Tuesday, October 6, 2009

G-20 leaders agree to share more power with emerging economies

After agreeing to allow the G-20 to take over the global role once played by the G-8, international political leaders struck a preliminary deal to provide emerging nations with more influence in the IMF, too.

China and other major emerging economies like India and Brazil leave the Group of 20 summit in Pittsburgh with a bigger stake in rebuilding and guiding the global economy.

European Union and Chinese officials at the G-20 summit in Pittsburgh said that a tentative deal was in place to give rising powers greater voting power in the International Monetary Fund

"As things stand now, we believe that all parties have the strong will to accelerate reform of the international financial institutions," Chinese Vice Foreign Minister He Yafei said.

IMF LogoBildunterschrift: Großansicht des Bildes mit der Bildunterschrift: Reform is coming to the IMFBrazil, Russia, India and China, known as the BRIC countries, had requested earlier this month that the most developed countries reduce their voting share in the IMF to 50 percent, down from 57 percent.

They argued that a number of European nations wielded inordinate influence on the fund, especially inappropriate in light of the fact that their economies had been surpassed in size by BRIC countries in recent decades. The United States, too, has occasionally grumbled that Europe has too much say in IMF policy decisions.

Statement of principles

It appears that, in Pittsburgh, Europe has relented, in part, to putting its stamp on the G-20's draft agreement on economic policy.

China, along with other countries that have been criticized for running large, unhealthy surpluses and relying on exports for growth, are being urged to boost domestic consumption.

At the same time, countries with outsized public debt, such as the United States, are called on to promote private savings.

"We recognize that the process to ensure more balanced global growth must be undertaken in an orderly manner. All G-20 members agree to address the respective weaknesses of their economies," the draft agreement declares.

G-20 group pictureBildunterschrift: Großansicht des Bildes mit der Bildunterschrift: G-20 leaders agreed on a new direction for the financial sectorTougher finance rules

World leaders also pledged to reform the financial sector in an effort to stop risky banking practices seen as a cause of the global economic crisis. In a joint statement issued at the end of the summit, G-20 leaders were clear on the new direction of financial regulation.

"Major failures of regulation and supervision, plus reckless and irresponsible risk taking by banks and other financial institutions, created dangerous financial fragilities that contributed significantly to the current crisis," the statement said. "A return to the excessive risk taking prevalent in some countries before the crisis is not an option."

Tougher controls on compensation and bonus payments for banking executives were also endorsed.

Nicolas SarkozyBildunterschrift: Großansicht des Bildes mit der Bildunterschrift: Nicolas Sarkozy was satisfied with the G-20 summitMany European leaders, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, had hoped tackling problems in the financial sector would be at the top of the agenda in Pittsburgh.

"There was unanimity around the table that the errors of the past won't happen again," Sarkozy said after the meeting. "I am very satisfied by what we decided."

The leaders also agreed to keep emergency stimulus funding in place for the time being, with plans to scale them back when sustainable recovery is reached.

While the world's largest economies agreed to phase out fossil fuel subsidies to combat global warming, climate change was a largely overlooked topic in Pittsburgh. No consensus was reached regarding the amount wealthy nations should pay to support the efforts of developing nations to curb global warming, which is seen as an essential step towards a new global treaty proposed for the Copenhagen climate summit in December.