G20 takes charge of world economy at U.S. summit

September 25, 2009

From L-R, France's President Nicolas Sarkozy, U.S. President Barack Obama and Britain's Prime Minister Gordon Brown walk as they hold a news conference at the G20 Summit in the Pittsburgh Convention Center in Pittsburgh, Pennsylvania, September 25, 2009.  REUTERS/Jacques Witt/Pool    (UNITED STATES)   By Sumeet Desai and Chris Buckley
   PITTSBURGH, Sept 25 (Reuters) – The Group of 20 will become the forum for global economic management, 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.
   Ensuring and sustaining economic recovery topped the agenda at a two-day Pittsburgh summit of the world’s richest nations and emerging powers such as China, India and Brazil.
   The G20 countries, which account for 90 percent of the world’s output, vowed to keep emergency economic support in place until a recovery was secured, according to the draft communique. [ID:nSP425770]
   Suggestions that any exit strategies from such measures would still be a way off caused the dollar to fall to a 7-1/2-month low beneath the key 90-yen level on Friday. [ID:nN25503759]
   Investors had worried signs might emerge from the summit that countries were getting ready to start raising interest rates or reversing other massive economic stimulus measures, but U.S. stocks were down slightly on Friday.
   The communique is subject to change. The G20 leaders will issue the final version when they wind up their meeting late on Friday.
   U.S. President Barack Obama’s first G20 summit as host was testing his ability to juggle domestic and foreign policy.
   Disclosure of a second Iranian uranium enrichment plant gave Obama, with the leaders of Britain and France at his side, an opportunity to press for united action against Tehran over its disputed nuclear program. [ID:nN25508217]
   The G20 agreed to rein in financial industry excesses that triggered the credit crisis two years ago.
   Tighter rules on how much capital banks must have to absorb losses should be ready by the end of 2010 and will be phased in during the following two years, the draft said. [ID:nLP422374]
   The document 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.
   It suggested linking pay to “long-term value creation, not excessive risk-taking.”
   The draft did not mention direct caps on pay, as proposed by some European leaders. French officials said the summit had not reached a final accord on executive pay.
   The document said the G20 would try to secure a deal next year in long-running world trade talks. Similar pledges have been made at a number of international gatherings, so far without result. [ID:nN25484424]
   While Wall Street welcomed the renewed commitment to keep the stimulus money flowing, some analysts were skeptical that the G20 would achieve much substantive change.
   “They are accomplishing all sorts of small things like pay guidelines on bank executives. On the really important things like increasing bank capital limits and limiting carbon emissions, we are just too far apart,” said Christopher Low, chief economist at FTN Financial in New York.
   “The irony is the division between the old G8 group, the United States and Europe, not the new members. Now there are 20 groups in the room. Look at the track record, there has been no major agreements since the Plaza Accord.”
   That accord was a 1985 agreement in which major economies agreed to depreciate the dollar against the Japanese yen.
   In another boost for countries such as China and India, the G20 unexpectedly moved close to a deal shifting more voting power at the International Monetary Fund to some developing countries, recognizing their growing clout. [ID:nN24469684]
   But Max Lawson, senior policy adviser at international aid group Oxfam, said the reforms amounted to tinkering around the edges and failed to fully redress IMF imbalances.
   “Unless it changes its rules to give poor countries a real say in the way it is run, the IMF will remain the world’s rich country club,” he said.
   In return for giving emerging economies greater say, the draft communique suggested, the G20 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 G20 countries with either “sustained, significant” surpluses — a description that fits 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.
   But it was unlikely any countries would consent to G20-imposed rules on how to run their domestic economy.
   Some rebalancing is already happening due to the recession. U.S. consumers, long viewed as the world’s “shoppers of last resort,” have cut spending as household wealth has shrunk, while China is spending about $600 billion to stimulate its economy and make it less dependent on exports.
   The global economy appears to be recovering 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 U.S. mortgage loans, the pressure is on the G20 to sustain economic assistance and coordinate how and when the emergency stimulus is phased out.
   “We designated the G20 to be the premier forum for our international economic cooperation,” the draft communique said.
   G8 ‘NOT DEAD’
   The move means the G20 supplants the G7 and G8, institutions dominated by rich Western economies that will now be forums for discussing geopolitical issues, diplomats said.
   “The G8 is not dead but it is clearly in its death agonies,” said Marco Aurelio Garcia, foreign policy adviser to Brazilian President Luiz Inacio Lula da Silva. “That is why we are going to have two G20 meetings next year, in Canada and in Korea.”
   The draft showed leaders endorsed an agreement on phasing out subsidies for fossil fuels to help combat global warming, but with no fixed date for the change. [ID:nN25484464]
   Many G20 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. (Reporting by Reuters G20 team; Additional reporting by Richard Leong in New York; Writing by Mike Peacock and Emily Kaiser; Editing by John O’Callaghan and Frances Kerry) ((For further coverage of the G20, go to http://www.reuters.com/news/globalcoverage/G20)) ((For graphics on the G20, click on: http://graphics.thomsonreuters.com/RNGS/SEP/G20A.jpg    http://graphics.thomsonreuters.com/RNGS/SEP/G20B.jpg    http://graphics.thomsonreuters.com/RNGS/SEP/G20C.jpg)) ((tomasz.janowski@thomsonreuters.com; +65 6870 3854; Reuters Messaging: tomasz.janowski.reuters.com@reuters.net)) Keywords: G20/ 
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 Friday, 25 September 2009 17:46:20RTRS [nN25480100] {EN}ENDS

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