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World leaders seek to head off deep recession

(Agencies)
Updated: 2008-11-15 22:17

WASHINGTON --  Leaders of the world's biggest economies sought on Saturday to settle their remaining differences over an emergency plan to counter the worst financial crisis in decades.

Presidents and prime ministers from the powers of the 20th Century sat down with the heads of new economic heavyweights such as export colossus China and oil-rich Saudi Arabia to hammer out a global response to the crisis.

U.S. President George W. Bush speaks to the media before the start of the first session of the G20 Summit on Financial Markets and the World Economy at the National Building Museum in Washington, November 15, 2008.  [Agencies]

Signs are mounting of a painful economic slump in many parts of the world, with the euro zone slipping into recession according to data last week, unemployment climbing in the United States and elsewhere and emerging economies slowing.

With US President George W. Bush only two months away from leaving the White House and his successor Barack Obama choosing to stay away from the Washington summit, talk of a top-to-bottom overhaul of global finance has been tempered.

But leaders said they were close to agreeing on changes including more regulation for the world's financial industry -- where huge risk-taking on house prices, especially in the United States, backfired last year and triggered the downturn.

Bush said summit leaders were looking for "a way forward to make sure that such a crisis is unlikely to occur again."

"I am pleased that the leaders reaffirmed the principles behind open markets and free trade," he told reporters before the talks. "One of the dangers during a crisis such as this is that people will start implementing protectionist policies."

"This crisis has not ended. There's some progress being made but there's still a lot more work to be done."

Saturday's meeting is expected to pave the way for more work in coming months and another summit, perhaps in March, when a newly installed President Obama could consider potentially far-reaching changes to the financial system.

As well as new regulation, leaders are considering ways to open up global institutions such as the International Monetary Fund to emerging economies whose export-funded reserve cashpiles have made them key economic players.

The leaders are also likely to spell out what kind of measures their countries intend to take to blunt the bite of the economic downturn, such as more public spending.

"DIFFICULT" TALKS

British Prime Minister Brown said the approach of a period of low inflation created room for lower interest rates and fiscal stimulus measures. But he described the G20 financial crisis talks as "difficult."

"These are tough talks because countries are coming from very different positions and we have to bring them together," Brown told reporters before heading to the talks.

"It's obviously important to move people to decisions today about what can be done."

Brown has been urging the G20 to act together to stimulate economic activity via fiscal and monetary policy means.

"This is difficult for some countries," he said. "We're in an environment where there is very low inflation and therefore scope for action."

Finance officials from the Group of 20 countries, comprising the world's biggest advanced and developing economies, worked late into the night on a summit communique to be put to the leaders at their summit and it stresses the need for better regulation, a German official said.

"The communique will contain the principle that no financial market, nor actor on the financial markets and no region should be without regulation or supervision," the official said shortly before leaders were due to meet.

The document also calls on hedge funds to provide more transparency about their operations, the official said.

Emerging market countries have warned that time is running out to stem the economic damage from the credit market turmoil that began about 17 months ago.

"If we don't take quick action we run the risk of falling into a depression," Brazilian Finance Minister Guido Mantega said on Friday, adding both regulatory reform and concerted government spending were needed.

Montek Singh Ahluwalia, a top Indian economic policy-maker, piled on the pressure for developed countries to inject large amounts of government money into their economies.

"If we are facing the most serious crisis in the world economy since the Great Depression then we need to take a lot of possibly unorthodox and special steps," he said.