Term Paper, 2009, 17 Pages
The finance minsters of the seven largest economies plus Russia (G-8) have declared that if everyone in business and finance was just a jolly good sort, we could have avoided the sort of meltdown that led to the world financial crisis and global recession (Lecce 2009). This statement summarizes quite well the key learning from the current financial crisis. However more specific actions are required to prevent similar in the future.
The G-20 committed to a broad set of actions to be taken to overcome the current finan- crisis and to prevent those in future. This assignment focuses on the initiatives of the G-20 for a new financial architecture in the belief that those are valid prevention strategies derived from the recognition of root causes, resulting effects and dynamics involved.
This assignment reviews the different initiatives of the G-20 for a new international finan- architecture and their implementation by different countries. It provides also some aspects of criticism to the different reforms, actions and initiatives as not all of them appear appropriate to address the root causes of the financial crisis in the best way.
Because of the actuality of the topic the information provided in this assignment is mainly based on Internet sources, newspapers and other media like radio and TV. The assignment starts with a review of the G-20 process and the results of the latest meetings. In a second step the main initiatives are reviewed and sorted. The implementation of proposed reforms is then studied and discussed for different countries and regions. The assignment can not target a complete description of all the different initiatives, as the learning about the crisis is a very dynamic revolving process with multiple international actors. Many of the initiatives are still underway and seek for completion in the next couple of months. However, the G-20 provided in result of the summits of Washington andLondon a good framework of initiatives to start with.
The G-20 Initiative for a new international financial architecture 2
The Group of Twenty (G-20) finance ministers and central bank governors was established in 1999 as an informal forum that promotes open and constructive discussion between industrial and emergingmarket countries on key issues in the global economy. The G-20 claims to support growth and development across the globe by contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions (cf. G-20, 2009b).
The G-20 enlists the finance ministers and central bank governors of 19 countries (see Table 1) and the European Union, represented by the rotating Council presidency and the European Central Bank.
Argentina Australia Brazil Canada China France Germany India
The member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world's population, what gives the G-20 a high degree of legitimacy and influence over the management of the global economy and financial system (cf. G-20, 2009b).
Achievements of the G-20 can be seen in the adoption of internationally recognized standards in areas such as the transparency of fiscal policy, exchange of information on tax matters and the fight against money laundering and the financing of terrorism. The reform of the international financial architecture is a continuous target of the G-20 by aiming to develop a common view among the members on issues related to further development of the global economic and financial system. Consensus is the underlying principle of G-20. There are no formal votes or resolutions. Unlike international institutions such as the Organization for Economic Cooperation and Development (OECD), IMF or World Bank, the G-20 has no permanent staff of its own (G-20 2009b). The G-20 chair rotates between the members each year, in 2009 it is with the United Kingdom and 2010 with South Korea. A revolving three-member management team of past (Brazil in 2008), present and future chairs ensure continuity in the G-20's work across host years.
The G-20 cooperates closely with various other major international organizations by participation of their presidents, directors and chairs in the G-20 meetings, what ensures that the G-20 process is integrated in the activities of the Bretton Woods Institutions like IMF and World Bank. Although participation in the G-20 meetings is reserved for members, the outcome of the meetings is immediately posted on a dedicated website by the current chairing country (http://www.g20.org). The
The G-20 Initiative for a new international financial architecture 3
G-20 finance ministers and central bank governors normally meet once a year. The next regular meet- will be hold in November 2009.
In the light of the financial crisis a G-20 meeting was held in São Paulo, Brazil on 8-9 November 2008 1 . At this meeting the Ministers and Governors discussed the financial market crisis and its implications for the world economy. They stressed their resolve to work together to overcome the financial turmoil and to deepen cooperation to improve the regulations, supervision and the overall functioning of the world’s financial markets, to take forward the work of establishing closer macroeconomic cooperation to restore growth in a broad range of countries, while avoiding negative spillovers (G-20 2008a).
Just a few days later the leaders of the G-20 countries meet in Washington on November 15 th 2008. The G-20 Finance Ministers were tasked by the Washington summit to take forward work in the following five areas, the so called Washington Action Plan (G-20 2008b): x Strengthening transparency and accountability x Enhancing sound regulation x Promoting integrity in financial markets x Reinforcing international cooperation x Reforming the international financial institutions As there was some overlap between the five areas and to advance this work for the Leaders Summit on 2 April 2009 in London, the G-20 had set up four working groups (G-20 2008b): x Working Group 1 2 - Enhancing sound regulation and strengthening transparency 3 - Reinforcing international co-operation and promoting integrity in financial x Working Group 2 markets x Working Group 3 4 - Reforming the IMF
x Working Group 4 5 - The World Bank and other multilateral development banks (MDBs)
The G-20 Initiative for a new international financial architecture 4
The Working Groups reported to Finance Ministers and Central Bank Governors when they meet on March 14th 2009 in the UK (see progress report G-20 2009d). This meeting was also supposed to prepare the G-20 Leaders Summit and agreed on further actions to restore global growth, to support lending, and to reforms to strengthen the global financial system (G-20 2009c).
5.3 G-20 Leaders Summit in London April 2 nd 2009
The London Summit of the G-20 Leaders and its outcome was discussed worldwide in all kinds of media. The reviews can be based on the Leaders Statement (London Summit 2009a) and two additional declarations (London Summit 2009b, 2009c). Furthermore an updated progress report of the Working Groups was issued (London Summit 2009d).
The Leaders Statement lists several pledges in the following areas: x restore confidence, growth, and jobs; x repair the financial system to restore lending; x strengthen financial regulation to rebuild trust
x fund and reform our international financial institutions to overcome this crisis and prevent future ones; x promote global trade an investment and reject protectionism; x build an inclusive, green and sustainable recovery;
As this assignment will focus on the initiatives for a new international financial architecture we will review especially the elements of the Action Plan listed under point 15 in the statement. In particular the Leaders agreed (cf. London Summit 2009a):
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