G20 pledges 5 trillion dollar war chest for economic crisis

3rd April 2009, Comments 0 comments

A tired US President Barack Obama also called the London summit accord a hoped for "turning point" but acknowledged there was no guarantee that the recession would not become depression.

London -- World leaders pledged a huge raft of new spending Thursday and a crackdown on tax havens and excess corporate pay to step up the battle against the economic crisis.

The Group of 20 summit said more than one trillion dollars would go to the International Monetary Fund and other finance and trade institutions helping struggling countries through the turmoil.

British Prime Minister Gordon Brown said that by the end of 2010 the G20 would have spent five trillion dollars fighting the crisis and hailed what he called the start of a "new world order."

A tired US President Barack Obama also called the London summit accord a hoped for "turning point" but acknowledged there was no guarantee that the recession would not become depression.

The G20 had agreed "an unprecedented set of comprehensive and coordinated actions," said the US president.

Stock markets shot up in response to the accord, Wall Street's Dow Jones Industrial Average rose 3.45 percent and London's FTSE 100 index closed up 4.28 percent.

Even French President Nicolas Sarkozy, who had threatened to walk out of the summit, said the results were "more than we could have hoped for." German Chancellor Angela Merkel said a "historic compromise" had been made.

Before the summit, the United States and Britain had pushed for bigger stimulus spending while France and Germany had called for the focus to be put on greater regulation of the financial sector.

Neither side got everything they wanted.

The summit promised 1.1 trillion dollars of "resources" for the IMF and other global finance bodies.

There will be 500 billion dollars of funding, 250 billion dollars in special drawing rights and 250 billion dollars in trade credit. But much of the new funding has already been promised by individual countries, including 100 million dollars each from Japan and the European Union.

After the summit, the Organisation for Economic Cooperation and Development published a list of "non-compliant" tax havens which Brown said would face immediate action, adding that "we have agreed tough standards and sanctions for use against those who don't come into line in the future."

Costa Rica, Malaysia, the Philippines and Uruguay were among the countries named by the OECD as tax havens which had not made any commitment to respecting international standards on exchanging tax information.

Brown said there would also be new rules on corporate bonuses to discourage bankers who take short term risks.

A new Financial Stability Bureau will "implement new rules on pay and bonuses on a global level so that there are no more rewards for failure. We want to impose corporate responsibility on every part of the world."

The leaders also ordered the IMF to sell billions of dollars of gold reserves to help the world's poor countries, Brown said.

Brown said the IMF and World Bank would undergo major reforms to reflect world changes which have seen the rise of China, India, Brazil, South Africa and other new powers.

"By any measure, the London summit was historic," said Obama. Australian Prime Minister Kevin Rudd said the accord "begins to crack down on the sort of cowboys in global financial markets that have brought global markets undone."

But analysts and aid groups were not so impressed.

Howard Wheeldon, senior strategist at BGC Brokers, lamented that the package might only help prevent a deeper depression.

The G20 statement was "nothing that really softens the blow of recession -- but perhaps some things that stop it moving to depression," said Wheeldon.

Talks on the eve of the London summit were clouded by anti-capitalist protests in which one man died after collapsing. Police said bottles and other missiles were hurled at them as they tried to resuscitate the man.

Police threw up a ring of steel around the Excel Conference centre in London's Docklands district -- near the headquarters of many banks blamed for the international crisis.

Small pockets of demonstrators built up around the summit and in the main financial district, the day after thousands laid siege to the Bank of England and attacked a branch of Royal Bank of Scotland.


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