Group of 20 leaders from rich and emerging-market nations agreed on an “action plan” to try to restore global growth and bring order to a financial system reeling from a worldwide credit crisis.
The package of measures sought to settle volatile markets and calm consumer anxieties about leaders’ ability to work together, but left it to national governments to tailor their own initiatives and appeared to fall short of a globally coordinated commitment to spur growth.
Finance ministers from the G20 nations were charged with developing specific plans for implementing the recommendations and were given timetables for doing so. The first set of actions is to be completed by the end of March, before a G20 follow-up meeting to the Washington gathering that is to take place before the end of April.
WERE THERE NEW COMMITMENTS TO STIMULATIVE ECONOMIC POLICY?
* The G20 leaders pledged to “work together to restore global growth” and acknowledged the outlook for the world economy was darkening. But they stopped well short of any coordinated new fiscal measures, saying spending policies should be used “to stimulate domestic demand to rapid effect, as appropriate” for each nation.
* Coming into the meeting, China had just announced a $586-billion stimulus package. In the United States Congressional Democrats are calling for a substantive additional economic stimulus but it is unclear whether the Bush administration will support such a move with just two months left before President-elect Barack Obama takes power.
* One of the most positive developments was agreement to strive for a breakthrough in long-running Doha free-trade talks by the end of the year, but participants acknowledged that success was not guaranteed. “What we need now is for this strong show of support to be translated into action at the negotiating table,” said World Trade Organization Director General Pascal Lamy. Previous commitments by political leaders to seek a Doha deal have fallen flat.
DOES THE PLAN IMPLEMENT REAL REGULATORY REFORM?
* The G20 stopped short of a global regulatory agency or global banking supervisor, which some Europeans wanted. The United States appears to have won its call against overreaction to the crisis through heavy-handed regulation. But until regulatory principles on oversight of hedge funds, credit ratings agencies and securitized asset markets are spelled out, the impact is uncertain and will vary from country to country.
* While the IMF and an expanded FSF will develop recommendations for avoiding a repetition of excessive leveraging and risk-taking, implementation will be left largely to national authorities, heightening chances that rules will remain inconsistent across national boundaries.
* By March 31, though, the International Monetary Fund and the Financial Stability Forum will aim to develop recommendations for reducing procyclicality -- ensuring financial institutions do not use inappropriate valuation and excessive leverage to ratchet credit up in good times to unsustainable levels that set the stage for the next crash.
IS A NEW ‘BRETTON WOODS II’ PACT NOW ASSURED?
* G20 members agreed to review the world financial order that was established by a 1944 conference at Bretton Woods -- but stopped well short of promising a real overhaul. Prime Minister Gordon Brown has called for a major revamp of the 60-year-old system, dominated by the United States, the dollar and the Group of Seven powers that control voting at the International Monetary Fund and World Bank.
* While there was widespread agreement that countries like China, India, Brazil, Mexico and South Africa deserve a greater say in institutions like the IMF, the G20 offered no guidance on how a new power-sharing arrangement might be decided nor which regions might yield quota shares to recognize the emerging nations.
* But hopes remained high, especially among participants who will be grappling with any economic reordering, notably IMF managing Director Dominique Strauss-Kahn who maintained: “A new world economic order is developing that is more dynamic and more inclusive than any we have yet seen.”
WHAT COMES NEXT AND WHAT WILL CHANGE?
* G20 leaders agreed to meet again by the end of April, enough time for Obama to have settled in after a January 20 inauguration and to have put his economic team in place.
* Bush administration officials said they were pleased at having ensured the G20 communique included multiple references to the importance of “market principles, open trade and investment regimes” as a guiding principle, rather than a more interventionist approach as some European governments prefer.
* Analysts said the Bush administration essentially laid down a marker -- one that warns the real risk from an American view is over-regulation, not under-regulation -- and that US stance is unlikely to change.
* “President-elect Obama may have some differences, but he is expected to subscribe to the same basic principles,” said Sung Won Sohn, an economics professor with California State University. (Reuters)