LONDON - World Bank president Robert Zoellick warned on Friday that 2009 could be a "very dangerous year" and urged quick action to fix troubled economies ahead of a meeting of international finance officials expected to wrestle over whether to spend or regulate the way out of the global downturn.
"The danger now is doing nothing too little, too late," Zoellick told reporters before heading to the gathering of finance ministers and central bankers from the Group of 20 countries in Horsham, about 50 kilometres south of London. "Incremental changes will prolong and increase risks."
Zoellick, a former top U.S. State Department official who has forecast the world economy will shrink by one-two per cent this year, said 2009 "is shaping up to be a very dangerous year" and added Friday that difficulties could extend "well into 2010."
He said fiscal stimulus without appropriate reform, such as cleaning up banks' the trouble assets weighing on bank balance sheets, would be "just a sugar high."
Widening cracks are developing ahead of the G20 meeting Friday and Saturday, with Europeans focusing on greater oversight of financial markets and the United States backing bigger stimulus spending.
Adding fuel to the fire, China expressed concern on Friday about its massive holdings of U.S. Treasuries and other debt, appealing to Washington to safeguard their value. Premier Wen Jiabao noted that Beijing is the biggest foreign creditor to the United States and called on Washington to see that its response to the global slowdown does not damage the value of Chinese holdings, adding that he was "a little bit worried."
Wen's comments foreshadowed possible appeals to President Barack Obama, who will meet with Chinese President Hu Jintao at the full summit of G20 heads of state and government April 2 in London.
The divisions are raising doubts about how successful the talks will be in developing a common agenda for the full G20.
As ministers prepare to thrash out a co-ordinated response to the crisis, U.S. Treasury Secretary Timothy Geithner has stressed the need for other major countries to commit to substantial and sustained efforts to bolster their economies in the face of a deepening recession.
While several other countries support calls for more fiscal stimulus, they want that effort to go hand in hand with reform of the international regulatory system. Wary of piling up huge levels of debt, they don't plan any new stimulus until they see how current plans are working -- and they might not see results from those until next year, European Union officials said this week.
German Finance Minister Peer Steinbrueck has been the most outspoken, expressing displeasure at U.S. comments that Europe has not done enough to stimulate the economy.
One thing both U.S. and European officials do agree on is the need to increase funding to the International Monetary Fund so it can help countries in trouble. The 16 nations that use the euro agreed this week to urge governments to double the IMF's resources to $500 billion and give it a key role overseeing risks to the global economy.
Australian Treasurer Wayne Swan said he wanted G-20 countries to commit to further anti-protectionist measures and hoped the meeting would improve the way the fund responds to the economic crisis. "We appreciate this is an ambitious agenda," Swan said in a speech to the London School of Economics. "But we also know extraordinary times demand extraordinary responses."
Geithner is expected to hold bilateral meetings with Japanese Finance Minister Kaoru Yosano, Mexico's Treasury Secretary Agustin Carstens and with European Central Bank Chief Jean-Claude Trichet.
