/ 14 March 2009

G20 skirts discord to focus on rescue fund boost

The Group of 20 finance ministers sought on Saturday to reassure struggling countries that they could rely on international aid, but they differed on what to do next about fighting the worst economic crisis since the 1930s.

China, India, Brazil and Russia called for stricter control of hedge funds, for example, but one European official said the matter was ”not the priority of priorities” for the United Kingdom, which holds a crucial summit on the crisis on April 2.

The ministers, meeting south of London to lay the ground for that meeting, were expected to paper over splits on the emphasis and urgency to be given to anti-recession spending on the one hand and regulation on the other.

Nor was there any more clarity from the United States on how it plans to clean up banks’ toxic assets, which many say is essential to get the world economy moving again.

That shifted the primary focus to securing pledges that the International Monetary Fund (IMF), Asian Development Bank and other agencies have the financial firepower to come to the rescue of countries in difficulty.

”We need a commitment from countries that they will do whatever is necessary and as for long as necessary to support their economies,” said Alistair Darling, Britain’s finance minister, host to the talks.

Perhaps mindful of the massive exodus of money that occurred during the Asian financial crisis of the 1990s, Darling added: ”We really must take action to stop damage being done to the emerging economies, who are seeing money coming out of their systems.”

The IMF has spent close to $50-billion bailing out countries in eastern Europe in recent months and is asking for its funding for rescue duties to be doubled to $500-billion, while the Asian Development Bank is also hoping for more ammunition.

China, India, Russia and Brazil backed the call and officials said a communiqué to be issued by the G20 as a group later in the day was expected to cover similar ground.

”It is imperative that multilateral financial institutions should expand their lending to offset the massive decline,” said a statement by China, India, Russia and Brazil, the four emerging economic powers known as the BRIC nations.

They and the rest of the G20 account for over 80% of the world’s output, or GDP, which is expected to shrink this year and by more than any year since the 1930s as a financial crisis that spilled from the United States in 2007 hits confidence, activity, trade and jobs worldwide.

Banks key
Officials speaking on condition of anonymity indicated that the meeting would gloss over differences on issues such as how much governments should spend by just saying in general that all must do their utmost to support demand with fiscal stimulus.

The United States was demanding earlier this week that other governments commit 2% of GDP to such stimulus and more than they are currently doing in certain cases, but that exposed a rift with the likes of Germany and France.

”You should not expect any big numbers or any concrete demands,” said one official involved in the proceedings.

France considers Washington’s call a distraction from G20 pledges at a summit last November to combine stimulus with a host of reforms to rein in the excesses of banks and financial markets that led to the current crisis.

Two meeting sources also said a relatively brief G20 communiqué would lay out a broad framework but leave specifics for the April summit that British Prime Minister Gordon Brown is billing as delivery time on last November’s G20 pledges.

World Bank chief Robert Zoellick, also attending the meeting on Saturday, said government spending would give the economy no more than a brief ”sugar high” if governments failed to rid banks of toxic assets that continue to undermine confidence, trust and the desire to lend or invest.

Canadian Finance Minister Jim Flaherty said too that this was the nub of the problem now.

”Hopefully we will have an agreement on steps to be taken and I would hope some timeline about steps to be taken to isolate toxic assets in banks, that is fundamental,” he said.

”There has been some delay with respect to solving it … In the US and Europe there is still work to be done.”

Along with regulation of hedge funds, France is pushing for progress on tougher control of credit ratings agencies, which stand accused of fuelling the crisis by granting high ratings to many derivatives that have now turned into toxic assets.

The ministers can be expected to take some of the credit for at least one small advance in recent days.

Under mounting international pressure, Switzerland, Austria and Luxembourg offered on Friday to partly relax strict bank secrecy in some tax evasion cases.

Welcome as the moves are to many other countries which fear tax evasion, German Finance Minister Peer Steinbrueck said that Swiss promises to relax secrecy in some cases was no substitute for more ambitious goals formulated by the Organisation for Economic Cooperation and Development. — Reuters