Countries worldwide adopt measures to fence off negative impact of the current global financial crisis on their economies

The world reeled under the current global economic recession throughout last week. Most markets were volatile as investors worried over possible collapse of financial institutions. The Dow Jones index lost 370 points on Monday and dropped further 30 points the next day.

In the United Kingdom, London’s leading shares lost 93 billion Pounds from their values, but were up by 38 points on Tuesday, October 7. France’s Cac-40 index lost more than nine percent last Monday. It however appreciated by 25 points the next day.

Japan’s Nikkei and Hong Kong’s Hang Seng dropped by 317.2 points and five percent respectively. To stem further slide, most central banks across the globe, in a well coordinated plan, cut interest rates.

In the United States of America, the source of the crisis, the Federal Reserve reduced its benchmark rate to 1.5 percent. The European Central Bank’s main rate dropped to 3.5 percent while that of Canada fell to 2.5 percent.

Similarly, UK’s rate dropped to 4.5 percent, Sweden, 4.25 percent and China 6.93 percent. Also, UK on Wednesday announced an $87.4 billion (about 50 billion Pounds) rescue package for its banking sector just as the US Treasury Department tried frantically to put in place the $700 billion bailout approved by the Congress on Friday, October 3.

Under the programme, the department would purchase troubled assets and financial institutions in order to boost lending. Also, the Federal Reserve would buy three-month unsecured and asset-backed commercial papers directly from eligible issuers. The programme expires next April.

Alister Darling, British finance minister, while announcing the $87.4 billion deal, said that the country’s plan would send a clear message that the British government could step in and rescue the financial sector. “We will stabilise the position, we’ll help banks restructure so they can rebuild their strength, and also do everything we can – whatever it takes – to ensure that we get that stability and we try and steer our way through what is a pretty turbulent period,” he said.

Eight banks agreed to the bailout plan. These are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland and Standard Chartered. Britain also said that it would raise the amount of long term funding it was providing to banks under a special liquidity plan unveiled last April.

More than 100 billion Pounds has been given to the banks since then. This, according to Darling, would be increased to 200 billion pounds. He said that the measures were results of several weeks of discussions with the banks. “This is a major step. Never before have we been in a position where the government is actually saying to banks,“You’ve agreed with us that you’re going to raise more capital. If you can’t do it in the normal way on the markets, we’ll actually provide the funds to enable you to do that.”

In sanctioning the new rescue plan, Gordon Brown, the British prime minister, described it as the bold solution which would “unjam” any potential freeze by lenders jittery about global markets and liquidity. He said that there ought to be limits on salaries and bonuses, especially for those who oversee failing institutions. “This is not a time for conventional thinking or outdated dogma, but for the fresh and innovative intervention that gets to the heart of the problem,” he said.

Last week, Iceland was troubled. The government had to take over Landsbanki, the country’s second biggest bank. Landsbanki owns the internet bank Icesave, believed to have 350,000 customers in the UK and Netherlands. It has stopped customers from withdrawing money.

In Africa, however, the global crisis has not had significant effects. The World Bank attested to this last Monday. Shanta Devaragam, its chief economist, Africa Region, attributed this to the predominant indigenous ownership of the continent’s banking system. “Although some African banking systems have significant foreign ownership, the parent banks are not typically in the US,” he said, adding “The foreign ownership share in the largest economies in Africa – Nigeria and South Africa, is less than five percent.”

However, he feared the current crisis might lead to a drop of capital inflow which would adversely affect development of infrastructure. “The decline in the capital inflow may be affected, leading to the delay of lots of infrastructural projects or even abandoning them entirely.”

Similarly, Onno Ruhl, country director, World Bank in Nigeria, said that Nigeria had embarked on many progressive economic activities in the last six months. He said that these had doused the impression commonly held that Nigeria was all about oil and Niger Delta crisis.

Even so, the council of the Nigerian Stock Exchange, NSE, and six banks are working to cushion the falling share prices experienced in the past couple of months. The deal will inject N600 billion into the market.

With agency reports