World leaders grappling with a global financial crisis pledged on Friday to deliver an action plan to ward off recession and prevent future meltdowns as divisions surfaced over reining in free markets.
Hopes for major breakthroughs at the summit were low with host President George Bush leaving office in two months and president-elect Barack Obama absent. The intent was to kick off a series of meetings and postpone until next year any decisions on overhauling the world financial order.
They plan this weekend to agree on a road map for future reforms.
”We share a determination to fix the problems that led to this turmoil,” Bush said at a White House dinner for leaders of the Group of 20 advanced and developing economies.
Finance ministers were dining separately at the US Treasury with moves to boost their economies high on the agenda. Leaders and ministers will join for five hours of talks on Saturday.
A draft communiqué prepared for the summit, which Bush called after facing heavy pressure from Europeans, will contain an ”action plan” outlining concrete proposals, European G20 sources said.
European leaders have said the deepening financial crisis — the worst since the Great Depression of the 1930s — demonstrates that a stricter set of market rules are needed to rein in free-wheeling capitalism.
German Finance Minister Peer Steinbrueck said the window of opportunity for financial reform had never been so wide open.
British Prime Minister Gordon Brown is calling for a major update of the 60-year-old world financial order, called Bretton Woods, to meet the demands of a globalised economy where capital moves at lightening speed across borders.
The crisis already has kicked the euro zone, the world’s second largest economic block, into recession. The United States and the United Kingdom are fast headed that way. But the United States and Canada said they want only moderate reforms at this summit, and ruled out overhauling the financial order.
Neither do they want to create global regulatory authorities with power to set rules across borders.
Light hand
Bush, who has tried to counter criticism that unbridled, US-style capitalism is to blame for the crisis, said in a pre-dinner toast he wanted the summit to reaffirm support for free-market principles. He has urged leaders to work to fix the system, not dismantle it.
Still, Bush said that among the key objectives of the weekend summit would be ”identifying principles for reforming our financial and regulatory systems [and] launching a specific action plan to implement those principles.”
Despite underlying tensions over the summit’s objectives, Bush was all smiles as he welcomed arriving leaders, including Britain’s Brown, French President Nicolas Sarkozy, Russian President Dmitry Medvedev, United Nations Secretary General Ban Ki-moon, Italian Prime Minister Silvio Berlusconi and Japanese Prime Minister Taro Aso.
”I don’t think the major economies of the world will … consent to have external control over their regulatory systems,” Canadian Prime Minister Stephen Harper told reporters before arriving in Washington.
Japan backed that view. ”We think the fundamental principle should be that capital flows based on the free market should continue to serve as the foundation of the global system,” Japanese Foreign Ministry spokesperson Kazuo Kodama said.
Still, German Chancellor Angela Merkel told a news conference in Berlin before heading to the US capital that policy-makers need to establish some type of framework and rules to ward off the risk of future crises.
”The government will do everything to ensure there are more rules to prevent such a situation recurring,” she said. The crisis began over a year ago when falling values of US mortgage-related debt triggered credit turmoil that has felled banks and virtually shut down lending.
The United States, however, is in a poor position to make commitments on reform with Bush’s credibility in tatters and his days in office quickly dwindling.
Obama, who moves into the White House on January 20, opted to stay away and instead send representatives, including former US secretary of state Madeleine Albright, to meet leaders on the sidelines. Obama has urged a further fiscal stimulus to lift the economy, but the current White House stands opposed.
US Treasury Secretary Henry Paulson admitted the administration’s weak hand. He told CNBC television the United States had ”in many ways humiliated ourselves as a nation with some of the problems that have taken place here”.
Greater emerging market role
But Brazilian Finance Minister Guido Mantega warned of severe dangers if the summit produced scant results. Both regulatory reform and concerted government spending were needed, he said. ”If we don’t take quick action we run the risk of falling into a depression.”
The summit unites leaders from 19 nations and the European Union under the umbrella of the Group of 20. It includes emerging markets like China, Brazil, India and South Africa and older industrial powers from the Group of Seven nations in what could be the power constellation of the future.
The summit was billed as a chance to shift more policy-making power to emerging-market nations. But that may await negotiations, since it would require some rich countries to yield power, which is unlikely to come easily.
However, there have been calls for countries like China and Saudi Arabia that are flush with foreign exchange reserves to play a larger role in throwing a safety net to other emerging nations by more fully funding institutions like the IMF.
Japan has offered to lend up to $100-billion to the IMF, but it remained to be seen whether others will follow. – Reuters