By Gonzalo Vina and Brian Swint
Sept. 5 (Bloomberg) -- Group of 20 finance ministers agreed to maintain economic stimulus measures after U.K. Prime Minister Gordon Brown warned against a premature end of emergency spending and rescue programs.
“It would be an error of historic proportions if we were to repeat the errors of the 1930s,” Brown told finance ministers at the opening of a meeting in London today. “The risks still very much remain. To start now reversing the extraordinary measures would be a serious mistake.”
Ministers agreed to continue emergency aid to their economies as they plan exit strategies for withdrawing it, according to a German official, who spoke on condition of anonymity because the talks aren’t complete.
The policy makers arrived in the U.K. as a report in the U.S. signaled recovery will be sluggish. Unemployment reached a 26-year high in August even as the pace of job losses slowed. Such mixed signals are preventing them from declaring victory over the recession and peeling back record-low interest rates as well as $2 trillion in fiscal stimulus.
U.K. Chancellor of the Exchequer Alistair Darling and German Finance Minister Peer Steinbrueck were among the officials who began talks in London yesterday, saying it was too soon to unwind measures that Brown estimated were worth $5 trillion. They promised to start outlining how they will eventually do so.
Timing
“The time to start implementing an exit strategy is when you have seen the job through,” Darling said in an interview yesterday. “One of the biggest risks is saying the job is done, now we can throttle back. We have made those mistakes before.”
The International Monetary Fund raised its forecast for global growth next year to 2.9 percent from the 2.5 percent it predicted in July, a G-20 government official said. The Washington-based lender also reduced its projection for the global contraction this year to 1.3 percent, from a 1.4 percent drop, the official said on condition of anonymity, citing a paper prepared for the G-20.
Still, officials should start discussing how to remove the “enormous liquidity” in financial markets before it spurs inflation and government borrowing costs, Steinbrueck said.
“It’s necessary to prepare for a situation when the economic and financial crisis hopefully will be overcome,” Steinbrueck told reporters. “One can’t talk about the concrete point in time just yet.”
Crisis policies will have to stay in place for another six months, Russian Finance Minister Alexei Kudrin said in an interview in London yesterday.
Coordinating Plans
Countries should ultimately coordinate steps when the time comes to withdraw stimulus, French Finance Minister Christine Lagarde said. Failure to unite would risk fanning inflation, leading to uneven debt burdens and may distort markets.
“It should be done together,” Lagarde said. “What the timing will be for each country will depend on the fabrics of the economy, on the status of where it is, on its size. We must have this coordination amongst ourselves.”
Central bankers are also planning for the exit -- without rushing toward it. European Central Bank President Jean-Claude Trichet yesterday used a speech in Frankfurt to outline how the ECB’s stimulus measures will eventually be taken back. Many of its loans to banks will “naturally unwind” as they mature and demand for additional cash wanes, he said.
‘Premature’
“Notwithstanding some recent signs of improvement in the economic outlook, it is premature to declare the financial crisis over,” Trichet said. “Stressing the importance of the exit strategy should not be confused with its implementation.”
The G-20’s policy makers are meeting through today to shape an agenda for a Pittsburgh summit of their leaders in three weeks. They will release a statement about 4 p.m. in London.
The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.
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