The **Group of 20** leaders meeting in Washington over the weekend have endorsed a number of goals relating to the coordinating and modernization of financial systems, as measures to address the current global economic crisis. Also embraced was a renewed effort to unblock global trade talks and leaders promised they will refrain from using commercial barriers to protect their own industries for the next 12 months.
Mr. John Lipsky, First Deputy Managing Director of the IMF in an address today to the Paul H. Nitze School of Advanced International Studies, Johns Hopkins University described the **G-20 Summit on Financial Markets and the World Economy** as both an unprecedented response to the daunting near-term challenges, and an explicit symbol of the evolving world economic order. He said, *”The Summit confirmed that the most senior political authorities recognize the urgent need to address credibly the underlying causes of the current crisis, even while acting aggressively to reverse its near-term impact. It is notable that the underlying premise of the Summit was that success in these efforts will only be possible through international cooperation, and that the scope of that cooperation will have to be broader – both in terms of the policies and the countries involved – than has been the case in the past.”*
The **Communiqué** released on Saturday focused on steps to prevent a recurrence of the global crisis that sprang from the collapse of trillions of dollars in securities backed by high-risk U.S. subprime mortgages.
**Common Principles**
**Strengthening transparency and accountability** by enhancing required disclosure on complex financial products; ensuring complete and accurate disclosure by firms of their financial condition; and aligning incentives to avoid excessive risk-taking.
**Enhancing sound regulation** by ensuring strong oversight of credit rating agencies; prudent risk management; and oversight or regulation of all financial markets, products, and participants as appropriate to their circumstances.
**Promoting integrity in financial markets** by preventing market manipulation and fraud, helping avoid conflicts of interest, and protecting against use of the financial system to support terrorism, drug trafficking, or other illegal activities.
**Reinforcing international cooperation** by making national laws and regulations more consistent and encouraging regulators to enhance their coordination and cooperation across all segments of financial markets.
**Reforming international financial institutions (IFIs)** by modernizing their governance and membership so that emerging market economies and developing countries have greater voice and representation, by working together to better identify vulnerabilities and anticipate stresses, and by acting swiftly to play a key role in crisis response.
**Action Plan**
The leaders approved an Action Plan that sets forth a comprehensive work plan to implement these principles, and asked finance ministers to work to ensure that the Action Plan is fully and vigorously implemented. The Plan includes immediate actions to:
• Address weaknesses in accounting and disclosure standards for off-balance sheet vehicles;
• Ensure that credit rating agencies meet the highest standards and avoid conflicts of interest, provide greater disclosure to investors, and differentiate ratings for complex products;
• Ensure that firms maintain adequate capital, and set out strengthened capital requirements for banks’ structured credit and securitization activities;
• Develop enhanced guidance to strengthen banks’ risk management practices, and ensure that firms develop processes that look at whether they are accumulating too much risk;
• Establish processes whereby national supervisors who oversee globally active financial institutions meet together and share information; and
• Expand the Financial Stability Forum to include a broader membership of emerging economies.
The leaders instructed finance ministers to make specific recommendations in the following areas:
• Avoiding regulatory policies that exacerbate the ups and downs of the business cycle;
• Reviewing and aligning global accounting standards, particularly for complex securities in times of stress;
• Strengthening transparency of credit derivatives markets and reducing their systemic risks;
• Reviewing incentives for risk-taking and innovation reflected in compensation practices; and
• Reviewing the mandates, governance, and resource requirements of the IFIs.
The leaders agreed that needed reforms will be successful only if they are grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively-regulated financial systems.
The leaders further agreed to:
• Reject protectionism, which exacerbates rather than mitigates financial and economic challenges;
• Strive to reach an agreement this year on modalities that leads to an ambitious outcome to the Doha Round of World Trade Organization negotiations;
• Refrain from imposing any new trade or investment barriers for the next 12 months; and
• Reaffirm development assistance commitments and urge both developed and emerging economies to undertake commitments consistent with their capacities and roles in the global economy.
The G20 nations will meet again by next April.
*The G-20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. 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, the G-20 helps to support growth and development across the globe.*