G20 summit may launch process to resolve financial crisis

November 12th, 2008 - 2:17 pm ICT by IANS  

Washington, Nov 12 (IANS) The weekend summit of the Group of Twenty (G20) leaders here may be more like the launch of a process rather than finding a final solution to deal with the global financial crisis, diplomatic sources suggested.US President George W. Bush has invited the G20 leaders, including Indian Prime Minister Manmohan Singh, to the summit here Nov 15 to develop a common approach to combating the global economic crisis, triggered initially by the sub-prime mortgage meltdown in the US.

The summit will also see participation of International Monetary Fund (IMF) Director General Strauss-Kahn, World Bank President Robert Zoellick and UN Secretary General Ban Ki-moon.

Diplomats familiar with the preparations for the summit said one could expect three possible scenarios: A broad focus on principles; a more specific outcome; or a move for a new regulatory mechanism.

There is broad support for recent proposals for a new Bretton Woods agreement, a reference to the original pact reached in 1944 to establish the IMF and the World Bank, following World War II.

But there is also a realisation that it took time to prepare for the Bretton Woods agreement as underlying issues needed to be discussed adequately.

Thus, diplomats expect the Washington summit to agree on broad principles and follow it up with various working groups, and a series of meetings before a new global financial system could emerge.

The broad directions for the summit have already been given by G20 finance ministers and central bank governors who gathered in Sao Paulo Nov 8-9 for a regular annual meeting that included a preparation session for this weekend’s summit meeting.

Finance Minister P. Chidambaram, who attended the Sao Paulo meeting, will join Manmohan Singh at the summit. But Planning Commission Deputy Chairman Montek Singh Ahluwalia will play the key role of Prime Minister’s “sherpa” at the closed door summit meeting.

While top leaders give a political direction to the deliberations, it’s the sherpas who carry the heavy load of negotiations leading up to agreed formulations. Ahluwalia, with whom the prime minister shares a strong professional and personal rapport, was picked up for his economic expertise.

Similarly, Bush would be aided by Dan Price, assistant to the president for international economic affairs and deputy national security advisor.

Before the Nov 15 summit, the top leaders will meet over an informal dinner Friday at the White House. US Treasury Secretary Henry Paulson will host a separate dinner for the finance ministers and finance deputies as well as senior bureaucrats dealing with economic affairs.

Meanwhile, the sherpas and the finance deputies will hold their own meetings to work out agreed formulations for their principals.

But the tone for the discussion would be set by the direction given by G20 industrialised and developing economies and European leaders. The ministers from these systemically important countries agreed on the need for a coordinated response at their Sao Paulo meeting.

In their communiqué, the G20 ministers said the IMF and the World Bank needed to be reformed so that they “more adequately reflect changing economic weights in the world economy and be more responsive to future challenges”.

They said emerging and developing economies should have greater voice and representation in these institutions.

They welcomed progress already made in reforming the IMF and said further reform was needed to improve the legitimacy and effectiveness of the two institutions.

The ministers also agreed that all necessary steps must be taken to restore market confidence and stability and to minimise the risk of a future crisis.

“Given its near universal membership and core macro-financial expertise, the fund should take a leading role in this task consistent with its mandate,” the communiqué said.

The G20 comprises the seven major industrialised nations - Britain, Canada, France, Italy, Japan, Germany, and the United States - plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, and Turkey. It also includes the 27-nation European Union, represented by France.

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