G7 creates fund for ailing economies

Click to follow
The Independent Online
THE LEADERS of the world's richest nations yesterday unveiled their plans -including a new emergency fund for countries in need - to head off a global recession and prevent future crises in the financial markets.

The joint statement released by central bankers and finance ministers in the G7 nations hinted at further reductions in world interest rates. In recent weeks, rates have been cut in the United States, the United Kingdom, Canada, Italy, Ireland, Portugal and Spain.

The G7 statement, negotiated over the last fortnight, read: "We reaffirm our commitment to create and sustain the conditions for strong, domestic demand- led growth and financial stability in each of our economies. The authorities will continue to be vigilant in the light of the shift of the balance of risks on a global basis."

Announcing details of the plans in London, the Chancellor, Gordon Brown, who as chair of the G7 played a crucial role in negotiating the statement, said: "The G7 has concluded that institutional architecture devised in the Forties ... must be reformed and strengthened to meet the challenges of the Nineties and we will need new rules for the global financial system of the 21st century."

Central to the G7 statement is an endorsement of the proposal first made by President Bill Clinton for an emergency fund, based within the International Monetary Fund (IMF), aimed at helping vulnerable countries fight off the "financial contagion" that has swept through much of the developing world.

President Clinton yesterday claimed victory in his efforts to create a new financial order, saying that world leaders had "linked arms" against market instability. "I feel quite good about what my fellow G7 leaders and others have done here," he said.

The new emergency facility, which will be only made available to countries pursuing "appropriate" economic policies, will be funded by a mixture of IMF money, private-sector funds and national governments.

Brazil - which last week announced a new fiscal austerity package - is expected to be the first beneficiary of this new funding facility.

The G7 has also backed a plan for a second emergency fund, based within the World Bank.

The G7 statement gave a partial endorsement to British proposals for a global financial regulator. The nations have agreed that national and international regulators should consult on a regular basis, but stopped short of explicitly recommending a permanent global financial regulator, as proposed by Mr Brown in Ottawa last month.

The Chancellor would not be drawn on whether there would be an emergency summit of the G7 group of nations, saying that the need for a special summit was "always under review". There is understood to be concern that an emergency summit could lead to unrealistic market expectations.

Mr Brown will provide further details of the G7 proposals in a statement in the House of Commons on Monday, and will discuss the impact of the crisis on the UK economy in his pre-Budget statement on Tuesday.

Most analysts in the UK stock market welcomed the proposals, and the FTSE 100 index of leading shares closed up 79.9 points at 5,438.40.

Market reaction, page 20

Comments