U.S. Treasury Calls Emergency Weekend Meeting of G20

Source: Radio Australia

The co-ordinated interest rate cut by global central banks followed another disastrous day of trading in Asia, in which the Nikkei fell more than nine-percent, and the Indonesian stock exchange was suspended indefinitely. A few hours ago, the United States Treasury Secretary Henry Paulson welcomed the joint international move.

"US and global financial markets continue to be severely strained. A root cause of this situation is the housing correction and a lack of confidence in mortgage assets, as well as a lack of confidence in many of the financial institutions that hold these assets," Mr Paulson told reporters.

"Because of this widespread uncertainty investors are hesitant to commit capital to financial institutions. Investor confidence is critical to restore liquidity and enhance the stability of our financial system.

"Today's announcement of a coordinated rate cut including Europe, China and other large economies is a welcome sign that Central Banks around the world are prepared to take the necessary steps to support the global economy during this difficult time."

Mr Paulson also says an emergency meeting has now been called, of the G20 advanced and developing nations. The meeting will take place in Washington this weekend, and will include finance ministers and others already in town for a scheduled meeting of the International Monetary Fund and the World Bank.

Presenter: Tom Fayle
Speaker: Vikram Nehru, World Bank chief economist for East Asia and the Pacific, Washington

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FAYLE: Vikram Nehru we've seen a coordinated rate cut by six central banks, including the US and Britain and in our region China, what's the thinking behind the move?

NEHRU: The thinking behind the move is to try and improve the liquidity situation in the money markets of these countries, I mean in East Asia there's been a very sharp reduction in liquidity as you probably know, interest rates have climbed and stock market indices have declined, and generally speaking there's a huge shortage of liquidity now in the world and in East Asia, though some of these interest rate cuts as well as liquidity injection were designed to try and counter that to make sure that finance is available for the normal running of the economy.

FAYLE: And how well are Asian governments and economies especially outside North Asia positioned to handle the current global crisis?

NEHRU: Well they are quite well positioned actually, certainly better positioned than many other developing regions of the world. East Asia went through its own crisis in the late 1990s you may recall, and as a result of that they have been very careful in making sure that their economies are stable, their fiscal situations are much stronger than they were earlier, the balance of payments situation is better, their banking systems are stronger than ten years ago, and they're coming off one of their highest growth rates for more than a decade. So things were looking good for East Asia prior to the crisis and prior to the increase in commodity prices that took place, but now that those crises are here at least it's some comfort to know that East Asia's better positioned than it was a few years ago to deal with these crises.

FAYLE: Some markets here in Asia, especially Japan and some of the smaller markets like Jakarta have taken a terrible pounding, are you worried?

NEHRU: Yes we are concerned. I think this is probably a dangerous point in the crisis, but I think in the longer term the biggest concern we have is that the shortage in liquidity will lead to a reduction in investments, a reduction in loans to these countries with a heightened risk of a decline in global growth, which will impact exports for East Asia and ultimately of course the biggest concern are the World Bank, the impact of all of this on the poor of these countries and that's where we're most concerned.

FAYLE: At the recent United Nations General Assembly meeting in New York some countries even before the height of the current crisis began to express concern that international development efforts would inevitably be affected by this global credit squeeze. Is that now unavoidable?

NEHRU: Well I can speak for East Asia specifically, I think in East Asia the World Bank certainly is extremely well prepared to respond to the needs of our client countries. You know the World Bank is well capitalised, it's liquid, it's working together with partners including regional partners the Asian Development Bank as well as our global partner, the International Monetary Fund. We are well positioned to respond to our client countries, but the reality is that many of our client countries in East Asia are going to find it difficult in the future to get capital from the markets and so their needs are going to have to be met from other sources, and the World Bank could potentially be one of those sources.

FAYLE: Let me turn to this call by the United States for an emergency meeting of the Group of 20 Developed and Emerging Countries to discuss how to deal with the crisis. What role might the World Bank take in these talks?

NEHRU: Our President, Mr Zoellick just yesterday gave a very important speech where he said how important it was now for such multi-lateral consultations to take place to ensure that there's a coordinated effort to deal with what is essentially now a global crisis, and the more multi-lateral networks there are to help coordinate this effort this is well beyond now the capacity of any single country to deal with that it's very important for these countries to get together and pool their resources and pool their efforts, and I think this particular meeting which you're referring to therefore would be very welcome.

FAYLE: And finally Vikram Nehru we are at least seeing some of the pressure coming off global inflation and international oil prices which have been causing serious hardships in Asia and the Pacific over the past year. Will these reductions help the region weather the storm?

NEHRU: They will help but only marginally. I think it'll help reduce some oil prices domestically in many of our countries in East Asia but we don't believe that there will be a very substantial decline in oil prices or for that matter food prices while they're coming off their peaks we do expect them to remain at elevated levels. So this continues to be a potential set as you may be aware the World Bank has put together a global food response program to deal with this crisis providing safety nets for the poor, conditional cash transfers to support feeding programs and feeds and fertilisers in these countries. We're helping countries support the poor as domestic oil prices are increased in order to reduce the impact on the fiscal positions of these countries. So the oil importing countries of East Asia certainly will benefit but not by as much as obviously we would like them to benefit.