G7 unveils new measures
Leading economies attempt to stop market crisis from spreading
October 30, 1998: 12:41 p.m. ET
LONDON (CNNfn) - The Group of Seven (G7) leading industrial nations announced a series of measures Friday aimed at propping up world financial markets and preventing future economic crises.
The proposals include providing the International Monetary Fund (IMF) with an extra $90 billion to help distressed economies. There were no specific references to currency target rates in the statement from Gordon Brown, the U.K.'s Chancellor of the Exchequer.
Speaking at the G7 press conference, Brown announced that slow growth was now the greatest threat to the world economy, rather than inflation.
The sentiments were echoed during a White House press briefing on Friday morning when President Clinton hailed the measures as important steps to protect everyone from G7 nations to emerging countries around the globe.
"Over the long run, if America's economy is to continue to grow, the economies of our trading partners must continue to grow," the President said. (131K WAV) (131K AIFF)
The G7's concerted effort was announced on the same day that the U.S. Commerce Department reported a surprisingly strong 3.3 percent rise in the U.S. gross domestic product.
Market reaction
Analysts questioned whether the measures would have any real effect, but welcomed a new sense of urgency among G7 leaders.
"There's not much here of immediate practical use," according to Gwynn Hacche, head European economist at HSBC Securities. "This is largely a statement of intent rather than definite measures to improve things."
Brian Venables, senior bond strategist at ABN Amro in London, said this "new willingness to work together is…a step in the right direction for the world economy."
News of the extra reserve fund was welcomed. It should "provide greater confidence in the emerging markets and help to stem contagion," said Avinash Persaud, head of currency research at JP Morgan in London.
The full details of the new fund's lending process will be determined at a latter time by the IMF's board.
Increased transparency
G7 leaders also called for a better code of practice among financial institutions and specifically mentioned the need for increased transparency in the regulation of hedge funds.
"Today we released detailed plans for greater openness and stronger standards for finance in the international marketplace," Clinton said, adding the reforms will hopefully end financial volatility that endangers wealth and hope.
News of the additional IMF funding sent shares in some emerging markets soaring. Brazil's Bovespa index jumped 4 percent.
"I don't see much substance [in the G7 announcement] but if the aid package to Brazil is bigger than people are expecting, say $40 billion, then that will boost the markets," said Miranda Xafa, emerging markets economist at Salomon Smith Barney in London.
The U.K. coordinated the statement because Brown is the current chairman of the G7, which also includes the United States, Japan, Germany, France, Italy and Canada.
Brown said the additional money for the IMF would go toward paying for a new financial safety net to help economies that run into economic trouble.
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