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World Leaders Use Davos Speeches to Slam Protectionism

World leaders spoke out against protectionism in their speeches at Davos, warning that putting restraints on trade would only worsen and prolong the global economic crisis.

The shadow of a worker on a crane is seen in front of a projected screen in the main meeting hall of the World Economic Forum in Davos, Switzerland

The shadow of protectionism is stalking the world's economy, say leaders

World leaders spoke out against protectionism in their speeches at Davos, warning that putting restraints on trade would only worsen and prolong the global economic crisis.

But there were few signs that a sideline meeting Saturday of trade ministers from about 20 countries had managed to push ahead the long-stalled Doha Round of trade talks, meant to create freer markets.

"Throwing out the baby with the bathwater is not right," said World Trade Organization Director General Pascal Lamy. "Trade is not the cause of crisis."

The concerns over protectionism -- measures such as tariffs which would place restrains on trade -- were sparked by the harsh reminders that isolationist policies in response to the market crash of 1929 wreaked havoc and in part created the harshness of the Great Depression.

Nations could take steps to protect their industries, but protectionism distorts markets, said Lamy, adding that he would monitor legislation in various countries which might violate WTO rules.

He urged the US Senate to be careful when it voted on a stimulus bill, already passed in the House of Representatives, which did contain some "buy American" elements.

With the International Monetary Fund predicting the weakest year of growth since the Second World War, there was real concern over measures which might impede commerce needed to get the world economy out of the downturn.

Warning of social unrest

France's Finance Minister Christine Lagarde said the two greatest concerns were social unrest and protectionism.

France's Finance Minister and President of the EU Council Christine Lagarde

Lagarde warned that the crisis could lead to social unrest

The trick would be finding a way to stimulate national economies without overstepping trade rules, while also, as Lagarde said, making sure planned actions were properly articulated to domestic constituents.

Several politicians openly stated they were under pressure from businesses at home to take big steps towards protecting local enterprises.

At the World Economic Forum, the common mantra was that while there was an understanding that something needed to be done, and fast, it was still unclear exactly what that something might be.

Some ideas were floated to get lending back on track, including pumping liquidity into banks and markets and putting so-called "toxic assets" into bad banks in order to free up the balance books of financial institutions.

One agreed-upon point was the need for increased international cooperation.

Many hopes were pinned on the upcoming meeting of the Group of 20 industrialized economies (G20) in April in London, with expectations that the major emerging economies will have to be part of a solution in such a global crisis.

There were repeated calls, from Indian to British officials, to take steps to boost the IMF and other international institutions. Japan said it was ready to give 1$00 billion to the fund, which itself has asked for $250 billion.

However, it was clear most leaders did not feel there was a one-size-fits-all approach to fixing the problems and each state would have to take right steps for its economy.

An era of humility

Bill Clinton

Bill Clinton said making less money could be a good thing

No one was willing to predict when the crisis would end, or even bottom out. The optimists would only say that eventually things would work out, though changes would be made.

"People will still make money but not like in past decade, and that's a good thing," said former US president Bill Clinton.

Regulation would likely get tougher both on existing banks and all financial institutions.

"If it walks as a bank and quacks like a bank it needs to be regulated like a bank," said Peter Sands of Britain's Standard Chartered Bank.

Several business leaders said they were simply waiting for the proverbial other shoe to fall, such as when it became clear how badly hedge funds were affected.

The financial world was entering, in the words of a private investor, "a new era of humility."

But for the already humbled, the world's poorest or "bottom billion" people, times might get tougher as they will lack both the capital and the credit to stimulate their economies, while the industries they depend on are likely to be hard hit.

A vulnerability fund

World Bank President Robert Zoellick suggested that the industrialized world should put aside 0.7 per cent of their stimulus packages for a "vulnerability fund" for developing countries suffering in the global downturn.

He urged against leaving the weakest "out in the cold."

U.N. Secretary General Ban Ki-Moon speaks during a press conference at the World Economic Forum, WEF, in Davos

Ban Ki-Moon urged for aid for the developing world to be maintained

Similarly, Ban Ki-moon, the UN's secretary general, called for maintaining aid to the developing world, even in times of crisis.

Like others, he also said an eye should be kept on the ball in regards to climate change, particularly with countries set to gather at the end of the year in an attempt to pass an aggressive environmental accord.

If the economy were to "go green," jobs could be created, spurring some recovery, many leaders including Ban noted.

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