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Economic Growth, Financial Reform Are Focus of G20 Talks

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The Group of 20 leading economies (G20) is trying to make sure it has a strong, common strategy for economic growth and for financial reforms, U.S. Treasury Secretary Timothy Geithner says.

“Last year, the G20 acted to restore growth to a world in crisis. Because we acted together, the global economy is expanding again,” Geithner said June 5 at a meeting of G20 finance ministers and central bank governors in Busan, South Korea. The International Monetary Fund (IMF) has forecast global growth to exceed 4 percent this year and in 2011.

The finance ministers and central bankers met June 4–5 to prepare for the G20 Summit in Toronto June 26–27. A second G20 summit is scheduled for Seoul, South Korea, November 11–12.

The economic talks focused on two core priorities: economic growth and financial reform, Geithner said. The ministers reaffirmed support for the current recovery in private demand across the G20 economies, and also agreed on the need for reforms that would support short-term demand and boost longer-term growth.

“We discussed how the ongoing shift toward higher saving in the United States would need to be complemented by stronger domestic demand growth in Japan and in the European [trade] surplus countries,” Geithner said, “and sustained growth in private demand, together with a more flexible exchange rate policy, in China.”

Geithner said the ministers agreed that withdrawing monetary stimulus plans for national economies must proceed as the private sector recovers, but not faster than that.

In an effort to balance the global economic system, the G20 agreed at two previous summits in London and Pittsburgh in 2009 that member nations with sustained, significant deficits should support private savings while keeping open markets and strengthening exports. Those G20 nations with sustained and significant surpluses pledged to strengthen domestic sources of growth by increasing investment, reducing market distortions, boosting productivity, improving the social safety net for their citizens and lifting constraints imposed on growth.

The G20 was formed in 1999 and includes 19 of the world’s largest national economies and the European Union. G20 countries represent about 90 percent of the global gross domestic product and nearly 80 percent of world trade. They also have two-thirds of the world’s population.

G20 countries also agreed to phase out fossil fuel subsidies, which now total nearly $300 billion globally.

Geithner told the finance ministers that the United States is moving forward with reforms of its health care, education and financial systems that are coupled with substantial investments in innovation, basic science and research, and infrastructure. “These initiatives are designed to provide a stronger foundation for future economic growth,” he said.

Both chambers of the U.S. Congress have passed legislation that supports the core principles for financial reform proposed by the G20. Geithner said financial reforms seek stronger capital and liquidity requirements for commercial banks, regulation of derivatives trading and constraints on leverage to ensure that financial institutions are better able to withstand future financial and economic shocks.

But still to be determined is how best to keep taxpayers from having to support the financial costs of economic crises. The Obama administration has proposed a bank tax over 10 years to pay for future crises. The European Union and the IMF support some type of bank tax levy, but not all of the G20 nations support such a move.

“The value of the G20 is to help each of us individually recognize the importance of economic policies that are in our broad collective interest,” Geithner said. “To make sure we are working together, not at cross purposes. The United States is moving aggressively to fix things we got wrong and to strengthen our economic fundamentals.”