Published April 3, 2009

G-20 strikes US$1 trillion deal to roll back recession

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(LONDON) World leaders agreed to a trillion-dollar deal yesterday to combat the deepest economic downturn since the Great Depression.

First order of business: US President Barack Obama (bottom right) greeting some of the world leaders and top financial officials yesterday as they prepare to pose for a group photo

The Group of 20 (G-20) leaders called for stricter limits on hedge funds, executive pay, credit-rating companies and risk-taking by banks. They also boosted the resources of the International Monetary Fund (IMF) and offered cash to revive trade to help governments weather the economic and social turmoil.

But they sidestepped the question of whether to deliver more fiscal stimulus in their own economies.

The group of leading industrial and developing nations also agreed to create a new supervisory body to flag potential problems in the global financial system.

'This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable,' British Prime Minister Gordon Brown, the summit host, said.

Mr Brown says the G-20 will create a new financial stability board to ensure cooperation across frontiers, to spot risks to the world economy and - together with the IMF - provide 'the early warning mechanism that this new global economy needs'.

Mr Brown says it is essential that the world does everything necessary to 'rebuild trust' and make sure 'a crisis such as this' never happens again.

World markets reacted positively. The index of top European shares was up 5 per cent after Japan's Nikkei gained 4.4 per cent. On Wall Street, the Nasdaq was up 4 per cent and the Dow Jones 3.6 per cent.

Mr Brown said that while there were 'no quick fixes', the decisions meant that 'we can shorten the recession and we can save jobs'.

French President Nicolas Sarkozy said the results were beyond what could have been imagined while German Chancellor Angela Merkel said that the package of measures agreed on by the leaders was 'very, very good'.

The G-20 agreement is 'a victory for common sense' and an 'important step towards order' in markets, Ms Merkel told reporters. The G-20 agreed to build a new 'financial-market architecture', a key German demand, she added.

Mr Brown said the leaders agreed 'there will be an end to tax havens that do not transfer information on request. The banking secrecy of the past must come to an end'.

He said leaders agreed to commit new resources of US$1 trillion that are available to the world economy through the IMF and other institutions.

This included US$250 billion of IMF reserve units called Special Drawing Rights.

'This is available to all IMF members,' Mr Brown said.

In addition, the IMF would see its own resources tripled, with up to US$500 billion of new funds.

The G-20 also ordered the IMF to sell billions of dollars of gold reserves to help the world's poor countries and a trade finance package worth US$250 billion over two years to support global trade flows. -- Reuters, AP, AFP, Bloomberg