Markets surge amid G20 accord
By George Parker, Chris Giles, Edward Luce and David,Oakley
Published: April 3 2009 03:00 | Last updated: April 3 2009 03:00
Markets surged yesterday as world leaders agreed a sweeping package of measures to fight the global recession, including a $250bn increase in the international money supply.
Gordon Brown, UK prime minister and host of the G20 summit in London, claimed that the deal marked the emergence of a "new world order" as he announced a range of moves, including a pledge to give a $500bn boost to the International Monetary Fund to help struggling emerging economies.
In Asia, stocks surged ahead of the summit, with Hong Kong shares seeing their biggest daily advance in four months.
The rallies continued in Europe and the US, where the S&P 500 was up nearly 4 per cent in midday trading.
The summit ended with smiles, a lengthy communiqué and grandiose pronouncements although a row between China and France over the blacklisting of tax havens - including possibly Hong Kong and Macao - blazed behind the scenes.
US officials say that Barack Obama helped broker a compromise over offshore tax savings between Hu Jintao of China and Nicolas Sarkozy of France, who had threatened to walk away from the summit.
Mr Sarkozy had objected to the absence of agreement to publish a list of offshore tax centres that were not in compliance with existing standards on transparency. With the exception of China, all other countries agreed that the Organisation of Economic Co-operation and Development would publish a list of offshore offenders in a "naming and shaming" exercise. In the end they agreed a compromise in which the G20 would only "take note" of the OECD's list, rather than endorse it.
The failure of the G20 summit was too painful for world leaders to contemplate and Mr Brown ended the meeting with a blizzard of large numbers to disguise the fact that leaders had not agreed to a further additional fiscal stimulus - as Mr Obama and Mr Brown had wanted.
Mr Brown claimed that the world was already engaged in a $5,000bn stimulus. The UK Treasury, while trying to pin the figure on the IMF, said it related to the cumulative increase in government borrowing across the G20 between 2008 and 2010, compared with 2007.
Much of the $1,100bn pledged to help the world recover from recession represented existing commitments or pledges of future funds that had not been pinned down.
In a new development, the G20 agreed to let the IMF create $250bn of special drawing rights, its own currency, comprising dollars, euros, yen and sterling. This will boost the foreign exchange reserves of every country. Most of this cash will go to the big advanced economies, but poorer countries facing budgetary strains will gain new cash.
Leaders also agreed to boost trade finance in a package that Mr Brown said over two years could facilitate an additional $250bn of trade, although the up-front contributions from G20 countries was only $3bn-$4bn, an annexe to the communiqué said.
Mr Brown insisted that the combined measures would shorten the recession, but the text did not break much new ground on financial regulation, fiscal stimulus, monetary policy action or efforts to clean up bank balance sheets.
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