Global financial crisis dominates Davos discussions

Warnings global financial crisis could continue for years

Possible int’l initiative to reshape new world financial system

British PM warns; Russia suggests int’l agreement on energy security

Obama foresees tough months, promises strategic rescue plan

The World Economic Forum will launch in the upcoming weeks an initiative to focus on reshaping the global financial systems, its founder Klaus Schwab announced on Sunday in the closing hours of this year's Davos summit.

"We will start a Global Redesign Initiative in next few weeks," Schwab said in an impromptu statement.

Schwab says the overhaul of the global financial system will take time.

"It has the support of almost every political leader who was here" at Davos in the past five days, said Schwab, naming specifically UN Secretary General Ban Ki-moon and Chinese Prime Minister Wen Jiabao as backers.

He said the upcoming meeting in April of the Group of 20 industrialized economies (G20) would not be enough to solve the global economic crisis.

"It won't address the totality of the issues," Schwab said, adding it could at best deal with "technical" matters.

He said there needed to be a systemic redesign of the global banking system, financial regulation and corporate governance.

"The key is global cooperation," Schwab stated later, "not only among government but among all the stakeholders of our society."

In a wide-ranging speech at the World Economic Forum, German Chancellor Angela Merkel staunchly rejected protectionism as a solution to the economic and social challenges of globalization.

Chancellor Merkel said some countries might be tempted to exploit their economic might to its fullest, by selfishly consuming global resources and setting up customs barriers to protect "their own weaknesses."

"My clear and succinct answer is: no!" Merkel told the gathering of business and political leaders in the Swiss resort of Davos.

Speaking as the current president of the European Union, Merkel said she wanted the bloc to use the motto "more freedom for a new security" as its guiding principle for the future.

She also said Germany, during its presidency of the Group of Eight industrialized nations, would aim at removing exchange rate imbalances, boosting hedge fund transparency and starting a new dialogue with emerging powers.

Major WTO members have agreed that more ministerial meetings are needed this year to seek a breakthrough of the long-delayed Doha Round of global trade talks, Swiss Economics Minister Doris Leuthard said.

"Possibly, a first meeting could even take place before the G20meeting in April," Leuthard said following an informal ministerial gathering of 18 major WTO members on the sidelines of the World Economic Forum annual meeting in Davos.

Two other ministerial meetings could take place in June and July respectively, Leuthard told a joint press conference held with WTO chief Pascal Lamy.

Lamy confirmed that more ministerial meetings are needed for a Doha Round breakthrough in 2009.

"We need to gather ministers. I've been given a mandate to do that, if necessary," he said.

According to Leuthard, trade ministers present all agree that "trade is part of the solution" to the current economic crisis.

"The opening-up of markets is the best we can do to fight the crisis," she said.

The 18 WTO members include the United States, the European Union, Japan, Australia, Brazil, India and China, the so-called Group of Seven most influential parties in the Doha Round.

They expressed a strong commitment to finalize the Doha negotiations, on the basis of progress made in 2008, Leuthard said.

However, Lamy warned that challenges remain for the Doha negotiations, notably the rising sentiments of protectionism amid the global economic recession.

"Ministers are worried because they are under domestic political pressure and what they hear at home is that trade should go to the toilet ..." he said.

"Throwing trade out with the bath water is a big mistake ... and trade opening is none of the causes of the crisis," he stressed.

Lamy also noted that a global trade deal could have a multiplier effect on any economic recovery and offer confidence to the private sector.

The prime minister of Kenya, Raila Odinga, has said that Africa is not an invalid - it needs access to international markets for its goods and increased investment.

Energy - the essence of modern life - is likely to be in short supply even before the crisis is past. The Russian Prime Minister speaking at the Davos Forum suggested a new international energy agreement that will link producers and consumers, on a legal basis.

Vladimir Putin stressed the need to organize the rational use of energy resources even with current low prices.

“Investments in energy efficiency, and alternative sources of energy, are likely to fall. At the same time investments in oil extraction will fall as well. That will lead to an uncontrolled rise of prices when the economy recovers. Therefore it will threaten the economic recovery and may lead to a new crisis.”

Russia will not write a blank check to save top businessmen hit by the global economic crisis and the state expects something in return for helping bail them out, a government official said.

Some of Russia's richest men, who borrowed billions of dollars in the boom years during Vladimir Putin's presidency, face difficulties because the value of collateral they put up as security for major loans has plummeted.

Russia has spent large amounts helping businessmen such as metals tycoon Oleg Deripaska, once Russia's richest man, refinance foreign debt.

But First Deputy Prime Minister Igor Shuvalov said businessmen should not expect the state to help them with everything and they would have to make compromises.

