Thursday, February 26, 2009

U.S.: Financial crisis spread to emerging markets

Making his international debut at the Group of Seven meetings in Rome, new U.S. Treasury Secretary Timothy Geithner said swift and decisive action is needed on several levels to address the global financial crisis.

"Although this crisis began in the major economies, it's now spread to emerging markets around the world," Geithner said.

Governments and central banks are already acting to support economic growth, he said. "These actions must be forceful and sustained until recovery is firmly established."

He called on governments to focus on stabilizing and strengthening financial systems and help restart the flow of credit. "Although the precise mix of measures must be tailored to each country's situation -- our financial systems are different, (the) structures of our systems are very different -- there is a common recognition of more capital and government financing to help restart credit markets," he said.

The G7 summit brings finance ministers from the world's leading industrialized nations together. The ministers were holding their second and last day of meetings Saturday with an agenda squarely focused on the world financial crisis.

Italy is hosting the meeting of the Group of Seven in its role as G-7 president for 2009. G-7 members are the United States, Germany, Japan, France, Italy, Britain, and Canada.

The agenda drawn up by Rome calls for adopting global measures and economic policy reforms capable of stabilizing the world economy and ensuring transparency to allow markets to function correctly, according to the Italian news agency ANSA.

Italy will also call on countries to to avoid resorting to protectionist measures to placate domestic demands, ANSA reported.

Geithner spoke just after the U.S. Senate gave final approval to a $787 billion recovery package to boost the U.S. economy. He told attendees that the package "provides a very powerful mix of investments and tax cuts to create jobs and to strengthen our long-term growth potential."

"As we act together to build a strong foundation for economic growth and recovery, we need to begin the process of comprehensive reform of our financial system, so that we never again face a crisis of this severity," Geithner said.

Another attendee, International Monetary Fund head Dominique Strauss-Kahn, said this week that he supports such stimulus packages for advanced countries.

"The question is no more to convince the governments to move today, but for them to implement the policies they need to manage," Strauss-Kahn said.

He also warned of the dangers of protectionism, which he said may still come "through the back door, especially in the financial sector."
Other G-7 attendees include Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, and central bank governors.