G20 agrees to $1.1 trillion stimulus package

S Kalyana Ramanathan / London April 3, 2009

To take action against non-cooperative jurisdictions, including tax havens

The G20 members, comprising 21 of the world’s wealthiest nations and nine international institutions, today announced a $1.1 trillion stimulus package to tackle the worst economic recession since the Great Depression.

The summit also agreed to take action against non-cooperative jurisdictions, including tax havens, and impose oversight on large hedge funds and credit rating agencies.

THE FINAL PUSH

* Main points in the declaration ‘Strengthening the Financial
System’ issued by G20 on Thursday:
* Establishment of a new Financial Stability Board (FSB) as a
successor to the Financial Stability Forum (of which India became a member recently)
* FSB to collaborate with IMF to provide an early warning of
macroeconomic and financial risks
* Take action against non-cooperative jurisdictions, including tax havens
* To extend regulatory oversight and registration of credit rating agencies

“We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs that would otherwise have been destroyed. It will, by the end of next year, amount to $5 trillion, raise output by 4 per cent and accelerate the transition to a green economy,” said UK Prime Minister Gordon Brown, the chairman of London Summit 2009, before even taking into account the extra commitments from the summit.

Brown said agreements had been reached today to treble resources available to the International Monetary Fund (IMF) to $750 billion, to support a new SDR (Standard Drawing Rights) allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs (Multilateral Development Banks) to ensure a further $250 billion of support for trade finance, to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, and constitute an additional $1.1 trillion programme of support of credit, growth and jobs in the world economy.

The G20 also affirmed its commitment to the World Trade Organization, supporting free trade and a check on protectionism by its members. Additional trade finance of $250 billion over the next two years will be made available through export credit, investment agencies and MDBs.

Brown’s statement came when there was an overall scepticism over the success of this G20 summit in reaching any concrete agreements over what is good for the global economy.

An immediate fund flow of $240 billion to IMF will come from three sources, of which the European Union and Japan will contribute $100 billion each and China a further $40 billion.

Brown said that other members of the IMF (which include India) too will provide additional funds to the IMF over the coming months.

Though the London Summit was a follow up to the G20 meet in Washington last year, today’s meeting assumed far greater importance in the light of collapse of the global financial system over the past few months. The overall agenda of this meeting was to find ways and means to overcome the global recession and impose stricter regulations over the global banking sector.