WB warns of financial crisis' effects

WASHINGTON - World Bank President Robert Zoellick said Monday the way the world tries to solve its economic problems needs to be rethought amid today’s global crisis, including turning the Group of Seven into a Steering Group that empowers rising economic states.

Referring to the upcoming US election, Zoellick said the new president will have to move beyond “the firefight of financial stabilisation” to address the “economic aftermath.”

Whoever wins the White House should work with others in modernising the multilateral system as there needs to be a greater shared responsibility for the health and effective functioning of today’s global economy, he said.

“The G-7 is not working. We need a better group for a different time,” Zoellick said in a speech to the Peterson Institute for International Economics, a leading think tank in Washington DC.

“For financial and economic cooperation, we should consider a new Steering Group including Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa, and the current G-7,” he said.

Speaking ahead of the Annual Meetings of the World Bank Group, Zoellick said the new Steering Group should be more than just replacing the G-7 with a fixed-number G-14, as this would be using old world methods to remake the new.

The Steering Group should evolve to fit changing circumstances, including new emerging powers, while serving as a network for frequent interaction, he said. “We need a Facebook for multilateral economic diplomacy,” Zoellick said.

Warning about the effects of the financial crisis, Zoellick said “The events of September could be a tipping point for many developing countries.”

“A drop in exports, as well as capital inflow, will trigger a falloff in investments,” he noted. “Deceleration of growth and deteriorating financing conditions, combined with monetary tightening, will trigger business failures and possibly banking emergencies.”

“Some countries will slip toward balance of payments crises. As is always the case, the most poor are the most defenceless,” he said.

AFP adds: Desperate new measures by governments in Europe and North America to stabilise the financial system failed to stop panic selling that swept global markets Monday amid deepening gloom at the scope of the banking crisis.

Nothing seemed to stop stock markets taking, in many cases, record falls.

European Union leaders vowed in a joint statement to “take whatever measures are necessary to maintain the stability of the financial system” and the US Federal Reserve said it would pay interest on bank deposits for the first time in a bid to increase liquidity.