Global leaders agree on IMF reform, strengthened regulatory regimes

(ATTN: UPDATES with more details, background throughout)
By Hwang Doo-hyong
WASHINGTON, Nov. 15 (Yonhap) -- Leaders of the world's 20 largest economies
Saturday agreed to strengthen regulatory regimes for financial institutions to
head off a recurrence of the ongoing global financial crisis blamed on inadequate
oversight.
In a declaration adopted at the end of the one-day G20 economic summit held at
the National Building Museum here, the leaders also concurred that they will
pursue reform of the International Monetary Fund (IMF) and the Financial
Stability Forum (FSF) to better represent developing countries in a changing
global financial environment.
The IMF, the lending agency launched after the Bretton Woods agreement at the end
of World War II, has often come under criticism for being a tool of U.S. economic
dominance. The FSF is a Switzerland-based gathering of central banks and
financial regulators from the G7 and several other advanced economies.
Acknowledging such criticism, U.S. President George W. Bush told a news
conference after the summit, "These institutions have been very important -- the
World Bank, IMF -- but they were based on an economic order of 1944."
Bush said the key achievements of the G20 summit were the "establishment of
certain principles" and a plan of action for adapting "current financial systems
to the realities of the 21st century."
"Part of the regulatory structures that are in place were 20th century regulatory
structures. And obviously, you know, the financial industry went way beyond
them," Bush said. "And the question is, how do we establish good regulatory
structure without destroying the incentive to innovate, without destroying the
marketplace."
On the reform of international financial institutions, the declaration said, "We
are committed to advancing the reform of the Bretton Woods Institutions so that
they can more adequately reflect changing economic weights in the world economy
in order to increase their legitimacy and effectiveness."
"In this respect, emerging and developing economies, including the poorest
countries, should have greater voice and representation," it said. "The Financial
Stability Forum must expand urgently to a broader membership of emerging
economies, and other major standard setting bodies should promptly review their
membership."
The U.S., which holds nearly 16 percent of IMF equities, has a virtual veto right
in the global lending agency, with Japan, Germany and several other advanced
economies also dominant players.
South Korean President Lee Myung-bak, French President Nicholas Sarkozy and
several other heads of state have called for sweeping reform of the IMF and are
pressing for the establishment of a new global financial system to keep pace with
recent changes in the global economy.
"The ongoing financial crisis shows the current financial system has not kept up
with changes being made in the finance industry," Lee said in a recent interview.
"Under the new financial transaction environment, it is time for us either to
greatly reform the existing regime or to make a completely new one."
Lee backed away from his calls for immediate restructuring of international
institutions during the summit, however, citing a lack of time, commenting only
briefly that the IMF has "not been seen positively by emerging and developing
economies."
"I think this short session should prioritize stabilization of the global
financial market and minimize its adverse impact on economic fundamentals,
although today's session was supposed to deal with reform of the international
financial systems to prevent recurrence of the financial crisis," Lee said.
Sarkozy and several other leaders also called for less dependence on the U.S.
dollar in international trade, blaming the global financial crisis on what they
called excessive reliance on the greenback.
The G20 leaders assigned their finance ministers to "initiate processes and a
timeline" for concrete proposals for enhanced oversight and regulatory regimes by
the end of March. They also called for another round of meetings in Europe by
April 30 "to review the implementation of the principles and decisions agreed
today."
"We pledge to strengthen our regulatory regimes, prudential oversight, and risk
management, and ensure that all financial markets, products and participants are
regulated or subject to oversight, as appropriate to their circumstances," the
declaration said. "We will exercise strong oversight over credit rating agencies,
consistent with the agreed and strengthened international code of conduct."
The leaders, however, cautioned against such enhanced regulatory measures
stifling innovation and discouraging expanded trade in financial products and
services.
Also agreed upon was increased cooperation among national and regional regulators
on cross-border capital flows.
The leaders underscored the importance of rejecting protectionism.
"In this regard, within the next 12 months, we will refrain from raising new
barriers to investment or to trade in goods and services, imposing new export
restrictions, or implementing World Trade Organization (WTO) inconsistent
measures to stimulate exports," the declaration said. "Further, we shall strive
to reach agreement this year on modalities that lead to a successful conclusion
to the WTO's Doha Development Agenda with an ambitious and balanced outcome."
They also pledged to use fiscal measures and monetary policy to stimulate
domestic demand.
On concerns about the U.S. government's commitment to the pledges made in this
summit,
Bush said that U.S. President-Elect Obama's transition team "has been fully briefed
on what we intended to do here at this meeting."
Given the U.S. presidential transition, as well as differing positions of the
U.S., Europe and emerging economies, many voiced concerns the summit would result
merely in a symbolic statement rather than concrete plans for reform of the IMF
and other financial organizations.
South Korean President Lee, however, said he was satisfied with the outcome,
which he did not anticipate, given the "differing positions of the U.S., Europe
and Asia."
U.S. President-elect Barack Obama did not attend the summit, but arranged for
former Secretary of State Madeleine Albright and ex-Congressman Jim Leach to
represent him.
Bush and Obama have been at odds over ways to address the financial crisis. Obama
has called for an additional economic stimulus package aside from the US$700
billion bailout, as well as financial aid to struggling U.S. automakers and
opposition to pending free trade agreements with South Korea, Colombia and
Panama.
Obama welcomed Bush's convening of the economic summit, citing the need for "a
coordinated global response," while urging Congress to pass another stimulus
package.
"If Congress does not pass an immediate plan that gives the economy the boost it
needs, I will make it my first order of business as president," Obama said in his
weekly radio address.
Bush wants the lame-duck Congress, reconvening Monday after the Nov. 2 elections,
to pass the free trade agreements with South Korea, Colombia and Panama, while
Obama favors the economic stimulus plans and a bailout package for the struggling
U.S. auto industry, which Bush opposes.
The G20 consists of South Korea, the U.S., Argentina, Australia, Brazil, Canada,
China, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa,
Turkey, the European Union, and EU members Britain, France, Germany and Italy.
hdh@yna.co.kr
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