World leaders act to counter financial, food crises

WASHINGTON—World economic leaders have taken steps to alleviate the worst financial shock in decades and a food price crisis that is sparking deadly unrest in developing countries. In three days of meetings that ended Sunday, finance ministers and central bankers grappled with the credit squeeze and inflation emergencies against the backdrop of an apparent US recession and a sharply slowing global economy.
The Group of Seven industrialized countries set the alarmed tone on the eve of the annual spring meetings of the 185-nation International Monetary Fund and its sister institution, the World Bank. Confronted by what the IMF head says is the worst financial crisis since the 1930s Great Depression, finance chiefs from Britain, Canada, France, Germany, Italy, Japan and the United States decided only greater transparency in the financial system could restore normalcy to the markets.
The G7 endorsed recommendations from an international forum and set for some of them a deadline for implementation unprecedented in its brevity — 100 days. Recommendation is a “gentle word,” said Bank of Italy governor Mario Draghi, who also chairs the Financial Stability Forum that made the proposals. “In fact some of these recommendations are actually policy decisions.”
The sudden nosedive in the global economy after several years of robust growth “even six months ago would have been unthinkable,” he added. At the October meetings of the G7, the IMF and World Bank, the market turmoil that had erupted in August from rising defaults in the US high-risk subprime home loan sector was largely viewed as a contained event that did not threaten the broader world economy.
With the credit squeeze still spreading, the IMF recently warned that the US economy, the world’s biggest, was entering a recession and world growth was deteriorating so sharply a global recession was also in view. The IMF estimated the crisis would cost the global financial system nearly one trillion dollars. The IMF on Saturday wrapped up its meeting with a call for “strong action and close cooperation” to combat the financial crisis.
“Policymakers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control,” said the IMF, whose core mission is to promote global financial stability. “While each country’s situation is different, coherent action must be taken.”
The IMF and World Bank urged efforts to address the food crisis that is stoking violence and political instability, and the longer term needs of development and poverty reduction, the bank’s main function. And Italian Finance Minister Tommaso Padoa-Schioppa warned in an interview published Monday that only changes in the standard of living of people around the world in the coming years would have a major impact on financial stability. “If we think that solving or emerging from the crisis means going back to the configuration of growth before the crisis, we would be making a mistake because we were on an unsustainable path,” he told The Financial Times. Basic foodstuff prices have all risen sharply in recent months, sparking violent protests in many countries, including Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia.—Agencies