G7 nations vow new financial safeguards

Top financial leaders, faced with the biggest crisis to hit the global economy in at least a decade, are pledging to strengthen their regulation of banks and other financial institutions while anxiously hoping the slump in the United States will be a short one.

After an opening round of talks among the world’s seven richest industrial countries – the G7, financial officials were scheduled to reconvene today for discussions focused on the 185-nation International Monetary Fund and the IMF’s sister lending institution, the World Bank.

The IMF, the lender of last resort for countries in trouble, is facing its own economic hard times.

Officials were to discuss a proposal that would trim 15% of the agency’s staff and sell about 11 billion US dollars in the institutions’ vast gold reserves.

The biggest agenda item during the three days of meetings was the severe credit crisis that hit last August and could result in losses approaching a staggering US$1trillion before it is over, according to an IMF estimate released this week.

In a joint statement after talks yesterday, the G7 nations – the United States, Japan, Germany, Britain, France, Italy and Canada – endorsed an action plan to bolster regulation of big banks, investment houses and other financial firms that have already announced billions of dollars in losses from a credit crisis that began with rising defaults on subprime mortgages in the United States, but quickly spread to other types of investments around the world.

“The turmoil in global financial markets remains challenging and more protracted than we had anticipated,” the G7 officials said in their joint statement.

In their comments, the officials left no doubt that they are all watching to see how developments unfold in the United States.

“The US economy has to get over the economic unrest,” Japanese Finance minister Fukushiro Nukaga told reporters.

The IMF issued an economic outlook that predicted the United States would endure a mild recession this year and that weakness in the world’s biggest economy raised the risks of a global recession to one in four.