G20 Agrees $1,100bn to Fight Crisis

World leaders on Thursday agreed to “fight back” against the global recession with $1,100bn in funding for the International Monetary Fund, regional development banks and international trade finance, but did not commit themselves to a new round of fiscal stimulus.
TradingEconomics.com, Financial Times 4/2/2009 11:41:23 AM

This is the day that the world came together, to fight back against the global recession,” Gordon Brown, UK prime minister and host of the London summit, told a news conference at the end of the G20 summit of leaders of advanced and emerging economies. We will do what is necessary to restore growth [and save jobs].”

A total of $1,100bn could be made available to fight the international financial crisis, including $750bn in funding for the International Monetary Fund, $250bn for trade finance and $100bn for multilateral development banks, according to the communiqué issued at the end of the summit.

On top of the funding measures, G20 leaders pledged to crack down on tax havens, extend regulation of the financial system to large hedge funds, set tougher pay rules in the financial services and oversee credit ratings agencies.

But there was no agreement for a new global round of fiscal stimulus, upsetting hopes in the US, UK and Japan after Germany and France pressed for an emphasis on tougher regulation to prevent future crises.

Angela Merkel, the German chancellor, told reporters that the G20 agreement is a victory for common sense” and an important step toward order” in markets.

At a separate and simultaneous news conference Nicolas Sarkozy, president of France, claimed victory in the battle for tighter regulation.

The new funding for the IMF to support poorer nations and those hardest-hit by the crisis is likely to come in part from $500bn in loans from member countries. Mr Brown said that $100bn each would come from the EU and Japan and $40bn from China.

Another $250bn will be made available as the IMF essentially follows the US and UK down the route of quantitative easing by creating new special drawing rights – the organisations’ own ”basket” currency.

There will also be aid for poorer countries funded by the sale of gold from the IMF.

The money for trade finance, which is needed after global trade volumes have collapsed over the last few months, is likely to be supplemented by some measures by China to support trade, officials said.

On financial regulation, the G20 agreed to extend regulation and oversight to all systemically important financial institutions, instruments and markets”, including for the first time big hedge funds. It also said that credit agencies would be registered and monitored for the first time, after the failing of credit ratings played a big part in exacerbating the credit crisis.

The communique said that the G20 would extend regulatory oversight and registration to credit rating agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.”

Mr Brown added that there would be a common global approach” for the first time to clean up banks’ balance sheets, although he did not give details.

Further financial regulation means that there would now be an international norm which will define the capital base of banks,” according to Mr Sarkozy. ”We have decided to reintegrate off-balance sheet items ... in the calculations of capital requirements formulated by supervisors.

G20 nations also agreed to move forward with plans to better regulate bankers’ pay.

Meanwhile, the OECD published a blacklist of countries considered tax havens because they do not co-operate with efforts to identify individuals and companies dodging taxes.

And despite the lack of fresh fiscal stimulus, the G20 emphasised that the fiscal expansion already planned over the next two years was equivalent to $5,000bn, or a 4 per cent boost to overall output.

Combined with the massive scale of monetary policy easing undertaken by many countries, the G20 said in its communiqué that taken together, these actions will constitute the large...