World leaders vow joint push to aid economy

Facing the gravest economic crisis in decades, the leaders of 20 countries agreed Saturday to work together to revive their economies, but they put off thornier decisions about how to overhaul financial regulations until next year, providing a serious early challenge for the Obama administration.

Though the countries' stimulus packages were cast as ambitious steps, they mainly reflected measures that the countries were already undertaking to respond to the crisis. What remains to be seen is whether, working with a new White House, the leaders will cast aside their political and economic differences to embrace more radical changes, including far-reaching but fiercely debated proposals to overhaul regulation.

The group planned its next meeting for April 30, 101 days after President-elect Barack Obama is sworn into office.

Mr. Obama, who sent emissaries but did not attend at the meeting, will find common ground with the leaders in his support of a further stimulus program in the United States — something President Bush opposes. The group called for more fiscal measures to cushion the blow of a downturn that is hitting rich and poor countries.

Two senior advisers for Mr. Obama, Madeleine K. Albright and James A. Leach, met privately with leaders on the sidelines. And Mr. Obama addressed the meeting only obliquely on Saturday in his first radio address as president-elect, in which he expressed appreciation that Mr. Bush “has initiated this process, because our global economic crisis requires a coordinated global response.”

Meeting here, in the capital of the country where the crisis began, the extraordinary gathering of leaders from the Group of 20, representing wealthy countries and major emerging economies, began what participants said would be a broad reform of the institutions that have governed global markets since World War II.

In a five-page communiqué that mixed general principles with specific steps, the G-20 pledged a new effort to bolster supervision of banks and credit-rating agencies, scrutinize executive pay and tighten controls on complex derivatives, which deepened the recent market turmoil.

“Our nations agree that we must make the financial markets more transparent and accountable,” President Bush said. He warned that “a meeting is not going to solve the world's problems,” and described the talks as the beginning of a process that would carry over to the next administration.

With dueling press briefings and statements through the weekend, it was clear that bridging ideological gaps among nations afflicted with different versions of the economic contagion would provide the new president and other world leaders with a daunting challenge.

There is also a more basic philosophical divide across the Atlantic: Europeans in general favor more state control over markets, even to the point of granting regulators cross-border authority, while the United States stresses the primacy of national regulators. President Nicolas Sarkozy of France, who called on Mr. Bush to organize the meeting, alluded to those differences, saying the negotiations, even on general principles, had been challenging.

Mr. Sarkozy said: “I am a friend of the United States of America, but if you ask, was it easy? No, it wasn't easy.” He added that he did not fly to Washington “simply for the pleasure of traveling.”

He said the Americans had made concessions even by agreeing to discuss issues like regulatory coordination and executive pay. The communiqué, however, suggested there were concessions on both sides.

Prodded by Mr. Bush, who earlier in the week gave an impassioned defense of capitalism, the leaders reaffirmed their commitment to free markets and trade. But they also clearly laid blame for the crisis at the doorstep of the United States, saying “some advanced countries” had taken inadequate steps to prevent a buildup of dangerous risks.

The meeting set out a road map for overhauling regulations in a wide range of areas, and assigned the work to groups of experts. At the next meeting, which Mr. Sarkozy proposed to hold in London, the leaders will debate specific proposals developed by those groups.

Among those measures is a European proposal to set up so-called colleges of supervisors, which would meet regularly to share information about global banks with operations in many countries.

Another idea is to expand the membership of the Financial Stability Forum, an influential group of finance ministers and central bankers from industrialized countries, to include emerging markets like Brazil and China.

Still, for all the talk of action and history-making change, some experts said the outcome was disappointing.

“This is plain-vanilla stuff they could have agreed on without holding a meeting,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and a former chief economist of the International Monetary Fund. “What's new, except that this is the G-20 instead of the G-7?”

Despite broad support for economic stimulus, the leaders were not able to agree on a coordinated global effort. The Bush administration, which does not favor a further stimulus, resisted that idea. And the proposal for colleges of supervisors fell short of an international regulatory agency favored by the French. The Bush administration opposes any regulatory agency with cross-border authority.

The statement did not single out hedge funds as needing regulation, which Germany has long advocated. German diplomats said they were satisfied that the issue would be addressed later. “There shall be no blind spots,” said the German chancellor, Angela Merkel.

Despite playing up the role of the International Monetary Fund as a vehicle for helping developing countries in crisis, the leaders did not call for an expansion in the fund's lending resources.

Collectively, the leaders here represented countries that account for 85 percent of the world's economy. But the guest list was more remarkable for what it said about the shifting landscape of power. With the United States and Europe struggling economically and consumed by efforts to stabilize their banks, China, Japan and Saudi Arabia emerged as the likeliest candidates to help distressed countries.

In one of the few concrete commitments, the Japanese prime minister, Taro Aso, pledged to increase lending to the I.M.F. by up to $100 billion, and he encouraged other cash-rich countries to do the same. On Saturday, the fund added Pakistan to its list of countries receiving emergency funds. Pakistan said it had agreed to a loan of $7.6 billion to prevent a default by its government.

Some leaders were simply eager to be heard. “Emerging market countries were not the cause of this crisis, but they are amongst its most affected victims,” the prime minister of India, Manmohan Singh, said.

The leaders convened in the colonnaded great hall of the National Building Museum, a 19th-century building that served as headquarters for the United States Pension Fund after the Civil War. It was also the place Senator Hillary Rodham Clinton used to end her presidential campaign last June.

Mr. Bush, accompanied by his Treasury secretary, Henry M. Paulson Jr., sat between Brazil's president, Luiz Inácio Lula da Silva, who chairs the Group of 20, and Prime Minister Aso.

Afterward, Mr. Bush acknowledged that expanding the group from the customary seven or eight industrialized powers to 20 nations raised the risk that nothing substantive would get done.

But Mr. Bush said the meeting had been surprisingly substantive, and he seemed enthusiastic about one of the more arcane proposals: a clearinghouse for the $33 trillion market in credit default swaps.

These derivatives, which act as a form of insurance against the failure of an underlying asset, have been blamed for exacerbating the recent market upheaval. A clearinghouse would back trades in credit default swaps and absorb losses if a dealer in these securities failed.

Mr. Bush said he felt compelled to act because “if you don't take decisive measures, then it's conceivable that our country could go into a depression greater than the Great Depressions.”

When Mr. Sarkozy first proposed the meeting, some predicted it would be dominated by finger-pointing. Now, some critics said the communiqué did not go far enough in assigning blame for the crisis.

“Anyone looking for the G-20 to issue a mea culpa on the global financial crisis will be sadly disappointed,” said Kenneth S. Rogoff, a professor of economics at Harvard. The leaders “curiously downplay the huge culpability of the political leadership in the U.S. and Europe.”

With Mr. Bush's imminent departure, however, there seemed to be little appetite to pile on the United States.

With Congress likely to consider a stimulus package in the coming weeks or in January, Mr. Johnson of M.I.T. said Mr. Obama might be able to go to the next summit meeting with strong evidence of American action.

“The U.S., despite having broken all the china, may end up playing a decisive role in fixing this situation,” he said.

Source: New York Times