G20 Summit Leaders Commit to Principles, But No Overhaul

Wall Street Journal - G20 Releases Statement on Crisis
Reuters - World Leaders Agree on Plan to Fight Deep Recession


World leaders at the G20 summit in Washington on Friday and Saturday pledged to ensure that their financial markets were properly regulated and subject to oversight. The G20, a group of developed and developing countries, issued a Statement that agreed to work more closely with other countries to focus on a broader response to the global financial crisis. The crisis, which was precipitated in part by the U.S. subprime mortgage crisis, has widened to a global scope in the past few months as skittish investors pull their money out of emerging economies and as economic fear has slowed lending to a trickle.

The G20 summit had been billed by some as a "Bretton Woods II," referring to the meeting after World War II that established the international financial regulatory system of the IMF and the World Bank. Others, however, had cautioned against high expectations for the summit because of the complicated nature of the crisis and the lack of an international consensus on a proper response. U.S. President Bush called the G20 meeting last month after global economic indicators reached a boiling point.

The Statement issued by the G20 leaders appeared to indicate a compromise, with leaders promising to cooperate and use government measures to prevent a further worsening of the crisis and to re-energize their economies. But the Statement did not establish any new global regulatory bodies, nor did it explicitly change the role or power of the IMF. The Statement did, however, agree to keep the IMF adequately funded to respond to the crisis and also agreed to explore the outlines of a new regulatory body in the future. The G20 participants identified five principles to guide an eventual regulatory change in the global system: strengthening transparency and accountability, improving regulation, promoting market integrity, reinforcing cooperation, and reforming international institutions.

No specific cooperative action such as joint interest rate cuts or public spending goals were established.

President Bush had warned leaders that the global financial crisis should not be an excuse for economic protectionism, and the G20 leaders agreed not to engage in individual protection at the expense of the health of the global financial system. Bush noted that he felt the G20 leaders had reaffirmed their commitment to a free-market, free-trade global economic system.

Because President Bush is the outgoing leader of the world's largest economy, another summit aimed at more concrete measures may be organized after President-elect Barack Obama takes office in January.


Discussion:
1. Has the IMF's emergency lending to Iceland, Hungary, Ukraine, and Pakistan been effective at countering the crises occurring in those countries? Is the present international regulatory scheme adequate?
2. What would be some enforcement difficulties with an explicit and binding G20 agreement?