Over the weekend, the Finance Ministers and Central Bank Governors of the Group of Seven (G-7) met in Rome, Italy to discuss measures, already taken and that still need to be taken, to stabilize the global economy and financial markets. In a statement released at the end of the summit, the financial officials at the G-7 reaffirmed their commitment to coordinate policy initiatives to support growth and employment, and take any further necessary actions to strengthen the global financial sector. As outlined by the G-7 financial officials, financial measures already taken to stabilize volatile financial markets and restore normal credit flows to the economy include:
- Enhancing liquidity and funding through traditional and newly-created instruments and facilities;
- Strengthening the capital base of various financial institutions; and
- Facilitating the orderly resolution of distressed assets.
The G-7 officials, acknowledging that the financial turmoil had spread to the real economy, anticipated that the “severe downturn” would “persist through most of 2009.” They further outlined the measures already taken to respond to this downturn, including reducing policy interest rates, undertaking unconventional monetary policy and budgetary actions, and implementing fiscal stimulus packages and policy-based fiscal policy measures.
In a shift from previously-held positions, the G-7 officials softened their criticism of China’s currency policy, welcoming “China’s fiscal measures and continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the Renminbi … and help promote more balanced growth in China and the world economy.” This statement is in direct contrast to comments made by U.S. Treasury Secretary Tim Geithner at his confirmation hearings held last month, where he expressed concerns regarding China’s manipulation of its currency.
The G-7 officials also strongly emphasized their commitment “to avoiding protectionist measures, which would only exacerbate the downturn, to refraining from raising new trade barriers and to working towards a quick and ambitious conclusion of the Doha Round.” However, Secretary Geithner reportedly received strong criticism from the other leaders on what have been termed the “Buy American” provisions of the American Recovery and Reinvestment Act (ARRA) passed by the U.S. Congress last week.
In his own statement after the G-7 meeting, Secretary Geithner urged an “effective global response” to the slowdown in global growth through “forceful and sustained” action by governments working in conjunction with international financial institutions. Additionally, Secretary Geithner highlighted the need “for more capital and temporary financing to help restart credit markets,” for the deployment of more resources to mitigate the impact of the crisis, and for a commitment by all countries to maintain open trade and investment policies. Secretary Geithner also discussed ARRA and the Financial Stability Plan unveiled by the U.S. Treasury last week, indicating that the plan was “designed to provide greater transparency to the financial system, to bring in new capital, new financing to restart the flow of credit to consumers and businesses, and create a new investment fund to finance and leverage private sector capital to facilitate the clean up of bank balance sheets.” Finally, Secretary Geithner urged an international cooperation in working towards comprehensive reform of the international financial system.
In a related note, following the G-7 summit, Japan’s finance minister, Shoichi Nakagawa, resigned today after facing widespread criticism regarding his strange behavior at a press conference.