G20 backs rescue funds boost as crisis summit looms

HORSHAM, England (Reuters) – G20 finance ministers promised money yesterday to rescue troubled emerging market  economies and said they would use their full fiscal and monetary  firepower to combat the worst downturn since the 1930s.

The G20 finance ministers meeting at Horsham (BBC)
The G20 finance ministers meeting at Horsham (BBC)

Ministers from the world’s largest economies also pledged to  regulate hedge funds and start closer checks on credit ratings  agencies to prevent a repeat of a financial markets crisis that  is crippling businesses and putting millions more out of work.

“We are committed to deliver the scale of sustained effort  necessary to restore growth,” the ministers said in a statement  promising extra money for the International Monetary Fund and  regional lenders such as the Asian Development Bank.

No figure was published but one official attending the talks  told Reuters they centred on more than doubling the $250 billion  currently at the IMF’s disposal to help countries hit by a halt  to credit and investment.

Separately, British Prime Minister Gordon Brown, who hosts a  summit of G20 leaders on April 2, said “massive change” was  about to take place in financial market regulation, notably  supervision of hedge funds and other areas currently only  lightly regulated.

The statement issued by the ministers after talks to prepare  that summit said hedge funds should be registered and disclose  information needed to keep tabs on risk, and it said credit  ratings agencies should be better controlled too.

It said the top priority now was to get lending, lifeblood  of the economy, flowing normally again.

The ministers set aside differences on the scale of public  spending deployed to support activity, saying everyone would do  all they can to fight what the IMF calls the “Great Recession.”

The G20 accounts for over 80 per cent of the world’s output,  or gross domestic product, which is expected to shrink in 2009   by more than any year since the 1930s after the financial crisis  that erupted in the United States in 2007 engulfed confidence,  activity, trade and jobs worldwide.

The United States has yet to detail how it plans to clean up  banks’ toxic assets, which many say is vital to get a sclerotic  economy moving again, though a US official said details could  be expected in the coming week.

The G20 issued a separate set of guidelines for countries to  use in planning to rid banks of rotten assets.

“You’re going to see us announce relatively quickly a new  framework, a new financing framework, for these legacy assets,”  US Treasury Secretary Timothy Geithner, who was at the talks  in Horsham, south of London, told Fox Business News.

Washington is also preparing to show its hand later this  month on regulation of the financial markets, where G20 leaders  have yet to put flesh on promises to rein in excess and ensure  that everyone has to be called to account from now on.

President Barack Obama sought to stamp out any doubts about  US commitment, telling a Washington news conference nobody  would pursue regulation more vigorously than him.

Beyond the pledges of better supervision of hedge funds and  rating agencies, the newest element from the G20 talks in  England was the commitment to help emerging economies, perhaps  mindful of the mass exodus of money that marked the Asian  financial crisis of the 1990s.

“We really must take action to stop damage being done to the  emerging economies, who are seeing money coming out of their  systems,” said British Finance Minister Alistair Darling, who  hosted the gathering at a luxury countryside hotel in Horsham.

The IMF has already committed nearly $50 billion for bailing  out countries in eastern Europe in recent months and is asking  for its rescue funding to be doubled to $500 billion.

World Bank chief Robert Zoellick, also attending the meeting  on Saturday, said government spending would give the economy no  more than a brief “sugar high” if governments failed to rid  banks of toxic assets that continue to undermine confidence,  trust and the desire to lend or invest.

The United States was demanding earlier this week that other governments commit two per cent of GDP to extra spending to  stimulate growth, exposing a rift with the likes of Germany and  France who say they are doing enough.

Britain’s Darling said things were on the right track ahead  of a summit which Prime Minister Brown and others are billing as  time to deliver on promises to make capitalism safer — promises  made last November at a first ever meeting of G20 leaders.

“There is this commitment, which is absolutely critical,  that the 20 largest economies in the world stand ready to do  whatever is necessary for as long as is necessary, and I think  that is a major step forward,” Darling said.

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