On Friday, leaders of the Group of Twenty (G-20) industrialised and emerging market economies at their summit in Pittsburgh pledged to sustain the strong policy response to counter the global economic crisis and provided political support for a shift in country representation at the IMF of at least 5 percent toward dynamic emerging market and developing countries.
In a communiqué, the leaders said the forceful policy response to the crisis had helped stop a dangerous, sharp decline in global activity and stabilise financial markets. Industrial output is now rising in nearly all economies and international trade is starting to recover. The leaders quoted IMF analysis showing the global economy expected to grow at nearly 3 percent by the end of next year.
The leaders, meeting on September 25, said they decided to designate the G-20 as the “premier forum for our international economic cooperation.” The G-20 leaders also agreed to continue strengthening regulation of the international financial system; protect consumers, depositors, and investors from abusive market practices; and encourage the resumption of lending to households and businesses. They asked the IMF to help the G-20 with its analysis of how national or regional policy frameworks fit together.
At the same time, they stressed their commitment to the world’s poorest countries, saying “steps to reduce the development gap can be a potent driver of global growth.”
IMF Managing Director Dominique Strauss-Kahn welcomed the G-20’s continuing support of the IMF and noted the leaders’ reaffirmation of their London Summit initiative to reach agreement on IMF quotas by January 2011. “The April 2008 quota and voice reforms were a first step to enhance the voice and representation of the world’s emerging and developing countries. Today’s G-20’s commitment to a shift in quota share to dynamic emerging market and developing countries of at least five percent from over-represented to under-represented countries, and to protect the voting share of the poorest in the IMF, is a decisive move. This historic decision, and the emergence of the G-20 as a key forum for international economic cooperation, will lay the foundation for a deeper partnership in global economic policy between emerging and developing countries and the advanced economies,” Strauss-Kahn said.
While the G-20 will have responsibility for global economic coordination, it will only have a role of influencing members as it will have no power of sanction.
The G-20 agreed in Pittsburgh that bonus payments for financial managers will in future be linked to long-term financial performance, worldwide. Banks will be required to increase their capital reserves to cover high-risk ventures so that the current financial crisis is not repeated. At the same time the major industrialised countries and emerging economies (G-20) have resolved to put in place a common global framework for the world economy, which is in future to be managed sustainably.
In response to European, and particularly Franco-German pressure, major progress was made in Pittsburgh on drawing up a new financial market constitution.
In future all states will ensure that bonus payments for bank executives are linked to sustainable performance. If their company does badly they may even see their pay cut. Performance-linked pay is more often to take the form of shares rather than cash payments, which should be a further incentive for the recipient to ensure that the company does well.
By 2011 banks will be required to build significantly higher capital reserves to cover high-risk products. The stricter regulations already in place in Europe will then also apply to US banks. Accounting regulations will be harmonised at international level.
A system will be put in place to ensure that banks can never again blackmail states and government. The Financial Stability Forum is to draw up proposals to this end, also by 2011. The plan is to create a legal framework to regulate the rehabilitation or winding up of ailing banks.
The G-20 nations will consider a financial transaction or speculation tax, as proposed by Germany and France but the issue is at an early stage of discussion.
To revive the world economy, the G-20 states said they intend to work to further liberalise world trade. The Doha Round of trade talks of the World Trade Organization (WTO) is to be brought to a successful conclusion at the start of next year, after eight years of negotiations.
Together, member countries represent around 90 percent of global gross national product as well as two-thirds of the world’s population.