G20 Leaders Agree to Seek Major Financial Reform

Sunday, 16 November 2008 12:17 By Mark Landler, The New York Times | name.

G20 Leaders Agree to Seek Major Financial Reform
World leaders attending the G20 Summit on Financial Markets and the World Economy on Nobember 15, 2008 in Washington, DC. (Photo: Reuters)

    Washington - Facing the gravest global economic crisis in many decades, the leaders of 20 countries agreed Saturday to work more closely to reinvigorate their economies, but put off the thornier questions of how to overhaul regulation until next year, effectively giving a major assignment to the Obama administration.

    Though the proposals were cast as ambitious reform, they mainly reflected steps that the countries were already undertaking. What remained to be seen was whether, working with a new White House, they will cast aside their political and economic differences to come up with dramatic changes.

    The leaders planned their next meeting for April 30, 101 days after President-elect Barack Obama takes office.

    Meeting here, in the capital of the country where the crisis began, leaders from the United States, France, China, Russia, Saudi Arabia and other nations began an effort that the countries said would be a far-reaching reform of the institutions that have governed global markets since World War II.

    In a five-page communiqué that mixed broad principles with specific steps to be tackled in the next three months, the Group of 20 pledged to bolster supervision of banks and credit-rating agencies, to scrutinize executive pay at firms, and to use fiscal and monetary policies to cushion the blow of a downturn that is hitting countries around the world.

    Pushed by President Bush, who convened the gathering at the suggestion of President Nicolas Sarkozy of France, the leaders reaffirmed their commitment to free markets and trade.

    But the statement also laid blame for the crisis at the doorstep of the United States, saying governments "in some advanced countries" had taken inadequate steps to prevent a buildup of risk.

    The meeting laid out a roadmap for overhauling financial regulations that would postpone most of the difficult decisions until Mr. Obama is in office.

    Those measures include setting up a so-called college of supervisors, which would share information about global financial institutions, and a plan to harmonize accounting standards. Mr. Bush cited a proposal to move the trading of credit-default swaps, a financial instrument that has been blamed for some of the recent upheaval, into a central clearinghouse, which would allow regulators to monitor risk.

    "A meeting is not going to solve the world's problems," Mr. Bush said after the leaders adjourned. But he added, "I will tell you: I thought this was a very successful meeting."

    Mr. Bush said his administration had thoroughly briefed the president- elect about this process, and that he wished Mr. Obama the best in confronting the economic problems.

    How world leaders approached the Summit on Financial Markets and the World Economy - as Mr. Bush called the meeting - had a lot to do with how the financial crisis affected their political fortunes.

    For Mr. Bush, the upheaval delivered a final blow to an administration staggering under an unpopular war in Iraq and a weakening economy. With Mr. Obama watching from Chicago, Mr. Bush was not even the most sought-after American at the meeting. Instead, leaders from Mexico to Turkey lined up to meet two emissaries sent by Mr. Obama.

    Mr. Sarkozy, on the other hand, only became president of France last year, after the seeds of the crisis had been planted. His call for greater regulation plays into France's historical preferences for a robust state role in the market, making Mr. Sarkozy an ideal point man for the effort.

    "Sarkozy is in a very strong position of not owning the crisis, as other leaders do," said Kenneth S. Rogoff, a professor of economics at Harvard. "Like Obama, he can take a more detached view."

    The French leader's high profile was not without risks. "This was his idea," said Simon Johnson, a former chief economist of the International Monetary Fund.

    Angela Merkel, the German chancellor, and President Cristina Fernández de Kirchner of Argentina were the only two women in the Group of 20 meeting - and neither, analysts said, brought a very strong hand.

    The German economy just slipped into recession, and its government was slow to accept the need to recapitalize its banks, which purchased a lot of toxic mortgage-related assets from the United States.

    Argentina, meanwhile, announced it would nationalize $26 billion of private pension funds, raising fears that the government was short on cash and putting Mrs. Kirchner into an economic dog house with foreign investors, who are pulling their money out of the country.

    The Russian president, Dmitri A. Medvedev, also came with arguably reduced influence, partly for economic reasons: as the price of oil has plummeted, so has Russia's economy, its foreign exchange reserves and perhaps some of its political muscle.

    None of this has stopped Mr. Medvedev from striking a combative tone toward the United States.

    "They let this currency bubble grow in the interests of stimulating domestic growth," he declared in a recent speech. "They did not listen to the numerous warnings from their partners, including from us. As a result they have caused damage to themselves and to others."

    For Prime Minister Gordon Brown of Britain, the crisis has been a mixed bag. As chancellor of the Exchequer under Tony Blair, Mr. Brown is identified with the economic policies that gave Britain years of growth but brought some of the same excesses as in the United States.

    However, by moving quickly to recapitalize the British banking system, Mr. Brown appeared decisive and won praise from economists. He also stopped, at least for now, a stream of political obituaries suggesting he would soon be ousted by the Tory leader, David Cameron.

    To help countries hurt by the crisis, Mr. Brown is pushing for the resources of the International Monetary Fund to be expanded. The fund, he said, should function like an "international central bank."

    The trouble with this idea is that there are only a handful of candidates with enough cash to pour money into the I.M.F. - China, Japan, and oil producers like Saudi Arabia. The Japanese prime minister, Taro Aso, pledged up to $100 billion in additional lending to the fund.

    To persuade these countries to increase their contributions would require giving them a larger role in the governance of the fund. And that would mean reducing the influence of Britain and other European countries.

    China staked its claim to a significant role in another way: It announced a $586 billion stimulus package a week ago, allowing President Hu Jintao to seize the initiative on economic policy.

    For leaders of emerging-market countries who have been clamoring for a seat at the summit meeting table, even being here was something of a victory. For the president of Brazil, Luiz Inácio Lula da Silva, it was partly a simple matter of protocol: Brazil currently leads the Group of 20, which gave Mr. da Silva some say over the agenda.

    Beyond that, he has been outspoken about how developing countries are victims of a crisis not of their own making. "No country is safe," Mr. da Silva said last weekend, opening a preparatory meeting of finance ministers in São Paulo. "They are all being infected by problems that originated in the advanced countries."

    Pakistan Agrees to I.M.F. Loan

    KARACHI, Pakistan (AP) - Pakistan has agreed to borrow $7.6 billion from the International Monetary Fund to try to avoid an economic crisis, an official said on Saturday.

    The official, Shaukat Tareen, Pakistan's finance chief, said the I.M.F. had agreed "in principle" to the bailout after vetting government plans to tackle Pakistan's budget and trade deficits.

    The loan will shore up Pakistan's foreign currency reserves and help alleviate the prospect of a run on the rupee and a default on international debt.


    Steven Lee Myers and Sheryl Stolberg contributed reporting from Washington, and John F. Burns from New York.

Last modified on Friday, 12 December 2008 20:15