G20 leaders agree rapid action for financial crisis

 

World leaders last night backed a rapid action plan for the global economic crisis, agreeing on the need for measures to spur growth, better financial market rules and more say for emerging countries.

"We are determined to enhance our co-operation and work together to restore global growth and achieve needed reforms in the world's financial systems," the leaders of more than 20 industrialised and developing nations, known as the G20, said after a summit.

The final communique called on governments to use fiscal measures - tax cuts and spending increases - to stimulate their economies to “rapid effect”.

But they did not commit to a co-ordinated push, and differences were apparent over how to regulate the financial industry, in areas including hedge funds.

In one historic breakthrough, they agreed emerging market countries should have a voice in running the world economy. They will study ways of giving them more power at the International Monetary Fund.

Presidents and prime ministers from the powers of the 20th century for the first time in a G20 summit joined the leaders of new economic heavyweights such as export colossus China and oil-rich Saudi Arabia. They met in a Washington museum around a large map of the world, trying to highlight the global nature of their rescue plan.

US President George W Bush hailed the meeting he hosted as a success, saying leaders agreed to pro-growth policies.

"It makes sense to come out of here with a firm action plan, which we have, and it also makes sense to say to people that there is more work to be done, and there will be more meetings," Mr Bush told reporters.

The G20 group of advanced and big developing economies, including the EU, also agreed there should be no rise in protectionism in the face of the economic slump. Mr Bush and several other leaders said they would aim for a long-elusive breakthrough in the struggling Doha round of talks for a global trade deal before the end of the year.

With Mr Bush only two months away from leaving the White House and his successor Barack Obama choosing to stay away from the Washington meeting, talk of the summit launching a top-to-bottom overhaul of global finance had been tempered.

In the communique, the leaders said the worsening economy meant "a broader policy response is needed, based on closer macroeconomic co-operation," and they backed fiscal measures to boost growth without risking budget discipline.

They also stressed the importance of monetary policy "as deemed appropriate to domestic conditions."

Central banks around the world cut interest rates together in an unprecedented move in October as financial markets panicked about a global recession, but with US rates already close to zero, the room for more co-ordinated cuts is limited.

The leaders pledged to "take whatever further actions are necessary to stabilise the financial system."

Many leaders came to Washington stressing the importance of more regulation to crack down on excesses in the financial sector. Huge risk-taking on house prices, especially in the United States, backfired last year and triggered the downturn.

"We pledge to ... ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances" the summit communique added.

But an action plan also agreed on by leaders gave hedge funds and private equity firms an apparent exemption from tough new controls, saying they "should bring forward proposals for a set of unified best practices" for review by finance ministers.

Leaders are due to meet again before the end of April and they set their finance ministers a series of tasks to review accounting standards, colleges of supervisors for major global banks, standards for credit rating agencies and limits on pay.

French President Nicolas Sarkozy said the next meeting would probably take place in London as Britain assumes the presidency of the G20 next year.