Paulson: Protectionist policies won't solve crisis

October 12, 2008 11:46:01 AM PDT
Appealing for global unity in a time of crisis, Treasury Secretary Henry Paulson said Sunday that isolationism and protectionism do not offer a way to contain the spreading damage. He expressed concern about the fallout on poor countries. "Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flow of goods, services or capital, as such measures would only intensify the risks of a prolonged crisis," he said at a meeting of the World Bank's policy-setting committee.

U.S. lawmakers, meanwhile, called for fast action - by the administration on a plan for the government to take direct stakes in certain big troubled banks and by Congress on a new economic aid plan.

The World Bank and the International Monetary Fund, holding their annual meetings this weekend, have a vital role to play in working with governments to develop appropriate responses "and discourage inward looking policies," Paulson said.

As a result of the downturn, developed countries are not expected to help 28 countries facing twin shocks of rising food and fuel prices, said the bank's president, Robert Zoellick. "For the poor, the costs of the crisis could be lifelong," he said.

Sen. Chuck Schumer, chairman of the Joint Economic Committee, said an administration proposal to inject federal money directly into certain banks, in effect partially nationalizing the banking system, "is gaining steam."

"I am hopeful that tomorrow, the Treasury will announce that they're doing it. And they have to do it quickly ... markets are waiting," Schumer said.

Schumer and other Democratic leaders also backed plans by House Speaker Nancy Pelsoi, D-Calif., for a session after the Nov. 4 election to consider a $150 billion proposal to boost the economy.

The measure would extend jobless benefits, provide more money for food stamps and finance public works projects such as rebuilding bridges and roads.

"Yes, we are going to do a stimulus" after the election, said Rep. Barney Frank, chairman of the House Financial Services Committee. The idea is "give the middle-class and the average citizen the same kind of relief that we try to give the financial sector," said Frank, D-Mass., who like Schumer appeared on the Sunday talk shows.

President Bush says his administration is doing everything possible to halt the biggest market disruption since the Great Depression.

Accompanied by Paulson and Federal Reserve Chairman Ben Bernanke, Bush participated for about 25 minutes in a discussion late Saturday with the Group of 20 nations, which includes wealthy countries as well as major developing countries such as China, Brazil and India.

Bush acknowledged that problem began in the United States, but told participants that "we're all in this together," according to a White House spokesman.

In a statement, the G-20 finance officials pledged to work together "to overcome the financial turmoil, and to deepen cooperation to improve the regulation, supervision and the overall functioning of the world's financial markets."

Other speakers at a policy meeting of the IMF echoed Bush in emphasizing the need for countries to jointly address the crisis, avoiding the go-it-alone protectionist trade strategies that worsened conditions during the Great Depression of the 1930s.

"There is a resolve in the international community that this crisis will be resolved, that no tools will be spared to address its ramifications," said Youssef Boutros Ghali, Egypt's finance minister and the new chairman of the policy panel.

Paulson worried about the fallout on the most needy countries.

"Financial market developments are having an acute impact on advanced economies and we can expect the crisis to have major ramifications for emerging markets and the poorest countries as well," he said in a statement. "These events will test the ability of the World Bank and the IMF to respond effectively, and it is imperative that they stand ready to deploy their resources to mitigate the impact of this crisis, especially on the poorest and most vulnerable."

At a meeting Sunday of European leaders, a draft declaration said their governments plan to temporarily guarantee future loans among private banks to unlock frozen credit markets.

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On the Net:

White House: http://www.whitehouse.gov/infocus/economy/

Treasury Department: http://www.ustreas.gov/

World Bank : http://www.worldbank.org/

International Monetary Fund: http://www.imf.org/external/index.htm


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