By Joshua Partlow
Washington Post Foreign Service
Monday, November 10, 2008
SAO PAULO, Brazil, Nov. 9 -- Financial leaders from 20 of the world's largest economies delivered a message Sunday that governments need to act faster and be ready to cut interest rates or increase spending in order to fortify ailing world markets.
"We are in extraordinary times, the global economy is facing shocks which are wholly without precedent and we need a new approach," said Stephen Timms, Britain's treasury secretary. "It is a global crisis. It therefore requires an international response. And the first priority needs to be urgent action to stabilize the financial sector."
While short on specifics, the Group of 20's two-day conference in Sao Paulo laid out a set of principles ahead of a meeting among the nations' heads of state in Washington later this week. Among them: the need for more financial market regulation and coordinated government action, and the importance of giving smaller, emerging market economies more voice in how to resolve the crisis.
"The global economy is entering a major downturn," according to a briefing paper prepared by the International Monetary Fund for participants. In the paper, growth forecasts were substantially lower than even last month's weak forecast. The economic output of the United States, for example, was expected to contract by 0.7 percent in 2009 compared to this year.
While many governments have cut interest rates and eased reserve requirements, "these measures appear to be having only a limited impact in restoring confidence, even in countries with large reserve buffers," IMF officials wrote in the paper, which called for more government spending. "Fiscal expansions are clearly risky. . . . but in the current context, the benefits considerably exceed the costs."
The latest country to take major government action was China, which Sunday announced a $586 billion economic stimulus package that called for a wide range of infrastructure projects. The move was praised by officials here, who said it offered much-needed support.
One idea promoted at the meeting was that the United States and other rich nations should provide more aid to developing countries whose economies have suffered from the crisis, which originated in America. Nearly all of the world's economic growth forecasted in the next year will come from emerging market countries, said Dominique Strauss-Kahn, the managing director of the IMF.
"It's just fair to look at this growth coming from emerging countries and to try to support it because it's the only source of growth we will have," he said.
One person at the meeting, who spoke on the condition of anonymity, said Indian officials in particular argued that the United States needed to pay more to help the world.
"We certainly recognize that a big portion of what's happened in the global markets has been due to some of the challenges we've had in the United States," said David H. McCormick, undersecretary for international relations at the Treasury Department, who led the American delegation. "We recognize a responsibility to take leadership."