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Saturday, 14 March 2009

World Bank warns of "very dangerous" year ahead

LONDON (AFP) - - World Bank president Robert Zoellick said Friday that 2009 was turning into "a very dangerous year" for the economy but warned G20 members against protectionist policies to fight the downturn.

"2009 is shaping up to be a very dangerous year," he told reporters ahead of Saturday's G20 finance ministers meeting on how best to tackle the worst economic slowdown in decades.

"I believe it will be a positive sign if the G20 supports extended IMF resources, condemns protectionism and supports practical solutions," Zoellick said.

The G20 includes the Group of Seven industrialised countries -- Britain, Canada, France, Germany, Italy, Japan and the United States -- the European Union and leading developing nations including Brazil, China and India.

Finance ministers and central bank leaders from the United States and Europe go into Saturday's meeting deeply divided on whether stimulus packages or tighter regulation of the finance sector should be the way forward.

Saturday's gathering in Horsham, near London, is expected to lay the groundwork for a G20 heads of state summit on April 2.

"If the leaders feel they are running out of constructive tools, they might start to point fingers and take protectionist and isolationist actions and those are the negative spiral of events you saw in the (19)30s," Zoellick added on Friday.

The head of the World Bank also said that governments may have to provide fiscal stimulus into 2010 but stressed that such action should come "within a framework of fiscal sustainability."

He was speaking a day after warning in an interview that growth in the world economy would likely fall by up to 2.0 percent this year -- the first contraction since World War II.

Zoellick believes the outlook is worse than the International Monetary Fund (IMF) analysis of 0.5 percent growth for 2009, reported the Daily Mail newspaper, which carried an interview with him.

While the United States, the world's biggest economy, wants a coordinated international stimulus to fight the slowdown, some in Europe are suspicious of such a move and favour tightening regulation of markets and institutions.

In a boost for the United States -- Japan and China, the world's second and third largest economic powerhouses -- also embraced stimulus on Friday.

There have been public clashes in the last week on the best way forward, suggesting progress at the G20 finance ministers' talks on Saturday could be hampered by disagreement.

German Chancellor Angela Merkel reiterated Friday that she did not favour a new package of economic stimulus measures.

"We do not think much of the idea of a new package of measures" to underpin the economy, Merkel told a press conference in southern Munich after a meeting with employers.

Meanwhile a US proposal to substantially raise the IMF's resources signals a strong move in Washington toward multilateralism by the Obama administration in the face of the global economic crisis.

US Treasury Secretary Timothy Geithner on Wednesday said he would recommend to the Group of 20 leading nations that they support "substantially increasing emergency IMF resources" and called for them to lend to countries hit hard by the crisis.

According to his proposal, the New Arrangements to Borrow (NAB) of the International Monetary Fund "could be increased by up to 500 billion dollars and membership could be enlarged to include more G20 countries."

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