WASHINGTON – Treasury Secretary Timothy Geithner is expected to outline the Obama administration's efforts to clean up the U.S. banking system during meetings Friday with finance ministers from the Group of Seven nations, a department official said.
Getting banks to lend again, along with government stimulus spending, is critical to turning around the U.S. and global economies, the official said Thursday, speaking on condition of anonymity because he wasn't authorized to speak on the record.
His comments came the same day that Dominique Strauss-Kahn, managing director of the International Monetary Fund, urged the U.S. and Europe to do more to remove distressed assets from banks' balance sheets. World leaders pledged to take such steps during a summit in London April 2.
Postponing such steps, Strauss-Kahn said, would "postpone the recovery."
Finance officials from around the world are gathering in Washington for three days of discussions beginning Friday. The G-7 meetings will be followed by talks over dinner that night among the Group of 20 nations, which adds major emerging powers such as China, Russia, India and Brazil to the mix.
The Treasury official said an "important component" of the Obama administration's efforts is the "stress tests" that regulators have done on 19 of the nation's largest financial institutions.
The tests are intended to gauge how the banks would fare in a severe recession and determine which institutions need more capital. The additional money, if needed, would come from the private sector or the government. Officials are to release the methodology for the stress tests Friday and privately begin telling the institutions how they performed.
Meanwhile, Strauss-Kahn and Robert Zoellick, the head of the IMF's sister organization, pledged new resources to fight the worst global downturn since the Great Depression of the 1930s, while warning that the crisis is far from over.
"We still have long months of economic distress in front of us," Strauss-Kahn said.
The IMF's board agreed to double the borrowing limits for 78 of the poorest countries in an effort to meet the needs of developing nations harmed by the downturn.
Separately, Zoellick said the World Bank will provide $45 billion over the next three years to support road building and other infrastructure projects in poor nations. That's $15 billion more than it spent on infrastructure efforts in poor nations in the three years before the crisis.
The funds are designed to support job creation and "help jumpstart a recovery from the crisis," he said. He also said the U.S. and Europe should "reconsider old prerogatives" and allow developing countries a greater voice in management of the World Bank.
When the money is combined with increased efforts from an arm of the World Bank that supports private sector projects, the increased funding could total $55 billion, the World Bank said. The effort is designed to give developing countries the same type of stimuli rich nations are providing to create jobs in the face of massive layoffs caused by the recession.
The initiative follows a tripling in lending to $12 billion announced earlier this week to support health, education and other safety net programs in poor countries. The goal of both World Bank efforts is to ensure "we don't repeat the mistakes of the past," Zoellick said Thursday.
During previous financial crises in the 1980s and 1990s, governments in developing countries were forced to cut spending on infrastructure projects and social programs, he said.
"We saw social unrest, deprivation and even violence," Zoellick said. "Poor people suffered most from the mistakes of others."
Also on the agenda for Friday's G-7 and G-20 meetings will be fleshing out the promises made at a meeting of world leaders earlier this month in London.
Leaders from the G-20 nations pledged April 2 to boost support for the IMF, the World Bank and other international lending organizations by $1.1 trillion to combat the global recession. But the biggest chunk of that amount — $500 billion for an emergency lending facility at the IMF — is still short of the goal.
The U.S., Europe and Japan have committed roughly $100 billion each, and other countries have pledged much smaller amounts. Strauss-Kahn said he expects new pledges this weekend.
China had indicated in London that it would pledge $40 billion. Strauss-Kahn said he is meeting this weekend with Chinese officials to discuss the country's commitment.
That could be complicated since China and other big developing countries like India want to link their increased support to making progress on their long-sought goal for a bigger voice in the operations of institutions like the IMF. This proposal is being resisted by various European nations who would lose some of their current voting powers.
The debate also could hinder efforts to reach agreement on a proposal to sell part of the IMF's vast gold reserves to provide more support for the poorest countries and to expand an IMF currency known as special drawing rights, a move that could provide support to poor nations.
Strauss-Kahn said in a separate speech Thursday that the IMF's governance should be reformed to "give more influence to emerging markets and low-income countries."
The U.S. also will seek to keep the pressure on European countries to follow through on their promises to boost stimulus spending. U.S. officials will ask the IMF to report on each country's progress, the senior Treasury official said. European nations have resisted U.S. calls for more spending because of budget concerns.
Underscoring the extent of the challenges, the IMF released a new economic forecast Wednesday that projected that the world economy would shrink 1.3 percent this year, the first decline since World War II, and what the IMF called "by far the deepest global recession since the Great Depression."
Private economists said an output decline of that magnitude would leave at least 10 million more people jobless around the world.
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Associated Press writers Martin Crutsinger, Deb Riechmann and Jeannine Aversa contributed to this report.
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