WASHINGTON - World financial leaders facing the gravest economic crisis in at least a decade are pledging tighter control of banks and other financial institutions and hoping the US slump is short.
The 185-nation International Monetary Fund and the World Bank readied for weekend discussions following talks among the world's seven richest industrial countries.
US Treasury Secretary Henry M. Paulson shake hands with Finance Minister of Germany Peer Steinbruck during a bilateral meeting at International Monetary Found in Washington Saturday, April 12, 2008. [Agencies]
The IMF, the lender of last resort for countries in trouble, is facing its own hard times. One proposal on the agenda would trim 15 percent of the agency's staff and sell about $11 billion in the institutions' vast gold reserves.
Overshadowing the sessions was the severe credit crisis, which could result in losses approaching $1 trillion before it is over, according to an IMF estimate released this week.
Treasury Secretary Henry Paulson assured the IMF's policy-setting panel on Saturday that the Bush administration was dealing aggressively with the US slowdown, but that risks remain.
"The weak housing market, together with high energy prices and stress in financial markets, is penalizing US economic growth," he said. "We must expect more bumps in the road."
Paulson said that while there is no magic remedy "to prevent the excesses of the past from reoccuring, working together we can strengthen market discipline, enhance risk management and improve the efficiency and stability of our capital markets."
The European Economic and Monetary Affairs commissioner, Joaquin Almunia, said economic uncertainty has increased, the financial turmoil has affected advanced countries and the risk of a US recession has risen. He contended the European Union was in "a relatively favorable position to absorb the effects of the financial turmoil."
The world's economic powers endorsed a plan Friday to keep closer watch over big banks, investment houses and other financial firms. These institutions have reported billions of dollars in losses from the credit crisis. The problem began with the widespread defaults on subprime mortgages in the United States, but quickly spread to other types of global investments.
Announcement of the tighter oversight came in a joint statement after talks among the Group of Seven nations -- the United States, Japan, Germany, Britain, France, Italy and Canada. other types of investments around the world.
"The turmoil in global financial markets remains challenging and more protracted than we had anticipated," G-7 officials said.
"The US economy has to get over the economic unrest," Japanese Finance Minister Fukushiro Nukaga told reporters. What happens in the United States, he said, will affect Asia and other countries.
An IMF economic outlook predicted a mild recession this year in the US, the world's biggest economy. That is seen as raising the risks of a global recession to 1-in-4.
Paulson and Federal Reserve Chairman Ben Bernanke tried to reassure officials that US policymakers are doing everything possible to loosen US credit markets. That would enable businesses and consumers to get loans more easily and help the economy revive.
Axel Weber, head of Germany's central bank, said the "measures that were taken in the US have already had some effect" and that the Fed's interest rate cuts should help bolster growth.
Democrats in Congress are pushing for a more aggressive program to help an estimated 2 million homeowners at risk of defaulting on their mortgages. But Paulson said the administration believes its plan, which relies heavily on voluntary efforts by the private sector, was the best approach.