LEADERS of the world's major economies (G-20) have drawn up an action plan to combat the burgeoning financial crisis and pull the global economy back from one of the worst downturns in decades.
The G-20 comprises the seven major industrialised nations namely Britain, Canada, France, Italy, Japan, Germany, and the United States-plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, and Turkey. It also includes the 27-nation European Union.
They stressed their commitment to ensuring that the International Monetary Fund (IMF), the World Bank, and other multilateral financial institutions had sufficient resources to continue playing their role in overcoming the crisis. Japan has announced its intention to lend the IMF an extra $100 billion to boost its resources.
IMF Managing Director, Dominique Strauss-Kahn welcomed the outcome of the two-day summit in Washington, calling the agreed action plan a significant step by the international community toward stronger co-operation aimed at resolving the global financial crisis and supporting the IMF's capacity to contribute to these efforts.
The declaration gives the IMF a central role both in terms of crisis response and suggesting how to reform world financial markets.
Strauss-Kahn, a former French finance minister, who took over as head of the IMF a year ago, noted the G-20 leaders' commitment to act together to meet global macroeconomic challenges, using both monetary and fiscal policy.
"I welcome the emphasis on fiscal stimulus, which I believe is now essential to restore global growth," the managing director said.
"Each country's fiscal stimulus can be twice as effective in raising domestic output growth if its major trading partners also have a stimulus package."
He noted that the declaration recognizes that some countries have more room for manoeuvre than others.
He said that the global stimulus needs to be large, in the order of two percent of world GDP, to make a sizeable difference to global growth prospects.
"We are going to work on this with countries in the coming weeks and months," he added.
He welcomed China's recent announcement of a $586 billion stimulus plan, saying this would shift Chinese policy and economy in the right direction.
Strauss-Kahn welcomed agreement that the role of the IMF in providing macro-financial policy advice would be enhanced, including the request that the Fund and others develop recommendations to mitigate pro-cyclically in regulatory regimes.
Strauss-Kahn noted that the action plan agreed at the summit pointed to the role of the IMF in supporting the plan's implementation, including some immediate actions by March 31, 2009.
"I am particularly pleased that all G-20 members have committed to participating in the IMF's Financial Sector Assessment Programme," he added. "This will ensure a transparent review of countries' regulatory systems." Strauss-Kahn stressed to reporters the important role of the IMF in crisis response and developing early warning systems to spot when countries may be getting into trouble.