World economic leaders have taken steps to alleviate the worst financial shock in decades and a food price crisis that is sparking deadly unrest in developing countries.
In three days of meetings that ended on Sunday, finance ministers and central bankers grappled with the credit squeeze and inflation emergencies against the backdrop of an apparent US recession and a sharply slowing global economy.
The G7 industrialized countries set the alarmed tone on the eve of the annual spring meetings of the 185-nation IMF and its sister institution, the World Bank.
PHOTO: AFP
Confronted by what the IMF head says is the worst financial crisis since the 1930s Great Depression, finance chiefs from Britain, Canada, France, Germany, Italy, Japan and the US decided only greater transparency in the financial system could restore normalcy to the markets.
The G7 endorsed recommendations from an international forum and set for some of them a deadline for implementation unprecedented in its brevity — 100 days.
Recommendation is a “gentle word,” said Bank of Italy Governor Mario Draghi, who also chairs the Financial Stability Forum that made the proposals. “In fact, some of these recommendations are actually policy decisions.”
The sudden nosedive in the global economy after several years of robust growth “even six months ago would have been unthinkable,” he said.
At the October meetings of the G7, the IMF and World Bank, the market turmoil that had erupted in August from rising defaults in the US high-risk subprime home loan sector was largely viewed as a contained event that did not threaten the broader world economy.
With the credit squeeze still spreading, the IMF recently warned that the US economy, the world’s biggest, was entering a recession and world growth was deteriorating so sharply a global recession was also in view.
The IMF estimated the crisis would cost the global financial system nearly US$1 trillion.
The IMF on Saturday wrapped up its meeting with a call for “strong action and close cooperation” to combat the financial crisis.
“Policymakers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control,” said the IMF, whose core mission is to promote global financial stability.
The IMF and World Bank urged efforts to address the food crisis that is stoking violence and political instability, and the longer-term needs of development and poverty reduction, the bank’s main function.
And Italian Finance Minister Tommaso Padoa-Schioppa warned in an interview published yesterday that only changes in the standard of living of people around the world in the coming years would have a major impact on financial stability.
“If we think that solving or emerging from the crisis means going back to the configuration of growth before the crisis, we would be making a mistake because we were on an unsustainable path,” he told the Financial Times.
Basic foodstuff prices have all risen sharply in recent months, sparking violent protests in many countries, including Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia.
“Based on a rough analysis, we estimate that a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty,” World Bank president Robert Zoellick said at the end of the anti-poverty development lender’s meeting on Sunday.
“This is not just a question about short-term needs, as important as those are. This is about ensuring that future generations don’t pay a price too,” he said.
“As we know, learning from the past, those kind of questions sometimes end in war,” IMF managing director Dominique Strauss-Kahn said on Saturday.
Zoellick also said the bank’s steering committee had endorsed his proposed “New Deal” for global food policy, similar in scope to a 1930s program under US president Franklin Roosevelt to tackle the problems of the Great Depression.
Calling on governments to begin work, Zoellick said: “We have to put our money where our mouth is now so that we can put food into hungry mouths. It’s as stark as that.”
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