The Managing Director of the International Monetary (IMF) Dominique Strauss-Kahn has said that the US and Europe must clean up their banking systems before global growth can resume.
Speaking ahead of separate meeting of theG7 and G20 Finance Ministers in Washington, Mr Kahn said: "All the experience we have of past banking crises - and we have a lot of experience with those banking crises in this institution - is that you never recover before you complete the cleaning up of the balance sheet of the financial sector".
"You can postpone it. At the same time, you postpone the recovery," he said.
The message from officials of the Group of Seven nations and the larger G20 club of advanced and emerging economies is likely to be at least somewhat optimistic, reflecting evidence that the pace of global recession is beginning to ease.
However, growing piles of bad debts have slowed the flow of credit to the world economy and soaked up hundreds of billions of dollars in public money.
That will be a major topic of discussion at both the G7 and G20 meetings today, a day before the IMF and World Bank begin their twice-yearly meetings.
Some G7 members are growing frustrated that there has been less action than talk despite a series of ministerial meetings since the financial crisis first erupted in August 2007.
The IMF estimated this week that credit losses globally could reach $4.1 trillion, leaving gaping holes in banks' balance sheets that must be filled either by private or public money. Banks worldwide have so far raised about $900 billion in capital, about half of it through government rescue loans.
The Fund thinks US banks face further write-downs of $550 billion over the next two years, while the euro zone needs to write down $750 billion and Britain $200 billion.
The United States is completing a review of its 19 largest banks to see how they would fare in a deeper recession, and will release details on how it conducted those tests on Friday.
But results of the so-called stress-tests are not due until early May, and then banks will have six months to find private funding or accept government help, which means that it may be late 2009 before recapitalizations are completed.
At the G7 meeting, US Treasury Secretary Timothy Geithner will outline steps Washington has taken to stabilise the financial system, a senior Treasury official told reporters.
"We are facing a severe downturn and financial stress, global recession, capital being withdrawn from emerging markets and trade is contracting," the official said.
"There have been some data suggesting that the pace of decline in our countries has been slowing. And there are some tentative signs of improvement. But there are still persisting downside risks, for example due to ongoing global deleveraging, continued pressures in financial systems."
Reuters