G-20 Pledges Sustained Effort to Revive World Economy
Finance chiefs from the biggest developed and emerging economies pledged a “sustained” effort to ending the global recession, papering over differences on what policy steps that should entail.
“We were seized by the fact that there was a sense of urgency” U.K. Chancellor of the Exchequer Alistair Darling told reporters after the Group of 20 finance ministers and central bankers met in southern England. U.S. counterpart Timothy Geithner said there was a “clear commitment to do what’s necessary, to keep at it to get the economy on track.”
That promise marked a compromise at the end of a week in which U.S. calls for governments to spend more were rebuffed by euro-region ministers who argued they had eased fiscal policy enough and lacked the space to do more. The world economy is crumbling 19 months after the financial crisis began with the International Monetary Fund this week predicting it would shrink this year for the first time in six decades.
The G-20 officials said their “key priority” is to restore bank lending by providing financial companies with liquidity, fresh capital and assistance with toxic assets.
Having cut interest rates to record lows, central banks will maintain expansionary monetary policies for “as long as needed” using all the tools they can, while maintaining price stability, the G-20 said.
Sound Institutions
Officials repeated a vow to ensure the soundness of key institutions and published guidelines on cleaning banks of toxic assets and injecting them with capital.
Financial companies are still hoarding cash after being stung by almost $1.2 trillion of writedowns and losses and interbank lending rates this week rebounded to the highest level since Jan. 8.
Geithner approached the G-20 meeting by lobbying his counterparts to follow the U.S. in injecting fiscal stimulus equivalent to at least 2 percent of their economy’s gross domestic product this year low fee payday loans. European officials argued they had already spent enough, ran bigger social safety nets and didn’t want to blow out budgets.
Setting aside those differences, the G-20 said the International Monetary Fund will watch stimulus programs and judge if more is needed. They also promised to coordinate policies amid concern an uneven approach is delaying recovery.
Stimulus Packages
“Yes to stimulus packages but without losing sight of feasibility,” Italian Finance Minister Giulio Tremonti told reporters today.
The G-20 agreed “on the urgent need to increase IMF resources very substantially” without giving a target and said smaller countries should have more say in the running of the fund. The Washington-based lender, which is seeking a doubling in firepower to $500 billion, has been inundated with loan requests from Pakistan to Hungary as the turmoil spread.
Turning to the longer-term, the officials said they were working to intensify oversight of the financial system and ensure regulations “dampen rather than amplify economic cycles.” Options include introducing buffers that limit leverage and encourage banks to save capital in good times.
The G-20 members said they would strengthen ties between their individual banking supervisors to prevent future crises. Credit rating companies, off-balance sheet vehicles and credit derivatives markets will be subjected to greater monitoring.
G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.