HORSHAM, England: Japan announced a $5 billion loan fund yesterday to help developing nations, hard hit by the global credit crisis, to put in place running water, solar power systems and other environmental infrastructure.
Capital flight is plaguing emerging economies as US and European investors retreat to repair their balance sheets and lending at home.
The outflow of funds from emerging markets - and the accompanying economic pain - was a major concern when financial leaders of the G-20 developed and big emerging economies met over the weekend in the south of England.
Under the initiative, announced by Finance Minister Kaoru Yosano at the G-20 gathering, Tokyo will offer the money over the next two years for public and private sector infrastructure projects mainly in Asia.
Loans will be extended to environmental projects such as promoting solar power and providing more efficient sewage and public transport systems.
Tokyo hopes the loans, to be made through state-backed trade financier Japan Bank for International Cooperation, will help stimulate Asian emerging economies hit by slumping global demand, while also boosting long-term infrastructure.
The $5 billion will be in addition to the $1 billion program Tokyo unveiled at a G-7 finance leaders’ meeting in Rome last month to support trade in Asian neighbors hit by shrinking global trade and liquidity. Meanwhile, France and Germany claimed a win yesterday as the G-20 agreed to increase financial market oversight.
French Finance Minister Christine Lagarde said the meeting gained commitments from the United States, China, Japan and others to curb the world’s shadow banking system as they promised more oversight on hedge funds and to clamp down on tax havens.
“Clearly our colleagues in the G-20 moved in our direction,” she said. “France and Germany and pretty much all European countries were very keen that we had a breakthrough in relation to regulation and transparency.” German Finance Minister Peer Steinbrueck greeted an American and British turnaround on these issues, saying neither wanted to look at these issues two years ago because it “could have affected negatively their financial markets in London and New York.” Those markets are now suffering heavily as credit markets seize up, securitization shrivels and banks seek state help.
US Treasury Secretary Tim Geithner told reporters that the world had seen “systematic failure in regulation” and that “really underscores this commitment to reform.” He promised “a race to the top ... a global move to higher standards.”
In a joint statement, G-20 finance ministers said “all systematically important financial institutions, markets and instruments are subject to an appropriate degree of regulation and oversight and that hedge funds or their managers are registered and disclose appropriate information to assess the risks they pose.” They also agreed to oversight and registration of credit rating agencies, clearer accounting rules for problem assets, more standards for credit derivative markets and “a tool box of effective counter measures” against tax havens and noncooperative regions where looser financial rules apply.
