G-20 Expands IMF Lending Powers to $1 Trillion

By STEPHEN FIDLER, BOB DAVIS and ALISTAIR MACDONALD Associated Press President Obama met with King Abdullah of Saudi Arabia at the G-20 summit Thursday. At a press conference later, the president said he was pleased with the final product of the gathering. Leaders of the Group of 20 nations Thursday announced a host of measures they said would help to reignite world growth but left themselves a long list of follow-up steps to turn their words into action. The summit of many of the world's leading economies in London announced a tripling of the lending power of the International Monetary Fund to around $750 billion. They also unveiled a $250 billion expansion in the IMF's reserve currency -- the special drawing right -- to boost liquidity in the global financial system by expanding member countries' foreign exchange reserves. They committed to selling IMF gold to help poor countries. The G-20 also agreed to a series of other measures aimed at tightening financial regulations -- bringing hedge funds and other financial institutions into the global regulatory net -- and clamping down on tax havens. View Slideshow Peter Macdiarmid/Getty Images President Barack Obama smiled as the group posed for a photo Thursday in London. "The era of banking secrecy is over," a communiqué issued after the meeting declared. It promised unspecified sanctions would be taken against tax havens that did not agree to share tax information – and said a blacklist of non-compliant jurisdictions would be issued soon. "This was the day the world came together to fight back against global recession," British prime minister Gordon Brown said at the end of the summit. President Barack Obama said he believed the summit will be a "turning point" in the drive toward global recovery. "The steps that have been taken are critical to preventing us sliding into a depression," Mr. Obama told reporters after the close of the gathering. "They are bolder and more rapid than any international response that we've seen to a financial crisis in memory." But the president also cautioned against being overly optimistic. "This is not a panacea, but it is a critical step,'' Mr. Obama said, according to the Associated Press. Most of the areas in which the leaders made progress will require significant follow-up action both by national governments domestically and in international fora. The leaders agreed to meet later this year to continue their actions. President Nicolas Sarkozy of France said it would take place in New York after the next United Nations General Assembly in September. On perhaps the biggest obstacle to renewed growth – the parlous state of western banks whose degraded balance sheets are stopping them from making new loans – the leaders said they agreed new principles on how to deal with their toxic assets. But it is an obstacle that they could do little, collectively, to remove. G-20: Police Prepared for Protesters 1:23 It's a different scene at the G-20. Protesteres are out in much smaller groups in and around London. Still, police aren't taking any chances. Sky News' Mark Stone reports. Video courtesy of Fox News. How the Players Stack Up View Interactive More G-20 Dispatches: Reports from London, in Real Time EconomicsG-20 CommuniquéObama to Visit China, Resume DialoguePhotos: Leaders at the G-20Video: Obama Set to Take on EconomyPhotos: London Braces for ProtestsVideo: Protesters Tell Their StoriesWSJ.com/G-20: News, photos, moreThe leaders also said they would direct $250 billion for new trade finance to be directed through export credit agencies in each country and through international institutions. The headline figure was larger than the $100 billion that had previously been indicated. The communiqué included strong language on protectionism, saying the World Trade Organization and other international bodies would monitor this and name and shame those who put in place protectionist measures. The leaders committed to "reaching an ambitious and balanced conclusion" to the Doha round of trade talks. But it disappointed some free traders by making no commitments on restarting the Doha round. G-20 officials said the Obama administration had yet to formulate its approach to trade and Indian officials were not keen on such a commitment ahead of elections there. As expected, the statement from the group made no specific reference to a target and instead leaders made a vague commitment to "deliver the scale of sustained fiscal effort necessary to restore growth." Mr. Brown said the world was in the middle of a giant financial stimulus worth $5 trillion – though he gave no accounting for the figure and it was unclear whether it also included financial bailouts. On financial regulation, the leaders agreed to establish a new Financial Stability Board, a forum for financial regulators to settle on agreed principles. This will replace the existing Financial Stability Forum, but also include all G-20 countries, Spain, and the European Commission. This would cooperate with the IMF to provide early warning of economic and financial risks. The International Monetary Fund estimates that the G-20 countries together have produced fiscal stimulus of 1.8% of their combined economies for 2009 and just 1.3% for 2010. "It's premature to think about withdrawing stimulus," said John Lipsky, the IMF's number two official, before the meeting. The London summit was spurred by the sharpest global downturn since the Great Depression – and which has deepened further since the first G-20 summit in Washington on Nov. 15. The IMF, World Bank and Organization for Economic Cooperation and Development have put out a series of global economic estimates, one more pessimistic than the last. The three international financial organizations agree that the global economy is contracting for the first time since World War II and that trade is falling at the sharpest pace since at least 1970, though they disagree on the precise numbers. All three organizations also expect a recovery next year, although a tepid one. —Henry J. Pulizzi contributed to this article. Write to Stephen Fidler at stephen.fidler@wsj.com, Bob Davis at bob.davis@wsj.com and Alistair MacDonald at alistair.macdonald@wsj.com