G7 MEETING Ministers say functioning of financial markets is improving UPDATE

G7 MEETING Ministers say functioning of financial markets is improving UPDATE

	Published : Sat, 20 Oct 2007 00:00 By : Agencies Print this Story

(updating with comments on monetary policy, response to market turmoil)

WASHINGTON (Thomson Financial) - G7 finance ministers and central bankers said the functioning of financial markets is now improving following the recent credit crisis, but that they still require close monitoring.

'Following recent global market turbulence, the functioning of financial markets is improving. Strong global fundamentals and well capitalised financial institutions provide a sound and resilient basis but uneven conditions are likely to persist for some time and will require close monitoring,' they said in the communique issued at the end of their meeting here.

'This global economy is in its fifth year of robust growth. Recent financial market turbulence, high oil prices, and weakness in the US housing sector will likely moderate this growth.

'Nevertheless, our overall economic fundamentals continue to be strong and emerging markets are providing critical impetus to the strength of the world economy,' they said.

They said central banks will continue to take appropriate action to ensure that markets function properly, while also taking action to contain inflation where necessary.

'We remain committed to doing our part in sustaining strong global growth. We have acted resolutely to protect the systemic stability of global financial markets, and monetary policy must remain vigilant in maintaining price stability,' they said.

Governments will also continue to pursue medium-term structural reforms and fiscal discipline, they added.

Ministers also said they are committed to resisting protectionist pressures and to a successful conclusion of the Doha development of world trade talks.

They also said that their response to the recent financial turbulence needs to be based on a full analysis of its causes.

But it is up to market participants to correct some of the problems highlighted by the market turmoil, they said.

'Securitisation and financial innovation have contributed significantly to the growth of our economies. We expect market participants to address many of the shortcomings that were exposed by recent events,' they said.

The G7 has asked the Financial Stability Forum (FSF) to analyse the underlying causes of the turbulence and offer proposals in a number of areas -- liquidity and risk management; accounting and valuation of financial derivatives; the role, methodologies and use of credit rating agencies in structured finance; and basic supervisory principles of prudential oversight, including the treatment of off-balance sheet vehicles.

FSF chair Mario Draghi gave the G7 an outline of the FSF's work plan and will provide further reports at the next G7 meetings in Japan in February and in Washington next spring.

steve.whitehouse@thomson.com

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