TOP financial leaders, faced with the biggest crisis to hit the global economy in at least a decade, are pledging to strengthen their regulation of banks and other financial institutions while anxiously hoping the slump in the United States will be a short one.
After an opening round of talks in Washington among the world's seven richest industrial countries, financial officials are scheduled to reconvene for discussions focused on the 185-nation International Monetary Fund and the IMF's sister lending institution, the World Bank.
The IMF, the lender of last resort for countries in trouble, is facing its own economic hard times. Officials were to discuss a proposal that would trim 15 percent of the agency's staff and sell about US$11 billion of its vast gold reserves.
The biggest agenda item during the three days of meetings was the severe credit crisis that hit last August and could result in losses approaching a staggering US$1 trillion before it is over, according to an IMF estimate released during the week.
In a joint statement after talks on Friday, the Group of Seven nations - the United States, Japan, Germany, Britain, France, Italy and Canada - endorsed an action plan to bolster regulation of big banks, investment houses and other financial firms that have already announced billions of dollars in losses from a credit crisis that began with rising defaults on subprime mortgages in the US, but quickly spread to other types of investments around the world.
"The turmoil in global financial markets remains challenging and more protracted than we had anticipated," the G-7 officials said in their joint statement. The officials left no doubt that they are all watching to see how developments unfold in America.
"The US economy has to get over the economic unrest," Japanese Finance Minister Fukushiro Nukaga told reporters, because what happens in the US will affect Asia and other parts of the world.
The IMF issued an economic outlook that predicted the US would endure a mild recession this year and that weakness in the world's biggest economy raised the risks of a global recession to one in four.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke tried to reassure their colleagues that US policy makers are doing everything possible to unfreeze credit markets in the US so that businesses and consumers will be able to get loans more easily and the economy will start to pull out of the slowdown.
Axel Weber, head of Germany's central bank, said the "measures taken in the US have already had some effect" and the aggressive interest rate cuts from the Federal Reserve should help bolster growth in the second half of this year.
by shanghaidaily.com
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