The world’s leading economies, including emerging powers like China, agreed on Saturday on the need to take measures to stimulate growth and fight off the threat of a global recession.
Central bankers and other top government officials from countries representing most of the world’s economy hammered out proposals for their leaders to take to an emergency summit on the financial crisis next weekend in Washington.
Brazil, Latin America’s largest economy, pressed the case for emerging heavyweights to have a bigger say in global finance, a cause backed by the World Bank and International Monetary Fund.
Brazilian President Luiz Inacio Lula da Silva said the global financial system ”collapsed like a house of cards” in the credit crisis due to the ”blind faith” of rich countries in self-regulation by markets.
In the United States, president-elect Barack Obama said it was time for Americans to put aside their political differences to focus on averting a deep recession, which he plans to tackle as soon as he moves into the White House in January.
At the annual meeting of the G20 group of the biggest advanced and developing economies in Brazil’s bustling business capital, policy-makers and officials focused on action they could take to stave off the prospect of a global recession.
”I think there is a consensus on the need for coordinated and decisive action globally, going to first of all fiscal policy,” said Australian Treasurer Wayne Swan.
”It’s very important that those countries which have the capacity to stimulate their economy do so.”
Swan and others said discussions also touched on the need to further loosen monetary policy in some countries, even after aggressive interest rate cuts by central banks worldwide in recent weeks.
China’s central bank governor, Zhou Xiaochuan, said the Asian export powerhouse, one of the few remaining engines of global growth, would help stabilize markets by maintaining its economic expansion, which he forecast at 8% to 9% in 2009.
Time for a pact on global finance
Some economists have predicted Chinese growth could slow to less than 8% next year.
”China is in a very good position to have a strong fiscal expansion. This is something the Chinese authorities talked about,” World Bank president Robert Zoellick told reporters.
On Friday, the ”BRIC” nations of Brazil, Russia, India and China forged a first joint position calling for reform of institutions like the IMF to give more influence to the developing economies now driving global growth.
Countries such as China and the oil-rich Gulf states have amassed trillions of dollars in reserves that could help the IMF help smaller countries withstand the turmoil that has rocked financial markets and their currencies.
Lula, a critic of the dominance of the United States and developed economies in the way decisions on global finance are made, said there was wide acceptance that the elite G7 countries were no longer capable of working alone.
”It is time for a pact between governments to build a new financial architecture for the world,” he said.
IMF chief Dominique Strauss-Kahn told reporters Saturday’s discussions showed ”the G20 is the right body to try to handle the world’s problems.”
But the chances for detailed plans emerging soon look slim, not least of all because the outgoing administration of US President George Bush has played down the need for big reforms.
US Treasury Secretary Henry Paulson, like many European finance ministers, did not attend the meetings in São Paulo.
‘Hit the ground running’
Obama, speaking in a US radio address, said it was vital that Americans put aside the divisions of the recent election campaign ”and that is particularly important at a moment when we face the most serious challenges of our lifetime”.
Obama said he would waste no time in fighting the crisis.
”While we must recognise that we only have one president at a time and that President Bush is the leader of our government, I want to ensure that we hit the ground running on January 20th because we don’t have a moment to lose,” he said.
It was not clear whether Obama would attend next weekend’s summit of G20 leaders in Washington.
Some European leaders have said the summit offers a chance to lay the groundwork for big changes in the way the global financial system is run at further meetings early next year.
French President Nicolas Sarkozy said on Friday that Europe backed ideas such as a stronger role for the IMF, surveillance of credit ratings agencies and caps on excessive risk-taking.
The White House said on Saturday it saw common ground with European leaders and agreed on the need to move quickly with some reforms, but it was quiet on specifics. – Reuters