'We must have understanding... We see that many enterprises that we work with, and their shareholders, have started to feel that the state will save them no matter what,' he told reporters at the World Economic Forum in the Swiss ski resort of Davos.

'Against this background they have begun to think ... that the state will help them no matter, help them to refinance their foreign debts and give them special programs to buy their production. We have nothing like this in our plans.'

Russia has spent about $11 billion through state corporation VEB to refinance the foreign debts of Russian companies, and had received requests for much more financial help, Shuvalov said.

He gave no details, but VEB chairman Vladimir Dmitriev told reporters Russian companies had made bids for about $90 billion to help them restructure their foreign debts.

Russian companies must pay back $115.7 billion in foreign debt and interest this year, according to government estimates.

British Prime Minister Gordon Brown warned against a retreat into protectionist policies in response to the global financial crisis.

In a joint news conference with United Nations Secretary General Ban Ki-moon at the World Economic Forum, Brown flagged the risk of 'financial mercantilism', where foreign banks retreat to their home countries during the crisis.

'This, if we do nothing, will lead to a new form of protectionism, a retreat of globalization and a reduction of trade and cross-border activity which will be followed quickly by the old trade protectionism of the past,' Brown said.

'This is a time not just for individual, national measures to deal with the global financial crisis. This is the time ... for the world to come together as one.'

His remarks set the tone for political leaders from rich and developing countries attending the World Economic Forum to lay some groundwork for a deal on rebuilding the global financial system at the Group of 20 summit April.

Brown said there were three key areas to tackle -- the stabilization of the banks, sustaining cross-border trade and the resumption of lending to households and businesses.

'Not to make a decision, the policy of doing nothing, will allow this crisis to start a retreat from globalization with huge implications for prosperity in every part of the world in the years to come,' Brown said.

The Group of 20 summit in April in London will focus on efforts to counter the financial crisis but would also discuss climate change and global poverty.

'We will not solve the problem of climate change without development in Africa ... We have got to act on climate change and we have got to act on poverty at the same time,' he said.

Insurance rates are likely to increase in 2009 and the Lloyd's of London market is doing well, despite the economic downturn, its chairman said.

Peter Levene said the recent precipitous fall in sterling had prompted Lloyd's to tell insurers to increase their capital reserves, which they were now doing.

"As far as we are concerned we don't see anything dramatic, so we are a sort of rock of stability in the storm," he told Reuters on the sidelines of the annual meeting of the World Economic Forum.

Lloyd's made record profits in 2006 and 2007 but pre-tax profit fell by nearly half in the first half of last year, due to lower investment income, weaker insurance rates and higher claims.

Levene said poor investment returns would continue to weigh on the full-year figures but Lloyd's would deliver a solid profit.

"It will be a nice black number, so if people look it and say did Lloyd's make a good profit, we'll say 'Yes'," he said.

For the current year, a reduction in capacity due to scarce capital would put upward pressure on rates. "The mood music is that '09 will be better ... they should go up," he said.

While the recession now gripping major economies will have some knock-on impact on the insurance market, the loss of business would be limited.

"If you take a major car manufacturer, they may cut their output by half but unless they sell off the factories they are still going to insure," he said.

Some Lloyd's of London insurers have recently started tapping private investors -- or "Names" -- to provide underwriting capital.

But Levene said there would not be any widespread return to reliance on such individuals, who traditionally backed the 325-year-old market.

More than 85 percent of Lloyd's capital is now corporate and that proportion would not change significantly, he said.

Disagreements between the IMF and Turkey over a major standby loan deal are not over minor issues, Economy Minister Mehmet Simsek said, comments seen again raising questions about a swift deal.

Simsek, in an interview with CNN Turk at the World Economic Forum in Davos, said his government still hoped to sign a deal as soon as possible. He did not say what the disagreements were. Turkey has been locked in negotiations for weeks with the International Monetary Fund on a loan deal to reinforce state finances as the country battles sharply slowing economic growth and a large external borrowing requirement this year.

Talks were suspended on Monday after the two sides failed to resolve their differences. Markets expects a deal around $25 billion, which would make it the biggest loan request in Turkey's history.

Turkish business leaders and investors urgently want a stand-by agreement to stabilize the $700 billion economy which has seen a sharp slowdown in growth. The previous $10 billion accord expired in May.

Simsek said on Thursday he expected to invite back an IMF mission to Ankara in coming weeks provided that outstanding issues were resolved.

Talks are expected to centre on medium-term fiscal reform.

Turkish Prime Minister Tayyip Erdogan cast doubt on a swift deal with the global lender, telling reporters in Davos on Thursday it was not "the end of the world" if no deal was struck.

