World Finance Officials Meet To Discuss Global Economy

Starting Friday, finance officials from the Group of Seven Nations (G7) and Twenty Nations (G20) - which includes major emerging nations such as China, Russia, India and Brazil - are meeting in Washington for 3 days of discussions on the global economy.

We would characterize the comments made Thursday by Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), as an attempt to keep these pending meetings on course. Ms. Strauss-Kahn urged the U.S. and Europe to do more to remove distressed assets from banks’ balance sheets, and while “We still have long months of economic distress in front of us, postponing such steps would result in the postponement of a recovery.”

To that end, Ms. Strauss-Kahn and Robert Zoellick, the head of the IMF’s sister organization, The World Bank, have pledged new resources (cash) to fight what is being viewed as the worst global downturn since the Great Depression of the 1930’s. In an effort to meet the needs of developing nations harmed by this downturn an not to repeat the mistakes of the past, the IMF has agreed to double the borrowing limits for 78 of poorest countries and the World Bank will provide $45 billion to support road building and other infrastructure projects in poor nations over the next three years (compared to $15 billion more than it spent on infrastructure efforts in poor nations in the three years prior).

The funds are designed to support job creation which is expected to then aid in jump-starting the recovery from the crisis when these funds from the World Bank are combined with efforts from its arm that supports private sector projects designed to give developing countries the same type of stimuli rich nations are providing to create jobs in the face of massive layoffs caused by the recession, the funding could reach a total $55 billion.

While we would view this a positive for developing counties, both Ms. Strauss-Kahn and Mr. Zoellick warned that the crisis is far from over. In addition, both believe the U.S. and Europe should allow developing countries an enhanced participation in the management of the World Bank. In Ms. Strauss-Kahn’s speech Thursday, she state that the IMF’s governance should be reformed to permit a great influence from emerging markets and low-income countries. Currently, the IMF forecasts that the world economy could moderate by 1.3% this year, marking the first time a global decline would be registered since World War II.

At some point during his meetings with the G7 finance ministers today, Timothy Geithner, U.S. Treasury Secretary, should be outlining will outline the administration’s efforts to clean up the U.S. banking system, in order to get the banks to lend again. If the efforts com to fruition, financial entities such as (but not limited to) Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), US Bancorp (USB) and SunTrust (STI) may be willing to open there coffers to borrowers.

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