NEW YORK: World leaders must act urgently with co-ordinated fiscal and monetary policy to shore up the global economy, British Prime Minister Gordon Brown said on Thursday ahead of a G20 financial crisis summit this weekend.
Major central banks have already cut interest rates in tandem once this year and leading economies including the United States and China have introduced their own fiscal stimulus packages.
But for policy responses to have the greatest impact, Brown believes more co-ordination is necessary.
"We need to agree on the importance of co-ordination of monetary and fiscal policy," Brown told reporters ahead of the G20 summit in Washington.
"There is a need for urgency. By acting now we can stimulate growth in all our economies. The cost of inaction will be far greater than the cost of any action."
Policymakers are growing increasingly concerned about the prospect of prolonged recessions in major economies as the impact of the credit crisis spreads rapidly from high-flying financiers to factory workers and homeowners.
Brown has signalled his government will announce fiscal stimulus measures in its pre-budget report on Nov. 24 and many economists think the Bank of England will cut interest rates to record lows, following a shock 1.5%age point cut to 3% this month.
TEMPORARY STIMULUS
However, some economists argue that public money should be used only as a last resort after interest rate policy has been exhausted. Concerns have also been raised about the long-term dangers of a big increase in government borrowing now.
"It is now becoming increasingly accepted around the world that a temporary and affordable fiscal stimulus is necessary," Brown said. "For Britain, a fiscal stimulus is the right course."
Brown also wants the international community to start work on ways to avoid a repeat of the credit crunch by reforming institutions such as the International Monetary Fund and introducing better checks and balances in the financial system.
Britain has urged cash-rich states such as the Gulf states and China to boost the IMF's coffers so that more help can be given to struggling economies and to avoid contagion.
"We need to recognise the need for additional resources for the IMF if countries are to provide the necessary support for low and middle-income families at this difficult time," Brown said.
But, in return, emerging economy donors to the IMF are likely to want more say in how the international financial system is governed -- an outcome that may not suit all of those who currently wield the most power.
Brown will also press the G20 to push forward on global trade talks.
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