World leaders, meeting for a crisis summit in Washington, have agreed on an action plan to restore global growth and prevent future financial upheaval while promising new spending plans, a trade deal and a set of reforms.
A final statement from the leaders after one of the biggest international economic gatherings in years pledged responses on a number of fronts, with another meeting scheduled for April to flesh out policies.
Government spending plans are to be used to reverse immediate economic decline, a global trade deal is to be promoted to guard against protectionism, and financial regulation and world financial institutions are to be reformed.
“We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world’s financial systems,” the G20 said on Saturday, after the crisis summit in Washington.
The meeting of G20 countries, which represent 85 percent of the world economy, was convened by outgoing US President George W. Bush to tackle the financial crisis that is seen as the worst since the 1930s.
While weeks ago some had talked expansively of redrawing the financial system in a “Bretton Woods II” overhaul in Washington, the final communique amounted to a commitment to keep working on reforms.
The G20 leaders tasked their finance ministers with drawing up a series of recommendations by March 31 to be brought before a new summit in April, at a location to be announced shortly.
Six areas will be specifically targeted: regulating those parts of the financial markets that have exacerbated the crisis, boosting transparency and reforming “fat cat” compensation practices.
The ministers, from the industrialized and emerging world, must also evaluate global accounting norms and the financing needs of international financial institutions.
Finally, they must draw up a list of financial institutions whose collapse would imperil the global financial system.
Bush said the leaders had agreed that both the IMF and the World Bank, the two main international financial institutions created in 1944 in Bretton Woods, should be modernized.
“These institutions have been very important — the World Bank, IMF — but they were based on an economic order of 1944,” he told a press conference.
British Prime Minister Gordon Brown said. “It is absolutely clear that we are trying to build new institutions for the future.”
Japanese Prime Minister Taro Aso voiced support for a dollar-centered currency system, despite growing concern about the troubled global financial mechanism.
“Our prime minister stressed that no currency but the dollar can be used as a key currency,” a Japanese government official told reporters.
The final communique was also significant in what it did not include. There was no mention of the creation of a global financial market enforcer as demanded by some European and emerging countries but opposed by the US.
There was no reference to coordinated stimulus packages from governments either, an idea promoted by the UK.
The final agreement said leaders would use “fiscal measures to stimulate domestic demand to rapid effect.”
Struggling Asian economies meanwhile came away from the meeting with a promise of more access to financing from international organizations that analysts said yesterday should help credit-starved exporters and calm markets from South Korea to India.
Beijing welcomed the step but gave no indication whether it might respond by heeding appeals to use its US$2 trillion in reserves to help expand a global bailout fund.
The G20 leaders promised to expand access for developing countries to financing through the IMF and other bodies, though they gave no figures.
“We have seen evidence of trade financing, as well as financing more generally for emerging markets, deteriorate,” said Michael Buchanan, chief Asia economist for Goldman Sachs. “If the G20 and IMF and donor countries can provide financing, that will help to alleviate that. That will be very significant.”
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