G7 vows unity to save economy

October 27, 2008
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, TOKYO, October 27 – The G7 club of rich nations pledged Monday to cooperate to bring stability to battered global markets, where stocks buckled on fears government action will be too late to prevent a worldwide recession.

It came hours after the International Monetary Fund announced rescue plans for Ukraine and Hungary, two nations hit hard by the financial crisis that is wreaking havoc on world markets.

Japan\’s Nikkei stock index fell briefly Monday to a level last seen in 1982 prior to the economic bubble era before bouncing back, while most other markets in Asia also posted losses in early trade.

The Group of Seven nations — comprising Britain, Canada, France, Germany, Italy, Japan and the United States — sought to calm nerves by affirming their "shared interest in a strong and stable international financial system."

"We continue to monitor markets closely and cooperate as appropriate," the statement from their finance ministers and central bank chiefs said.

At the same time, they voiced concern about "excessive volatility" in the value of the yen, which Friday soared to a 13-year high against the dollar as worried investors unwound positions in the Japanese currency.

On Sunday, the IMF said it would lend 16.5 billion dollars to Ukraine and would announce a "substantial" package for Hungary in the next few days.

The deals, made public by IMF director Dominique Strauss-Kahn, followed a 2.1-billion-dollar loan to Iceland and came amid appeals for assistance from other countries including Belarus and Pakistan.

The Washington-based institution has said it can provide up to 200 billion dollars in loans to countries facing financial difficulties.

The Ukraine programme "is focused on the essential upfront measures needed to maintain confidence and economic and financial stability," Strauss-Kahn\’s statement said.

"The policies Hungary envisages justify an exceptional level of access to Fund resources," he said, adding the package would include contributions from the IMF, European governments and other partners.

South Korea meanwhile announced its biggest-ever interest rate cut — the Bank of Korea reducing its key rate by 75 basis points to 4.25 percent — and said it would push for big tax cuts and spending increases to better protect its export-driven economy from falling global demand.

President Lee Myung-Bak insisted the nation would not face a repeat of the 1997-98 financial crisis, after the local stock market last week suffered its biggest weekly decline and the won plunged to a 10-year low.

In Japan, Prime Minister Taro Aso announced fresh measures to support the stock market, including boosting a government fund to pump capital into banks if needed.

Aso said Japan would also tighten restrictions on short-selling — selling shares in order to profit later from an anticipated fall in prices.

He did not specify the amount of new money to inject into banks but Kaoru Yosano, the economic and fiscal policy minister, said Sunday that Japan would likely increase it from two to 10 trillion yen (110 billion dollars).

After initially falling, the Nikkei index rebounded to show a gain of 0.4 percent by lunch. The bourse has fallen around 50 percent this year and is 80 percent off its all-time high, reached in December 1989.

South Korea\’s KOSPI index was down four percent by midday, after programme trading was halted for five minutes because of the sharp fall.

Elsewhere Taipei lost 6.0 percent and Shanghai shed 2.3 percent. Sydney was down 1.35 by midday while Hong Kong ended the morning down 4.2 percent.

Philippine shares closed down 12.3 percent and Indonesian shares were off 6.0 percent.

US and European markets already suffered heavy losses on Friday, with Wall Street\’s Dow Jones index ending down 3.59 percent.

Investors are braced for further market turbulence in the week ahead.

Although the US Federal Reserve is expected to cut interest rates Wednesday from 1.5 percent, Thursday also sees the release of US gross domestic product figures for the third quarter which are likely to show a decline.

Other key indicators on both sides of the Atlantic and a flood of results and outlooks from US, European and Japanese companies are unlikely to add grounds for optimism.

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