World Bank offers trade boost, OECD casts G20 shadow

LONDON (Reuters) - The World Bank announced a $50 billion program on Tuesday to counter a decline in global trade and Britain called on G20 leaders to supply "the oxygen of confidence" to drag the world economy out of recession.

Leaders of the world's largest and developing economies meet in London on Wednesday and Thursday to try to chart a way out of the worst global crisis since the 1930s, caused by a freeze in credit after bank loans went bad.

The scale of the problem was underlined by the Organization for Economic Co-operation and Development (OECD), which said the economies of its 30 members would shrink by 4.3 percent in 2009, shedding 25 million jobs this year and next.

Japan, the world's second largest economy, announced plans for its third stimulus package and Japanese media predicted it would aim to create 60 trillion yen ($612 billion) worth of demand and 2 million jobs.

The OECD's chief economist Klaus Schmidt-Hebbel said international stimulus measures taken so far should restore growth in 2010 -- a forecast that echoed a line in a draft G20 communique obtained by Reuters on Monday.

The draft shows leaders want to agree to avoid currency moves and protectionist measures that would damage other economies. It also repeats existing promises to get economies back on track, but does not contain any specific details.

A report released by a G20 working group on restructuring the financial services industry said hedge funds should be more closely regulated and credit ratings agencies subject to tighter supervision.

CONFIDENCE BOOST

British Prime Minister Gordon Brown, the summit host, said G20 leaders should aim to save or create 20 million jobs and must act together to increase the potential impact of their actions.

"Leaders meeting in London must supply the oxygen of confidence to today's global economy and give people in all of our countries renewed hope for the future," he said.

Speaking to Reuters ahead of the summit, World Bank President Robert Zoellick played down the chances of a dethroning of the dollar as the world's leading currency.

"I think the dollar will remain the principal reserve currency. The question will be whether you have complementary measures," Zoellick said.

Zoellick also said the Bank expects world trade volumes to fall by 6 percent this year, the largest decline in 80 years.

While he offered few details about the program to boost trade, which is being considered by the World Bank board later on Tuesday, Zoellick said the drop in commerce was exacerbated by a shortfall in trade credit, which allows exporters and importers to settle accounts.

DIVISIONS

The run-up to the summit has been marked by divisions between the United States and continental Europe over its focus.

President Barack Obama's U.S. administration has been pushing for further fiscal stimulus, whereas countries like France and Germany want to see the impact of measures already taken and to focus on reforming regulation of financial markets.

European Commission President Jose Manuel Barroso said on Tuesday the summit should pledge an overhaul of financial institutions, map out an exit from governments' spending sprees and commit to a climate deal.

The EU will opt for a massive increase of IMF resources, to which it will contribute 75 billion euros ($99.3 billion), he said. The summit is aiming to agree to at least double IMF resources to $500 billion to help prevent political instability in once-buoyant emerging markets.

Brown, who has spearheaded efforts to get agreement on concrete measures at the G20, said the summit must restore people's faith in the economy.

The son of a Scottish church minister, he told faith leaders and charity workers in a speech in London's St Paul's Cathedral that markets must be guided by everyday values cherished by all.

"Our task today is to bring the imperatives served by our financial markets into proper alignment with the values held by families and business people across our country - hard work, taking responsibility, being honest, being fair," Brown said.