In God We Trust

 

Obama yields to 'collective action'

U.S. wants to cooperate, not dominate

By Chris O'Brien and Patrice Hill
THE WASHINGTON TIMES
LONDON | President Obama proclaimed Thursday that the era of the United States attempting to dominate world affairs is over, saying he is committed to "collective action" by the 20 biggest economies to end the worst financial crisis in 80 years.

Giving substance to his rhetoric, the president signed on to a radical revamping of the world's major financial institutions that surrenders the traditional right of the United States and Europe to lead them.

The Group of 20 nations announced a surprisingly large $1.1 trillion in funding to help the organizations combat a collapse in world trade and assist nations in crisis, although it failed to agree on additional stimulus measures, which had been a U.S. priority.

The extra aid will come from Japan, the European Union, China and other cash-rich nations, which in turn will gain greater voting power in the International Monetary Fund (IMF).

"Ultimately, the challenges of the 21st century can't be met without collective action," said Mr. Obama, who appeared eager to offer a contrast with what was seen in much of the world as a penchant for unilateral action by the George W. Bush administration.

"I am committed to respecting different points of view, and to forging a consensus instead of dictating our terms. That's how we made progress in the last few days. And that's how we will advance and uphold our ideals in the months and years to come."

The G-20 also agreed to abandon a decades-old tradition that governs how the heads of the international financial institutions are chosen.

The IMF director will no longer automatically be a European, and the World Bank director will no longer necessarily be an American. The heads of the organizations will be chosen "based on merit," the summit communique said.

The unexpectedly large financing package, accompanied by a commitment to reform the flaws in the global financial system that led to the crisis, sparked a strong rally in global markets, spurring gains of more than 4 percent in European stocks and contributing to a 216-point gain in the Dow Jones Industrial Average.

In the United States, the market gain was helped by a change in accounting rules that permits financial institutions to assign a higher value to some of their troubled assets.

Mr. Obama, while promising continued U.S. leadership in line with America's role as the world's largest economy, said the days when U.S. and British leaders Franklin D. Roosevelt and Winston Churchill could sit alone in a room "with a brandy" and decide the fate of the world were gone.

"That's not the world we live in," Mr. Obama said. "And it's not the world we should live in."

China has risen in less than a decade to the world's third-largest economy, and could within a few more decades surpass the United States. Other major developing nations such as Russia, Brazil and India also have made big economic strides, yet they currently have little say in the IMF and other world financial organizations.

The G-20 summit was called in recognition of their growing economic power. World leaders agreed Thursday to take further concrete steps to formalize that power.

In particular, the group pledged to rejigger the voting shares of nations in the IMF by 2011 to reflect the growing power of China and other developing countries. Previously, the IMF was dominated by European nations, which have disproportionate voting shares that reflect the post-World War II world when the IMF was created. The U.S. has the largest voting share, at 17 percent, and that is not considered likely to change.

Uri Dadush, director of the Carnegie Endowment's international economic program, said the biggest winners from the G-20 meeting are global markets and the developing world.

The pledge of additional assistance for the IMF to address crises in Eastern Europe and elsewhere "reduces an important element that that has been unsettling markets," he said.

The concessions to developing countries were "striking" after years of resistance from the Group of Eight major industrial economies plus Russia, he said.

"Compared to past G-8 declarations on these issues, the G-20 has been more concrete and has gone much farther," he said. "By so doing, the G-20 cements its claim as the new, legitimate forum for global economic governance - one much more in line with today's realities than the previous G7/8 set up."

The G-20 promised to reorder the international financial infrastructure and "do whatever is necessary" to stimulate economic growth, resist protectionism and clamp down on tax havens. Among specific measures endorsed:

  • About $250 billion would be made available for trade finance over the next two years, far more than the $50 billion initially targeted by the World Bank. Trade credit has been a major casualty in the global financial crisis, leading to an unprecedented 17 percent drop in world trade. Economists heralded the measure as a way to combat a repeat of the collapse of world trade seen during the Great Depression.
  • The G-20 said it would pour $500 billion into the IMF, which would triple the amount of money available in loans to countries floundering in the financial crisis. Before the summit, there was talk of doubling IMF resources.

The money is needed to address a growing debt crisis in Eastern Europe which threatens to engulf Ukraine, Hungary and other nations. Economists said extra firepower also was needed in the extreme event that a bigger European nation, such as Ireland or Greece, falls into crisis. Iceland already has secured IMF aid. Pakistan and other developing nations are also likely beneficiaries.

  • The European Union and Japan will each add $100 billion to the IMF and China will contribute about $40 billion. Sales of IMF gold reserves will raise $50 billion, which will be used to aid developing countries.

The G-20 agreed to China's call for greater voting power in the IMF for emerging economies, including Russia, India and Saudi Arabia, in return for more cash. No specific details of any increase in voting rights were released. But the communiqué made it clear that the time had come for emerging economies to have a greater say in the way the world's finances are run.

"China and other countries are right to say that the representation and the quotas of the IMF have to be changed to meet new times," British Prime Minister Gordon Brown said. "We have set a timetable for doing that."

  • G-20 leaders also announced that $250 billion would be added to the IMF's Special Drawing Rights - a kind of reserve currency - which IMF chief Dominique Strauss-Kahn said would boost liquidity for the global economy and allow member states to offer loans to those most in need. Multilateral development banks including the World Bank also would be authorized to lend at least $100 billion more.
  • Consensus on a tough crackdown on tax havens was also reached. The Organization for Economic Cooperation and Development (OECD) was charged with "naming and shaming" countries that flout international rules.

"The era of banking secrecy is over," Mr. Brown declared after the summit. "People will increasingly see that it is unsafe to be in a country which still wants to declare itself as a tax haven. There will be no guarantee about the safety of funds there."

That deal was sealed only after a last-minute flare-up between Chinese President Hu Jintao and his French counterpart, Nicolas Sarkozy. Mr Sarkozy was lobbying for every country and region in the world to be covered by the OECD blacklist. Mr. Hu managed to keep Hong Kong and Macao, the main bones of contention, off the list, arguing that China was not a member of the OECD.

To beef up financial regulation, the Financial Stability Forum, a financial watchdog, was renamed the Financial Stability Board and expanded to include all G-20 nations, the European Commission and Spain. It will have a wider role of monitoring large global banks and markets, in collaboration with the IMF, and recommending action to be taken by national regulators.

Individual nations were charged with enacting strict new rules requiring large banks to increase their capital cushions and reduce risk-taking, and preventing banks from doling out six-figure bonuses to executives deemed to be acting recklessly. The summit communique also calls for regulating hedge funds, ratings agencies and derivatives markets.

The G-20 pledged to resist protectionism, promising that no "new barriers to investment or to trade" would be erected at least until the end of 2010. Despite the vow not to repeat "the historic mistakes of protectionism of previous eras," numerous trade barriers have been erected since the financial crisis began last fall, according to a World Bank study.

The reforms of the IMF are potentially far-reaching, but remain "no more than a promise," said Duncan Green, spokesperson for Oxfam, a group advocating Third World aid. "But we must ensure that poor countries get their fair share - that Uganda benefits as well as Ukraine," he said.

The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., Britain and the European Union.

  • Patrice Hill reported from Washington.

Home | Articles | BLOG | Quotes | Photo Gallery | Favorites | Stupid Frogs Game | Store | Feedback | Search | Subscribe | About Us

Copyright © 2008-2010 StupidFrogs.org, LLC