George Soros in Washington: "The US Congress bears an awesome responsibility"

Mr Soros said the panic withdrawal of capital which had spread to Latin America could lead to financial collapse in Brazil and then spread to Argentina.

He warned that a "global credit crunch" was in the making and would probably lead the world into recession.

He also slammed the West's response to the Russian crisis and called for greater intervention by leading nations if a full blown crisis was to be averted.

George Soros: "We need to pump money directly into countries"

He described the leading industrial nations' response to the financial market meltdown in Russia as "woefully inadequate".

Mr Soros was testifying before the US House of Representatives Banking Committee.

Call for greater intervention

Mr Soros said further turmoil could only be prevented "by the intervention of international financial authorities but these prospects are dim."

He said the global capitalist system involved not only free trade, but more importantly, the free movement of capital in "a gigantic circulatory system" in which capital was sucked up by markets and institutions at the centre and pumped out to the periphery.

Mr Soros said the Asian crisis had reversed the direction of the flow of capital. It had begun to flee the periphery, taking refuge in the centre.

This was not good for either the periphery or the centre in the long term.

New rescue agency

Mr Soros renewed a previous call for a new global credit insurance body to complement the efforts of the International Monetary Fund (IMF) and World Bank.

Mr Soros proposed the creation of special drawing rights whereby countries which could not repay their debts could restructure their loans to easier terms if their governments pursued policies approved by the IMF.

Russian crisis: A "wake-up call"

He said countries should be rewarded for biting the bullet and confronting their problems - unlike Malaysia which has closed itself off to the world in a negative move that would hurt its neighbours.

"If there is no reward for good behaviour, meltdowns will multiply," he said.

He said the loan programmes of the IMF had so far not worked but urged the US Congress to pass the IMF funding bill the agency needs to continue its work.