Friday, August 1, 2014

World Leaders Agree on Global Response

Leaders of the Group of 20 nations on Thursday announced a host of measures they said should help lift the global economy — but deferred many of the trickiest decisions or forwarded them to international institutions unaccustomed to the responsibility.

Facing the worst economic crisis in decades – and one they say hasn’t hit bottom — the leaders concluded a summit by turning especially to the International Monetary Fund to warn of impending problems and assess whether G-20 countries are keeping their promises on regulation and fiscal stimulus to ease the impact of the recession.

Those are tasks beyond the IMF’s traditional role, and may require the fund to show more spine in dealing with its largest members than it has managed in the past. The leaders agreed to quadruple the financial capacity of the IMF with a $1 trillion commitment.

The G-20 also worked to clamp down on tax havens and to tighten financial regulations, bringing large hedge funds and financial institutions into the global regulatory net. The G-20 wants to register hedge funds with domestic regulators, disclose how much they have borrowed and to make sure there is effective oversight, even if the fund operates across borders.

The measures may ease some pain from the economic crisis. But many declarations were of principles that have to be followed up — some at another G-20 meeting set for later this year.

“Our problems are not going to be solved in one meeting; they are not going to be solved in two meetings,” said President Barack Obama, at his first high-level international meeting.

A Communiqué issued by the group at the end of the meeting didn’t specifically tackle the problems that many say are at the root of today’s crisis, such as the broken banking systems. U.K. Prime Minister Gordon Brown said the G-20 had figured out a way to deal with toxic bank assets. Yet in the communiqué, the leaders said they would “address decisively” the problem of impaired assets, but didn’t spell out how.

The chance for more sweeping progress here was sidelined by weeks of differences among key players. Calls by the U.S. and the U.K. for more financial stimulus to restart economies collided with European calls — primarily from France and Germany — for stricter regulation of the global financial system.

The group made no commitment to a specific stimulus target that the U.S. supported. Instead, the leaders made a vague commitment to “deliver the scale of sustained fiscal effort necessary to restore growth” and said the world was in the middle of a giant monetary and fiscal stimulus valued at $5 trillion.

Nonetheless, by Thursday night, the erstwhile factions — Messrs. Obama and Brown as well as French President Nicolas Sarkozy and German Chancellor Angela Merkel — painted a picture of progress and bridged their differences.

“This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable,” Mr. Brown said.

Other international institutions were assigned enforcement duties. The Financial Services Board — an expanded version of the Swiss-based Financial Stability Forum, a group of international regulators — is expected to gain more clout as it tries to coordinate crisis-response SWAT teams of regulators from many countries. The World Trade Organization is being asked to review whether G-20 members break pledges to refrain from protectionism.

In the Communiqué on Thursday, the leaders said the new Financial Services Board would work with the IMF to signal “early warnings” of economic and financial risks.

“There has been a strengthening of the mandate” of the group, said Mario Draghi, the FSF head and a former Goldman Sachs Group Inc. banker who is governor of the Bank of Italy.

It’s far from clear that the international organizations have the muscle — or will — to carry out the tougher mandates. For instance, the IMF in the spring of 2008 urged the U.S. to take care of its toxic-asset program and handed the U.S. Treasury a detailed plan for doing so, said U.S. and Treasury officials. The U.S. ignored the plan.

Disagreements among the G-20 leaders continued until the last minute. According to White House officials, in an account supported by officials from other countries, Mr. Obama was crucial in sealing the deal on the last remaining stumbling block: publishing tax-haven names.

Mr. Sarkozy insisted that the G-20 strongly endorse a list of tax havens that aren’t in compliance with the organization’s rules on transparency, and that the list be drawn up by the Organization for Economic Cooperation and Development. Chinese President Hu Jintao objected, especially to the role of the OECD. China isn’t an OECD member.

The back-and-forth on the matter began Thursday morning and stretched into the afternoon, a senior Obama administration official said. The opposing sides returned to it three times.

Finally, Mr. Obama took Mr. Sarkozy aside and suggested compromise language. The G-20 wouldn’t order up a blacklist. Instead, its Communiqué would cite a list the OECD had published, on its own, under its own initiative. Mr. Sarkozy agreed.

Mr. Obama then sent an aide, Michael Froman, to the Chinese delegation. Mr. Froman suggested a direct conversation between Messrs. Obama and Hu, which the Chinese accepted. Mr. Obama huddled with Mr. Hu, then called Mr. Sarkozy into the conference with their translators and aides. The three leaders shook hands, agreed to the Obama language, and the issue was resolved in 15 to 20 minutes, the White House official said.

Summit host British Prime Minister Gordon Brown, front row center, stands with the other G20 leaders during the group photo Thursday.

Summit host British Prime Minister Gordon Brown, front row center, stands with the other G20 leaders during the group photo Thursday.

By STEPHEN FIDLER, BOB DAVIS and CARRICK MOLLENKAMP