Tue, Oct 28, 2008 - Page 1 News List

G7 pledges unity as IMF approves plans

AFP , TOKYO

The G7 club of rich nations pledged yesterday to cooperate to bring stability to battered global markets, where stocks buckled on fears government action will be too late to prevent a worldwide recession.

It came hours after the IMF announced rescue plans for Ukraine and Hungary, two nations hit hard by the financial crisis that is wreaking havoc on world markets.

Japan’s Nikkei stock index fell briefly yesterday to a level last seen in 1982 prior to the economic bubble era before bouncing back, while most other markets in Asia also posted losses in early trade.

The G7 — comprising Britain, Canada, France, Germany, Italy, Japan and the US — sought to calm nerves by affirming their “shared interest in a strong and stable international financial system.”

“We continue to monitor markets closely and cooperate as appropriate,” the statement from their finance ministers and central bank chiefs said.

At the same time, they voiced concern about “excessive volatility” in the value of the yen, which on Friday soared to a 13-year high against the dollar as worried investors unwound positions in the Japanese currency.

On Sunday, the IMF said it would lend US$16.5 billion to Ukraine and would announce a “substantial” package for Hungary in the next few days.

The deals, made public by IMF director Dominique Strauss-Kahn, followed a US$2.1 billion loan to Iceland and came amid appeals for assistance from other countries including Belarus and Pakistan.

The Washington-based institution has said it can provide up to US$200 billion in loans to countries facing financial difficulties.

The Ukraine program “is focused on the essential upfront measures needed to maintain confidence and economic and financial stability,” Strauss-Kahn’s statement said.

“The policies Hungary envisages justify an exceptional level of access to Fund resources,” he said, adding the package would include contributions from the IMF, European governments and other partners.

South Korea meanwhile announced its biggest-ever interest rate cut — the Bank of Korea reducing its key rate by 75 basis points to 4.25 percent — and said it would push for big tax cuts and spending increases to better protect its export-driven economy from falling global demand.

South Korean President Lee Myung-bak insisted the nation would not face a repeat of the 1997-1998 financial crisis after the local stock market last week suffered its biggest weekly decline and the won plunged to a 10-year low.

Japanese Prime Minister Taro Aso announced fresh measures to support the stock market, including boosting a government fund to pump capital into banks if needed.

Aso said Japan would also tighten restrictions on short-selling — selling shares in order to profit later from an anticipated fall in prices.

He did not specify the amount of new money to inject into banks but Kaoru Yosano, the economic and fiscal policy minister, said on Sunday that Japan would likely increase it from two to ¥10 trillion (US$110 billion).

After initially falling, the Nikkei index rebounded to show a gain of 0.4 percent by lunch. The bourse has fallen around 50 percent this year and is 80 percent off its all-time high, reached in December 1989.

South Korea’s KOSPI index was down four percent by midday, after program trading was halted for five minutes because of the sharp fall.

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