"Our disagreements with the IMF are not on small details," Simsek said on Friday, without providing details.

OPEC Secretary General Abdullah al-Badri said on Thursday OPEC would not hesitate to act again if the oil price remains low.

The producer group next meets in March in Vienna and Badri said it was still monitoring the impact of cuts totaling 4.2 million barrels per day, which he said were being 100 percent implemented.

But if the price remained low, OPEC would not hesitate to act again.

"OPEC will not hesitate ... we are still reviewing," he told the World Economic Forum.

Oil prices are around $40 a barrel and even $50 would be low, Badri said.

"Even with $50 we cannot have a decent income for our members," Badri said.

Foreign Secretary David Miliband and Chancellor of the Exchequer Alistair Darling have pulled out of the meeting of the World Economic Forum in Davos, their offices said.

A Foreign Office spokesman told AFP that Miliband's agenda was "under constant review", adding: "It became increasingly clear that Davos this year would be dominated by economic issues and less by an international agenda."

Darling has also cancelled his trip to the Swiss winter resort, where world leaders including China's Premier Wen Jiabao and Russia's Prime Minister Vladimir Putin are meeting at a summit dominated by the global financial crisis.

"It was decided that, as a number of people he (Darling) was due to meet had pulled out, his time would be better spent doing other things in the UK," a Treasury spokesman told AFP.

Several top bankers have pulled out of the meeting and no senior policymakers from the new US administration of President Barack Obama are expected.

The Treasury spokesman stressed that Darling was in regular contact with other finance ministers, and noted London was hosting a summit of the Group of 20 (G20) advanced and developing nations on April 2.

Downing Street confirmed that Prime Minister Gordon Brown would be attending the Davos summit, and is expected there.

The US House of Representatives has passed an unprecedented 819-billion-dollar economic stimulus package to help pull the country out of its most serious recession in decades.

The House voted 244 to 188 for the bill. President Barack Obama, who has made the stimulus a centerpiece of his efforts to revive the struggling economy, earlier made a final effort to convince skeptical legislators to back his plan, a mixture of two- thirds government spending projects and one-third tax cuts for consumers and businesses. The American Recovery and Reinvestment Act will now move to the US Senate.

President Obama responded to the news announced by the Commerce Department that economy sank further in the last quarter of last year, saying it was a symbol of the suffering of the American people constituting "the American dream in reverse."

"Today we learned that our economy shrank in the last three months of 2008 by 3.8 percent," the president said at an event in the East Room of the White House. "That's the worst contraction in close to three decades. This isn't just an economic concept. This is a continuing disaster for America's working families."

The president said that "every day it seems there is another round of layoffs, another round of jobs lost and families' lives turned upside down." During the campaign, Mr. Obama said, voters all over the country "told me about jobs lost and homes foreclosed, hours cut and benefits slashed, the costs of life slowly slipping away and -- chipping away at the hopes of affording college or a new home or retirement. It's like the American dream in reverse."

The East Room ceremony had been called to formally announce the creation of a Middle Class Task Force, headed by Vice President Biden, and for President Obama to sign three labor-related executive orders.

The U.S. economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed on Friday, sinking deeper into a recession that the White House said demands urgent action.

In a report that showed a broad-based contraction across nearly all sectors, the Commerce Department said gross domestic product shrank at a 3.8 percent annual rate, the biggest contraction since the first three months of 1982.

President Barack Obama, who is pushing Congress to approve a package of spending and tax cut measures that could cost close to $900 billion (618.8 billion pounds), said the report highlighted the need for quick government action.

"It's a continuing disaster for America's working families," Obama said of the latest data. "The recession is deepening and the urgency of our economic crisis growing."

The decline, however, was not as deep as analysts had expected, thanks to a $6.2 billion rise in inventories, a development that suggests businesses might pull back even more sharply in the first quarter, prolonging the year-old recession.

"Because fourth-quarter GDP was supported by a dubious increase in inventories, today's positive data surprise is a significant burden for the upcoming quarters," said Harm Bandholz, an economist at UniCredit Markets and Investment Banking in New York.

The sharp drop followed a 0.5 percent decline in the third quarter. These are the first back-to-back quarterly contractions in output since the last quarter of 1990 and the first quarter of 1991.

Trade ministers from 24 countries have pledged that they will agree a new world trade deal by the end of 2009.

The move comes amid worries that the global economic crisis could prompt some countries to erect trade barriers to protect struggling industries.

Several leaders, from UK Prime Minister Gordon Brown to South African Finance Minister Trevor Manuel have warned this would hit the poorest the hardest.

Negotiations in the so-called Doha trade round have been stuck for years.

