The leaders of the G-20 Financial Summit in Toronto, Canada agreed on three general principles to establish financial stability in line and pledged to halve fiscal deficit by 2013.
The participants also agreed to make work for liberalization of trade through efforts like denouncing protectionism and concluding Doha Round. The financial ministers and heads of the central banks of respective countries promised to gather at the next G-20 Financial Summit scheduled to take place in November in Seoul, and offer measures for financial safety net. A joint statement that included the resolutions from above was released on Sunday, June 27 (local time).
The main text of the joint statement at large, called for bolstering international collaboration sustainable and balanced growth, reforming financial regulations and international financial institutions like the International Monetary Fund (IMF) and the World Bank (WB) and improving trade and investment. Other issues touched on by the statement were anti-corruption, climate change, subsidies issues for energy and assistance for poor nations among others.
The side text mentioned setting up a framework for a strong, sustainable and balanced growth, called for an overall reform in the financial sector, a study on appropriateness of international financial institutions, assistance to the financially vulnerable class and more.
G-20 Framework: Cutting fiscal deficit by 50 percent by 2013
In establishing a framework for a strong, sustainable and balanced growth, the heads of the G-20 nations acknowledged that although the world economy is recovering faster than expected risks still remain due to high rate of unemployment, weak financial market, deterioration in budget among others. The priority was set on building a basis for continuous recovery and economic growth.
The heads of the G-20 acknowledged the need to establish fiscal soundness, especially when it comes to advanced economies and decided to commit plans that will cut down fiscal deficits by half by 2013 and either stabilize or reduce government-to-GDP ratios by 2016.
Toward that end the G-20 leaders agreed on the general principle that fiscal consolidation plans must be “credible, clearly communicated, differentiated to national circumstances, and focused on measures to foster economic growth.”
Fiscal soundness became the main agenda ever since the financial crisis in Greece which then took over the southern part of Europe and began to threaten the global economy that has only begun to recover. The worsened budget condition for most of the nations after the economic crisis due to government support measures also played a role in recognizing the importance of realizing a sustainable budget. Other cautions were made for state support measures that could do more harm than good for the self-recovery of economy.
For global rebalance, the G-20 participants agreed on policy measures that are applied according to situation of each group countries. Advanced economies with deficits will maintain its liberal market policy, improve its competitiveness in export and bolster domestic savings. Advanced economies with surplus will focus on structural reform from the inside to encourage domestic spending. The emerging nations especially, will focus on strengthening social safety net, increase its spending for infrastructure and pursue structural reform to improve flexibility in foreign exchange.
Agreements were also made on reforming commodity and labor markets, all to secure better potential for growth.
On currency policy, the G-20 participants decided to focus on stabilizing prices, assisting economic recovery and introducing bold measures like Advance Market Commitment (AMC) system to resolve development gaps. IMF and WB expect such measures to be of great help to increase world GDP rapidly, resulting into new jobs for tens of thousands of people, escape poverty and reduce imbalance in current account around the world.
Establishing common principle for financial regulation, protection of tax payers
The issue of bank capital and liquidity regulation will be concluded at the next summit meeting scheduled in Seoul, Korea. So far the world leaders decided only on the level of regulation and basic direction. Bank capital will be formed centered on ordinary shares and the capital adequacy ratio will be raised but the actual implementation will determined by situation of each country.
The G-20 summit recognized various alternatives to shouldering burden of financial sector according to the situation each country is in and agreed only on the basic principles this time such as protecting tax payers and reducing risks in financial system. Regulations and supervision will be toughened for hedge fund, credit rating companies, compensation practices and over the counter directives.
Specific alternatives for financial safety net to be decided in Seoul
In the latest G-20 summit the global leaders recognized the need of a financial safety of domestic, overseas and global scale to prevent volatility of capital, vulnerability in financial sector as well as measures against contagion and ordered financial ministers and heads of central banks of respective nation to come up with a viable policy for the next summit in Seoul.
IMF received request to speed up the reviewing process for risk prevention loan system to improve its capability to supervise policy. It was also stipulated in the talks that establishment of an International Monetary System (IMS) much more stable and restorable in nature is the final aim for the establishment of global financial safety net. Bilateral currency swap and safety net of both local and global scale are being discussed.
On the agenda for “development” the leaders agreed on submission of acting plan for practical measures and launch of working-level group at next summit meeting in Seoul. Regarding subsidies for energy, each country will gradually put an end to it in mid and long-term and will be continually reviewed at summit meetings. The measure to prevent marine pollution will be discussed in more details at G-20 sherpas' meeting slated for this July in Seoul.