Friday, April 03, 2009

Obama hails the New World Order

By Andrew Grice, Nigel Morris and Sean O'Grady

Friday, 3 April 2009

Gordon Brown declared that a $1 trillion package to stimulate economic growth agreed at yesterday's G20 summit in London will ensure that the world pulls out of recession more quickly.

Speaking after the one-day summit of the world's richest nations in the Docklands, the Prime Minister said there were "no quick fixes", adding: "Today's decisions will not immediately solve the crisis. But we have begun the process by which it will be solved."

He said: "This is the day that the world came together to fight back against the global recession, not with words, but with a plan for global recovery and for reform and with a clear timetable for its delivery."

The US President Barack Obama played a key role in brokering the agreement, resolving tensions between China and France on tax havens.

The $1trn will be made available to countries that run into trouble via the International Monetary Fund (IMF), the World Bank and World Trade Organisation, which will all be beefed up. Half the money will come from IMF loans, with $250bn to finance trade deals and a further $250bn from the IMF's currency reserve…

… Last night British ministers said the real significance of yesterday's agreement was not the $1trn package but the enhanced role it gave to world institutions like the IMF, whose budget will triple to $750bn. "A new world financial order has been born, almost by accident, because of this crisis," one cabinet minister said. "These bodies have been revamped; now they need to raise their game."

The IMF will no longer be regarded as a last-resort option for nations facing bankruptcy, but will instead take preventative action. Many nations have been reluctant to turn to the fund because the stigma of doing so sends bad signals to the financial markets.

The special drawing rights (SDRs) made available by the IMF – which can be converted by national governments into currency to provide a swift injection of liquidity into their economies – will be increased by a further $250bn. The funds will be used in the short term to support the precarious economies of eastern and central Europe. Romania and Turkey are the latest nations to seek help from the IMF; others in recent months include Ukraine, Pakistan, Iceland and Latvia. The IMF has expressed acute concern that a crisis in these economies could spread via the banks to western European countries.

China is playing a notably bigger role, pledging $40bn for the improvement in the IMF's resourcing. Most of the rest comes from the US and Europe. China has publicly called for an increased role for the IMF's own "world currency", the SDR. A long-awaited reform of the governance of the IMF should deliver China more votes and influence.

Last night President Obama hailed the meeting as "a turning point in our pursuit of global economic recovery". He told the press: "By any measure, the London summit was historic. It was historic because of the size and the scope of the challenge that we face and because of the timeliness and the magnitude of our response."

The President said that "former mortal enemies" had come together to agree a common path out of recession. "I am very proud of what has been done, but this alone is not enough. The actions we take in our individual countries is vital." He added: "It's hard for 20 heads of state to bridge their differences. We've all got our own national policies, our own assumptions, and our own politics. But our citizens are hurting – they need us to come together..."

… The leaders pledged to give their regulators the powers to collect all the relevant information about banks and to strengthen links between regulators from different countries to pool information about multinational financial institutions. Hedge funds will be brought into the regulatory system. Bankers' pay will reflect long-term performance, not short-term risk-taking.

Mr Brown pronounced the free-market consensus was over, hailing a "new consensus" among the largest countries. "From today we will together manage the process of globalisation," he said.

On the fiscal stimulus, the Prime Minister insisted: "The issues that people thought divided us did not divide us at all. There was substantial agreement on the need for us to do whatever is necessary to return to growth..."