Talks to agree more details would resume ahead of the G20 summit of leading nations in April in London, said Swiss Economy Minister Doris Leuthard.

Hundreds of people have rallied in Geneva and Davos to protest against the annual meeting of the World Economic Forum (WEF), taking place in Davos.

Carrying banners reading "You are the Crisis" and throwing snowballs, the protesters said those attending the gathering were not qualified to fix the world's problems.

"It's the same people who came last year and said the world economic situation is fine, and now we're in a financial crisis. Now it's the taxpayer who has to solve the whole problem," said protester Alex Heideger, a member of the Davos Green Party, outside the heavily guarded Hotel Seehof in Davos.

In Geneva, where the WEF has its headquarters, police in riot gear fired tear gas and water canons to disperse a crowd that had gathered in a square near the train station. Witnesses said there did not appear to be any violence by the protesters.

Local authorities did not formally permit the rally.

Geneva police spokesman Jean-Philippe Brandt said that about 60 people were detained temporarily for checks but there had been no arrests. About 30 had been released and the rest are due to be released soon, he said.

"There are small groups of people who are clashing with police but there have not been any injuries on one side or the other," Brandt said, adding there were also no reports of damage to buildings or businesses so far.

The United Arab Emirates should divert more of its assets invested overseas back home to help bolster the economy and local stock markets, according to Abdulaziz Al Ghurair, speaker of the Federal National Council and billionaire businessman.

Al Ghurair, speaking at a session on the future of Gulf economies at the annual meetings of the World Economic Forum Friday, said that funds including the Abu Dhabi Investment Authority Abu Dhabi Investment Authority Abu Dhabi Investment Authority

"The money should come back" he said.

Japanese Prime Minister Taro Aso pledged to provide more than $17 billion to help Asian countries strengthen their growth potential amid the global financial crisis in an address at the annual meeting of the World Economic Forum in Switzerland. Aso also promised that Japan will set a medium-term emissions reduction target for around 2020 by June this year to tackle global warming, saying Japan will make more efforts toward reducing emissions.

‘‘This year is the year when we decide on concrete actions,’’ Aso said at a special session of the weekend meeting held in the Swiss resort town of Davos. ‘‘If all countries do not share the burden equitably in keeping with their differentiated responsibilities, the problem will never be solved.’’

In the speech titled ‘‘my prescriptions for reviving the world economy,’’ Aso said it is ‘‘Japan’s foremost duty’’ to have the world’s second-largest economy restore its vitality in countering the global financial turmoil.

Aso presented Japanese economic measures totaling 75 trillion yen and said it is necessary to boost internal demand, while calling for steady implementation of an action plan agreed on at the November financial summit in Washington to stabilize the financial markets.

Aso also said Japan’s position is to ‘‘resolutely fight all protectionism’’ and expressed a desire to act with other countries toward concluding the stalled Doha Round negotiations of the World Trade Organization.

To support Asian countries, Aso said the government is prepared to provide more than $17 billion, or 1.5 trillion yen, to the region swiftly by mobilizing official development assistance.

On climate change, Aso said Japan will help developing countries introduce advanced energy-saving and low-carbon technologies so they can shift to ‘‘low-carbon societies’’ while maintaining high economic growth.

By announcing its determination to set a specific midterm emissions reduction target, Japan aims to catch up with the European Union which is seen as ahead of the rest of the world in tackling global warming.

Aso later told reporters that Japan will set a feasible midterm target, saying, ‘‘It will not be persuasive if we cannot explain (the figure)...from the aspects of economy, showing how much money will be needed, environment, and energy.’’

Japan also aims to create an environment for the country so it can exercise its influence in global efforts to set up a new framework for after 2012, when the current Kyoto Protocol expires.

On issues in the Middle East, Aso said that ‘‘security measures and reconstruction assistance are like two sides of the same coin,’’ and declared that Japan will dispatch Self-Defense Forces personnel to waters off the coast of Somalia for an anti-piracy mission in addition to engaging in the antiterrorism refueling mission in the Indian Ocean.

Aso also vowed to continue supporting people’s livelihood in Afghanistan by such means as constructing clinics and providing literacy education.

At the outset of his speech, Aso stated his conviction of ‘‘peace and happiness through economic prosperity and democracy’’ by citing his concept of the ‘‘Arc of Freedom and Prosperity’’ expressed when he was foreign minister two years ago.

The concept ‘‘clearly illustrates Japan’s determination to support the efforts of countries aspiring to market economies and democracy, and to travel the road to prosperity together with those countries,’’ Aso said.

The five-day annual meeting of the World Economic Forum, a Geneva-based international economic research institute, began with the participation of business, political and academic leaders from more than 40 countries.