The IMF has warned the financial crisis is the most dangerous since the 1930s
The International Monetary Fund (IMF) has activated an emergency finance mechanism to help countries hit by the financial crisis.
IMF chief Dominique Strauss-Kahn said the lending procedure would allow the IMF to react quickly to support countries facing funding problems.
The scheme, which was used during the Asian financial crisis in 1997, will help speed up approval of loans.
The news came as US stocks sank to a five-year low.
On Wall Street, the Dow Jones ended down 7.3% - tumbling below 9,000 points for the first time since August 2003 and falling for a seventh consecutive session.
'Cusp of recession'
Mr Strauss-Kahn said the world was "on the cusp of recession", but could still recover.
The IMF has already sent a mission to Iceland, where the government has taken control of its three biggest banks.
Speaking ahead of meetings of the IMF and World Bank, Mr Strauss-Kahn urged countries to act "quickly, forcefully, and co-operatively" to solve the global economic problems.
A day after seven central banks around the world cut interest rates in an effort to calm financial markets, the IMF chief said further co-ordinated action was necessary.
"All kinds of policy co-operation are to be commended," he said.
But he issued a stark warning against countries acting unilaterally to fight the crisis, referring to recent isolated moves by certain European Union member countries.
"There is no domestic solution to a crisis like this one."
Finance ministers from the G7 group of wealthy nations are also meeting in Washington this weekend.
It has been yet another turbulent week on world financial markets. Thursday's key developments include:
- The Dutch government is preparing 20bn euros ($27.4bn) in funding to support financial institutions in the Netherlands during credit crisis.
- US Treasury Secretary Henry Paulson is considering capital injections into troubled US banks, a White House spokeswoman said
- The UK has condemned Iceland's handling of the collapse of its banks and its failure to guarantee British savers' deposits
- The oil producers cartel Opec will hold an emergency meeting in Vienna on 18 November to discuss the impact of the financial crisis on oil prices, which fell below $87 a barrel
Mr Strauss-Kahn said the events of the past few weeks were beginning to take their toll on emerging economies as credit lines were cut and as trade was being hit by slowing demand in Western economies.
He said the IMF was ready to assist any country in need of funding through its emergency aid mechanism, set up in 1995 to help Mexico stabilise its financial system after a crisis of confidence that led to sharp declines in the country's currency.
The Philippines, Thailand, Korea and Indonesia also drew on the mechanism to access billions of dollars of loans after the eruption of the Asian financial crisis in 1997.
Separately, World Bank president Robert Zoellick warned against letting the "financial crisis become a human crisis".
He said a drop in exports combined with higher credit costs will trigger business failures in the poorest economies and, in some cases, "bankrupt" countries.
Acknowledging there was no "silver bullet" to fix the global financial difficulties, he said it was up to the Group of Seven industrialised countries to work together to come up with a plan to solve it.
"Countries will take different actions, customised to their circumstances, yet the actions need to target the same basic problems," he said.