G20 puts IMF at centre of crisis response

World leaders will impose new financial rules on Thursday and triple the war chest of the IMF to fight the worst economic crisis since the 1930s, monetary sources at the G20 summit said.

The communique drafted for the meeting, obtained by Reuters, said leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up IMF.

Stocks, battered by the crisis, shot higher on hopes for a strong agreement. The index of top European shares was up 3.3 percent after Japan's Nikkei gained 4.4 percent.

Monetary and developing country sources said the latest draft summit communique provided for a $500 billion boost to the IMF's resources, raising to $750 billion the funds it can make available to countries worst hit by the global crisis.

There's a lot of progress today on making sure the international institutions we have, like the IMF, have got the money they need...to be able to intervene more decisively and more urgently than in the past, British finance minister Alistair Darling told Sky TV.

The IMF would also be able to borrow money on international markets if needed, the sources said. Another British minister said leaders would discuss possible sales of IMF gold reserves, which could raise yet more cash, although he did not expect an immediate decision on Thursday.

The G20 were also close to agreeing a trade finance package worth $250 billion to support global trade flows, a source at the summit in London told Reuters. Brown had been targeting at least $100 billion to help reverse the decline in trade following the credit crunch.

This is a positive step to jump-start global trade flows. It is a significant contribution toward solving the problem, said Eoin O'Malley, senior adviser on international trade at BusinessEurope, Europe's top business group.

But the key now is implementation. G20 governments must act quickly to provide this finance to companies that need it urgently, he told Reuters.

TAX HAVENS

Addressing one of the summit's potential stumbling blocks, British Treasury Minister Stephen Timms said leaders were expected to agree in due course to the publication of a list of tax havens and to impose sanctions against them.

But it was unclear whether the vague timing would satisfy France and Germany, which have led demands for a crackdown on tax havens they blame for allowing the wealthy to avoid paying their fair share at a time of growing economic hardship. Paris said on the eve of the summit it would refuse to sign any concluding document that failed to satisfy its demands.

The draft communique included a pledge to deliver the scale of sustained effort necessary to restore growth, but without making any commitments beyond the trillions already being spent to stabilize banks, shore up demand and limit job losses.

The world economy will shrink this year for the first time since World War Two and tens of millions of people are expected to lose their jobs.

Analysts said Thursday's stock market gains would vanish if the summit does not deliver.

A good rally is coming through, particularly from Asian markets overnight on hopes for a decent stimulus package from the G20 to lift confidence, especially with regards to emerging economies and a boost to the International Monetary Fund, said Henk Potts, strategist at Barclays Wealth.

CONFIDENCE BOOST

Keen to secure a confidence-boosting message as the world succumbs to recession, U.S. President Barack Obama has said there are no substantive differences with Europe, despite the hardball stance taken by France and Germany over regulation.

The most important issue is that we agree ... on the principle that no financial market product, no financial market participant and no financial market can remain without regulation and without supervision, German Finance Minister Peer Steinbrueck told Deutschlandfunk radio.

The global economy is expected to contract in 2009 but between 0.5 and 1.0 percent, according to the IMF, whose head, Dominique Strauss-Kahn, is calling it a Great Recession.

They are not yet moving quickly enough in doing the cleaning up of the financial system, the Financial Times quoted Strauss-Kahn as saying.

The draft communique contained a pledge by the G20 nations to allow candid, even-handed and independent surveillance of their economies and financial sectors by the IMF, which will take an increasingly central role in global oversight.

It also unveiled a new Financial Stability Board to work with the IMF to identify economic and financial risks and measures needed to address them, revamping an existing body called the Financial Stability Forum.

Some 400 protesters gathered outside the summit, but were kept well away by police.