G20 Pledges $1.1 Trillion for Economic Recovery

Group photo of leaders in front of banner (AP Images)G20 leaders at the London Summit

By Merle David Kellerhals Jr.

Washington, DC (RPRN)April 3, 2009– — Leaders of the world’s most powerful economies have pledged $1.1 trillion to restore credit, economic growth and jobs in the world economy.

“Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale,” the leaders said in a communiqué issued April 2 at the conclusion of the G20 London Summit. The gathering of leaders was held in the Docklands, a former shipping area on the Thames River that has undergone major redevelopment.

An emergency resources account of the International Monetary Fund (IMF), which is the emergency lender for nations in financial crisis, will be expanded to $750 billion, with an additional $250 billion for new Special Drawing Rights — an international reserve asset used by the IMF to supplement the existing reserves of member countries. The G20 leaders also agreed to provide at least $100 billion of additional lending to multilateral development banks, and ensure $250 billion of support for trade finance.

The leaders also agreed to get additional resources from IMF gold sales for finance for the poorest countries.

“By acting together to fulfill these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future,” the communiqué said.

Both IMF and World Bank economists have forecast that the world economy will shrink in 2009 for the first time since World War II.
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British Prime Minister Gordon Brown, who hosted the financial summit of the most advanced and largest emerging-market countries, said after the meeting that this accord, which also includes regulatory reforms of financial institutions, “reflects a very high degree of consensus and agreement between all of us.”

“Today the largest countries of the world have agreed on a global plan for economic recovery and reform,” Brown said. The plan addresses two broad areas of concern raised by the United States and several European nations — more economic stimulus paired with more regulatory reform.

The London Summit Leaders’ Statement calls for the following measures:

• More regulation of financial institutions, instruments and markets, including hedge funds, which are unregulated investment vehicles used by institutional investors and the wealthy.

• New principles on executive pay and compensation to avoid schemes that encourage excessive risk taking and reward failure.

• A new Financial Stability Board with a strengthened mandate that includes all G20 countries, Spain and the European Commission to collaborate with the IMF and provide early warning of significant economic changes and financial risks that need to be addressed.

• Encouraging tax haven countries to comply with rules and regulations from the Organisation for Economic Co-operation and Development to fight money laundering and tax evasion, or face public condemnation and potential economic sanctions.

• After recovery occurs, encouraging commercial banks to build up more capital reserves during healthy economic times to act as a buffer against future economic downturns.

• Requiring credit rating agencies to adhere to an international code of good practices and eliminate conflicts of interest with other financial institutions to avoid providing unrealistic ratings of securities.

• Aggressively discouraging trade protectionism among nations, and remaining committed to reaching an ambitious and balanced conclusion to the international-trade-liberalizing Doha Development Round of trade negotiations, “which is urgently needed.” Finishing work on the trade agreement could boost the global economy by at least $150 billion annually, according to the statement.

“For the first time, we have a common approach to cleaning up banks around the world, to restructuring of the world financial system. We have maintained our commitment to help the world’s poorest,” Brown said at a news briefing. “This is a collective action of people around the world working at their best.”

The G20 nations represent the world’s most powerful economies, with 90 percent of the world’s economic output, 80 percent of world trade and two-thirds of the world’s population.

The full text of the leaders’ statement is available on a G20 Summit Web site.


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