British Prime Minister Gordon Brown on Sunday called for billions of dollars in extra funding for the International Monetary Fund (IMF) to prop up struggling economies, while Premier Wen Jiabao said maintaining China’s strong domestic growth was his top priority.
Leaders from Mumbai to Moscow and Berlin moved to support their own economies on Saturday, with India’s central bank cutting interest rates for the second time in two weeks, Russia putting 170-billion roubles into a state bank and German Chancellor Angela Merkel pledging support for an ”extensive investment package” to boost Europe’s largest economy.
Britain’s Brown, speaking in Riyadh, said oil-rich Gulf States and China should contribute money for the IMF to lend to countries at risk of financial collapse.
”If we are to stop the spread of the financial crisis, we need a better global insurance policy to help distressed economies,” Brown said.
Chinese Premier Wen, writing in the ruling Communist Party’s ideological journal, warned of growing domestic social risks from a global economic downturn.
”Against the current international financial and economic turmoil, we must give even greater priority to maintaining our country’s steady and relatively fast economic development,” Wen wrote in Seeking Truth (Qiushi).
”We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development … and factors damaging social stability will grow.”
China cut interest rates on Wednesday for the third time in six weeks to help the world’s fourth-largest economy ride out the reverberations of the global financial crisis.
In India — like China, a magnet for foreign investment in recent years as their economies roared — the central bank on Saturday cut its main lending rate for the second time in as many weeks to ease a cash squeeze and spur economic growth.
‘Knock-on effects’ in Asia
Analysts said the surprise move showed Indian concern that strains on its economy were quickly becoming more severe.
”These actions were necessary [and had] to be taken on the liquidity front … the situation was getting worse,” said Vikas Agarwal, a strategist at JP Morgan.
The central bank cut the repo rate, its main short-term lending rate, by 0,5 percentage point to 7,5%, and banks’ cash reserve requirements by one percentage point to 5,5%.
”The global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability,” the bank said.
Policymakers around the world have slashed interest rates in recent weeks and injected huge amounts into their banking systems to try to combat the spill-over effects of the global crisis, which has caused credit markets to freeze up and threatens to plunge the world economy into recession.
In South Korea, where there have been concerns about banks’ exposure to the global liquidity squeeze, the central bank said the financial system remained sound.
”There does not seem to be a likelihood of the unrest in domestic financial markets that originated in the international financial markets developing into a crisis for the Korean financial system as a whole,” the Bank of Korea said in a scheduled report.
Banks everywhere have been racing to shore up their balance sheets after a spate of collapses and hastily arranged mergers prompted by heavy losses from bad mortgages and financial derivatives related to them.
In Riyadh, Brown said he welcomed investment by foreign countries, after British bank Barclays tapped Abu Dhabi and Qatar for the bulk of a $12-billion investment on Friday.
”As long as they play by our rules and operate in a commercial manner, we welcome investment from sovereign wealth funds in the UK,” Brown said.
Brown’s tour of the Gulf precedes a global summit in Washington on November 15 at which he and some other world leaders will press for reform in the international financial system. — Reuters