G-20 takes helm of world economy4 min read . Updated: 25 Sep 2009, 02:39 PM IST
G-20 takes helm of world economy
G-20 takes helm of world economy
Pittsburgh: The Group of 20 will take on the role of caretakers of the global economy, giving rising powers such as China more clout, and roll out tougher rules on bank capital by the end of 2012, a draft communique said on Friday.
Heading into the second day of a summit aimed at ensuring the world economy emerges from its worst recession in generations with better safeguards against another crisis, the G-20 also vowed to keep emergency economic support in place until a recovery is secured, according to the draft obtained by Reuters.
“We will act to ensure that when growth returns jobs do too. said. “We will avoid any premature withdrawal of stimulus."
The document said G-20 countries had a “responsibility to the community of nations to assure the overall health of the global economy" and pledged to try to secure next year a deal in long-running world trade talks.
The group, which accounts for 90% of the world’s economic output, also agreed to rein in financial industry excesses that triggered the credit crisis two years ago, and to tighten rules on how much capital banks must have to absorb losses.
The new rules aimed at improving the quality and amount of capital should be ready by the end of 2010 and will be phased in in the following two years, the draft said.
It also tackled the contentious issue of bankers’ pay schemes, blamed for fostering a high-risk corporate culture that led to heavy losses and taxpayer-funded bailouts.
The document suggested linking pay to “long-term value creation, not excessive risk-taking."
However, it did not mention direct monetary caps on pay as proposed by French President Nicholas Sarkozy and some other European Union leaders.
The final version of the communique will be issued when the leaders wind up their meeting on Friday evening and French officials said the summit has not yet reached final agreement on executive pay.
Emerging economies looked to be the surprise winners as the leaders sought to finalize agreements on an ambitious agenda that included building a more stable world economy, reforming bank regulations and tackling climate change.
In another boost for countries such as China or India, the G-20 unexpectedly moved close to a deal shifting more voting power at the International Monetary Fund to some developing countries, recognizing their growing economic power.
In return, as the draft communique suggested, the G-20 won their commitment to do their part in rebalancing the world economy.
That rebalancing act involves the debt-laden United States saving more and export powerhouse China consuming more.
The draft said that G20 countries with either “sustained, significant" surpluses - a description that could fit China - pledged to “strengthen domestic sources of growth."
By the same token, countries with big deficits - such as the United States - pledged to support private savings.
It was, however, unlikely any countries would consent to G-20-imposed rules on how to run their domestic economy.
Some of that shift is already happening as a consequence of the global recession.
US consumers - long viewed as the world’s “shoppers of last resort" - have cut spending as sinking home and stock values took a big chunk out of household wealth, while China is spending about $600 billion to stimulate its domestic economy and make it less dependent on exports.
US President Barack Obama’s first G-20 summit as host tests his ability to juggle domestic and foreign policy.
As Obama welcomed G-20 leaders to a working dinner in Pittsburgh on Thursday, lawmakers in Washington were hashing out terms of a contentious healthcare reform bill that is the cornerstone of his domestic policy agenda.
After two years of financial turmoil, the global economy now appears to be recovering far faster than many economists had predicted, largely thanks to furious interest rate cuts, emergency central bank lending, and roughly $5 trillion in government stimulus money.
But with unemployment high and banks still struggling to absorb heavy losses primarily from failing US mortgage loans, the pressure is on the G20 to sustain the economic assistance and coordinate how and when the emergency stimulus is phased out.
“We designated the G-20 to be the premier forum for our international economic cooperation," the draft communique said.
The move means the G-20 supplants the G-7 and G-8 - institutions dominated by rich Western economies, which will now remain forums for discussing geopolitical issues, diplomats said.
The G-20, which includes the world’s richest nations and fast-growing emerging economies including China, India and Brazil, has become the primary venue for world leaders to meet on the financial crisis. Pittsburgh is the third G-20 summit in less than a year.
The draft communique also showed leaders endorsed an agreement on phasing out subsidies for fossil fuels, a measure aimed at helping combat global warming, but with no fixed date for the change.
Many G-20 governments, including countries such as China, India and Russia, give tax breaks and direct payments to companies that help them produce coal, oil and other fossil fuels that cause greenhouse gases blamed for global warming.