G20 okays $1.1 tn aid

In the end, they are still throwing money at the problem. Will this one work when the earlier trillions haven’t?

“In life there are no guarantees,” US president Barack Obama said in a late-evening press conference here. “This is a step that was needed to be taken. Whether this is adequate, we cannot say now.”

The comment came three hours after the Group of Twenty (G20) nations which accounts for 85% of the global economy heeded his call after nearly eight hours of wrangling to inject $1.1 trillion into the global economy —- money that will go to finance businesses, spur growth and create jobs.

Stock markets across the globe rose, the Sensex by 447 points, to a five-month high.
It was a win-win deal because G20 “rabble rousers”, German chancellor Angela Merkel and French president Nicholas Sarkozy, also managed to extract their pound of flesh — which is a radical overhaul of the global financial system to bring in transparency and track money flows. The duo on Wednesday harped on “capitalism with a conscience”.

Within the announcements, the most important pertains to the agreement to provide $250 billion of trade finance through export finance to unfreeze credit markets over the next two years.

China will contribute $40 billion, the European Union $100 billion and Japan $100 billion. Non-availability of loans and a fall in demand had led the Organisation for Economic Cooperation  and Development to warn on the eve of the summit that economies were in a “free fall”.

Will the plan work? “When Wall Street crashed in 1929, it took 15 years for recovery. Today’s decisions will not immediately end the crisis but we have begun the process,” UK’s prime minister Gordon Brown said.  

G20 okays $1 tn aid

“On banking secrecy, executive remuneration, use of shadow banking system - on all these world is coming to an agreement for the first time, but there is no quick fix,” Brown, who is also the chairman of the London summit, said at a press meeting after the leaders’ communique.

Of the $1.1 trillion stimulus, $750 billion will be made available to the International Monetary Fund, trebling the resources available with the multilateral lender.
Of this, $250 billion will be special drawing rights – the IMF’s currency – to be issued to member-countries based on their quota.

The rest of the money, $100 billion will be earmarked to stimulate the economies of low-income or poor countries through multilateral development banks.
Duncan Green, spokesperson for Oxfam, a non-government organisation, said the summit delivers a “vital pick-me-up” for poor countries struggling to survive the economic crisis.

“But we have deep concerns about how central the IMF has become in this crisis. The fund has been given a blank cheque but its reform remains no more than a promise,” Green said.

The date and venue for the next G20 summit will be announced in the next few days. “The desire is to review the results of what happened today. If we find more needs to be done, we will take action,” Brown said.