G20 no quick fix for global economy: analysts

3rd April 2009, Comments 0 comments

The huge cash injection of USD 1 trillion for the International Monetary Fund and other finance and trade institutions is unlikely to spark a global economic recovery, say analysts.

LONDON – The G20 London summit will unlikely spark an immediate global economic recovery, but a trillion-dollar funding boost for international lending institutions should help, analysts said.

The G20 meet, called to combat the burgeoning financial crisis and attended by US President Barack Obama, agreed a huge cash injection for the IMF and World Bank to help battle the spreading global recession.

But leaders from the Group of 20 industrialised and developing nations stopped short of any coordinated round of public spending.

"The summit has failed to break any new ground on a global fiscal stimulus," said Capital Economics analyst Julian Jessop.

"But there has at least been agreement on generous increases in funding for the IMF and additional trade credits."

Howard Wheeldon, senior strategist at BGC Brokers, lamented that the G20 package would not scoop the global economy out of recession – but could help prevent a deeper depression.

The G20 closing statement was "nothing that really softens the blow of recession – but perhaps some things that stops it moving to depression," he said.

The Group of 20 industrialised and developing nations will provide more USD 1 trillion (EUR 744 billion) of new resources for the International Monetary Fund and other global finance bodies.

There will be some USD 500 billion of funding, USD 250 billion in special drawing rights and USD 250 billion in trade credit.

G20 leaders want the extra cash to boost liquidity and help embattled countries – particularly in crisis-hit eastern Europe – through the global recession.

The new G20 measures unveiled Thursday will see secretive tax havens named and shamed, new rules on corporate pay, major reforms to the IMF and World Bank, a new push to pass free trade rules and the sale of huge gold reserves to help poor countries.

"G20 leaders have pushed forward on most key areas, promising to do whatever is necessary to restore global growth," said IHS Global Insight economist Jan Rudolph.

"The biggest surprise was the huge increase in IMF resources to around USD 1.0 trillion, which will go a long way to supporting financial stability in the developing world."

British Prime Minister Gordon Brown, hosting the summit, meanwhile boasted that the G20 will have spent USD 5.0 trillion by the end of 2010 on fiscal expansion in a bid to boost their battered economies.

And he insisted that the G20 were all agreed on doing whatever is needed to return the global economy to healthy growth.

"The issues that people thought divided us did not divide us at all. There was substantial agreement to do whatever is necessary to return to growth," Brown said.

In the run-up to Thursday, the United States and Britain had pushed for bigger stimulus spending – but it failed to materialise.

Nevertheless, VTB Capital analyst Andrey Kryuchenkov said that the IMF funding boost would help lift the struggling world economy.

"In the long run it is a positive development and would help global economic recovery," Kryuchenkov said.

"Some of this money could potentially filter through to eastern Europe, which should help to limit the economic fallout in eurozone and speed up the industrial recovery in Europe."

On a downbeat note, Rudolph said that the G20 communique failed to address the issue of purging the financial system of the toxic or high-risk assets that lay at the heart of the credit crunch.

"The weakest point of the deal is a lack of detail of how to deal with the urgent issue of cleansing banks of toxic assets, a problem that continues to choke the financial system and hamper credit flows," Rudoplh said.

"Without fixing the banks, a sustainable economic recovery is not possible.

"These matters, whilst recognised, have been left for individual countries to manage, but with no clear convincing road map yet formulated to restore a healthy banking system."

AFP / Expatica

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