Development Committee The world’s major nations have put together a new monitoring process that they hope will halt the types of destabilizing economic imbalances that contributed to the worst global downturn since World War II. Finance officials in the United States and other members of the Group of 20 major economies said the new program will closely follow key measurements of economic health such as government budget and trade deficits, personal savings levels and investment flows between nations. The hope is that the monitoring process will highlight problems before they become so big that they pose a threat to global growth. But the deal announced Friday by the G-20 left many questions unanswered about just how effective the new procedures will be. Global financial reform will continue to be the focus of meetings Saturday of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke were representing the United States at the talks. Geithner also had a round of one-on-one meetings scheduled Saturday with finance officials from Portugal and Greece, two nations facing serious debt troubles, and officials from the European Union and Germany who have been involved in the efforts to deal with Europe’s debt problems.
Geithner was also scheduled to meet with Egyptian Finance Minister Samir Radwan for talks likely to focus on the types of financial support that Egypt needs during its governmental transition. After the daylong G-20 talks ended, French Finance Minister Christine Lagarde told reporters Friday that the monitoring agreement was a significant achievement in efforts to restore confidence and prevent future financial crises. “We have made huge progress in relation to the framework for growth,” she said. “This is a major step in the right direction.” Lagarde said that all G-20 nations will take part in the monitoring process but in the beginning the focus would be on seven of the world’s largest economies. She declined to name all of those countries but the group is expected to include the United States, China, Japan, Germany, France, Britain and India.
Much about the monitoring process, however, is still to be determined including whether countries found to have dangerous imbalances will be identified publicly. China in the past has blocked public release of criticism it has received from the International Monetary Fund.
The initial monitoring effort will be reviewed at an October meeting of the G-20 finance officials who will report on how the process is working to G-20 leaders who are scheduled to meet in Cannes, France, in November. Since there is no enforcement mechanism, it was unclear what pressure can be brought to bear on countries found with dangerous imbalances.
However, officials sought to portray the agreement as a major step forward in addressing the types of problems that were uncovered by the financial crisis that erupted in the United States in the fall of 2008 and contributed to pushing the global economy into the worst downturn since the Great Depression of the 1930s.
“The subprime crisis in the United States — that’s exactly the kind of accident we want to avoid in the future,” Canadian Finance Minister Jim Flaherty told reporters.
British Chancellor of the Exchequer George Osborne said he expected Britain would be cited in the first report next fall for its sizable government deficit. Others suggested that the United States would also be cited for its government deficit, which is projected to hit $1.5 trillion this year. China could be cited for its trade surplus.
G-20 leaders meeting in Pittsburgh in September 2009 agreed to a goal of rebalancing global growth. But China in particular has resisted the rebalancing program, seeing it as a backdoor way to bring greater pressure on Beijing to allow its currency to rise in value against the dollar.
Critics contend China is unfairly manipulating its currency for trade advantages.
Russian Finance Minister Alexei Kudrin told reporters a key remaining question will be “whether we make the monitoring mandatory and have sanctions.” In addition to global imbalances, the finance discussions have focused on ways to help poor nations deal with soaring food and energy costs and the dangers of rising inflationary pressures in China and other emerging economies.