis with an insightful set of articles. In an article by the IMF 's Blanchard, titled significantly 'cracks in the system', he says plainly: "The crisis has shown the limits of the current regulatory and supervisory frameworks at both the domestic and international levels. The challenge is, therefore, to design new rules and institutions that reduce systemic risks ... ."

That's the IMF's chief economist, not some wild-eyed leftist from the Third World speaking! He goes on to say that "the crisis has also made clear the need for international liquidity provision ... ." He calls for global liquidity provisions to be made through increased resources pumped into the IMF.

Our own prime minister and finance minister have made a point of reminding us that the Government's strategic decision to engage the multilaterals is not only paying off handsomely, but is virtually the only game in town now that international credit markets have dried up. But the larger point they could make is that this crisis shows the importance of multilateral financing and for those resources to be boosted so that countries don't have to rely on the particular wisdom of individual policymakers before their countries can have access to resources.

emerging markets

Pressure has, indeed, been reaching the multilaterals to lend more to emerging markets and on better terms. This was precisely what people like Michael Manley were campaigning for.

Increasingly, we are reading and hearing more about "international cooperation", "coordinated action" and a "global compact" as people realise that merely pursuing prudent policies nationally is not enough to avoid crises and engender economic growth. That naive neo-liberal view is going through the window with this economic crisis. The World Economic Outlook Update says, "international cooperation will be critical in designing and implementing" the new polices needed to restore global growth.

Remember that the real roots of this crisis lie not overarchingly in the subprime mortgage crisis. Among the major factors was the global savings glut on the one hand and the global imbalances on the other.

ideal home

Countries like China, India, Russia and the oil-rich Gulf countries with their sovereign wealth funds had to find a home for their excess liquidity and the highly indebted United States was that ideal home. Financial institutions, therefore, could afford to lend to people who had no business getting loans and all kinds of innovative financial products were developed as a result of all this money sloshing around. An international system that could regulate such imbalances could have spared us some harm.

The financialisation of the global economy is another critical factor impacting this global crisis. Financialisation has affected everything including the commodities market. We had a situation where $60 trillion of nominal protection was sold against an outstanding stock of corporate bonds of just $6 trillion.

The global regulation of finance is an option which two prominent economists call for in the January/February issue of Foreign Affairs. In their article 'From Doha to the Next Bretton Woods', Aaditya Mattoo (of the World Bank, it is to be noted) and Arvind Subramanian of the Peterson Institute for International Economics in Washington say "some form of multilateral cooperation to coordinate national regulation seems necessary and desirable compared to uncoordinated national action" They also call for significant changes to both the IMF and the World Trade Organisation.

importance of the state

Another important lesson is the importance of the state. It is amazing how these big capitalists have been bawling for bailouts and the intervention of the state after preaching for so long that the state should not intervene in the market. No, state intervention is only bad when it helps poor people. It's what has been derisively called "socialism for the bankers" - only when the rich are to be helped and bailed out is state action good. We are seeing that unregulated markets create serious crises and that the state is important after all. Important lessons form this crisis.

In the special issue of Finance and Development there is an article looking at how the Nordic counties relied heavily on the state to deal with their crises of the 1990s.

The dogma of unfettered markets, the primacy of capital, the non-interventionist, minimalist state and an international order dominated by and designed by the rich and powerful have severed a severe, hopefully irreparable, damage in the collapse of this international financial architecture. In the 1970s a bold struggle picked up pace for a New International Economic Order. Nothing beats experience in teaching indelible lessons.

In this January 31, 2008 file photo, the headquarters of Mizuho Financial Group Inc soars in Tokyo. Bad loans and steep equity losses pushed Mizuho Financial Group Inc deep into the red in the third quarter, forcing the major Japanese bank to slash its full-year net profit outlook by 60 per cent. Mizuho said on Friday it posted a group net loss of 50.55 billion yen ($559.2 million) in the April-December period after recording a 94.58-billion-yen profit in the April-September fiscal first half. - AP

Ian Boyne is a veteran journalist who may be reached at ianboyne1@yahoo.com or columns@gleanerjm.com.