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G-20 Near Deal on Economy
The Group of 20 nations is close to an agreement that would require members to subject their economic policies to a type of "peer review," according to several senior G-20 officials, in a shift that would expose the U.S. and China to broad scrutiny of the way they run their economies.
Also, the G-20 heads of state will announce on Friday that the G-20 will become the permanent council for international economic cooperation, eclipsing the Group of Eight, a senior U.S. administration official said.(...)
Under the G-20's proposal aimed at improving coordination of global economic policymaking, the world would reduce its reliance on U.S. consumers. The Chinese would boost domestic demand, the U.S. would trim its borrowing from overseas, and the Europeans would encourage investment, said a number of G-20 officials involved in the talks.
The scope and effectiveness of the agreement -- which was expected to be signed off on by G-20 leaders on Friday -- will depend on whether and how it is enforced. The potential agreement envisions a procedure where G-20 countries assess whether each others' policies are working, and the International Monetary Fund provides technical help. Not included are any enforcement mechanisms such as sanctions or other penalties.
The reviews will assess how the policies contribute to "strong and balanced growth" of the world economy, a senior G-20 official said. "Who would have thought that the Chinese would have signed up to that?" Germany and China had expressed strong reservations about the concept.
China is "keenly aware" of its problem of low consumption and is promoting domestic demand and consumption, said Ma Xin, a official at the National Development and Reform Commission.
The summit is also gearing up to announce a tough approach to dealing with tax havens, according to a draft of the communiqué the group will present Friday, and is preparing a compromise on regulating bonuses paid to bankers and the amount of capital banks must hold.
Although the G-20 has made progress on these thorny issues, disagreement between the U.S. and European nations over revamping the governance and structure of the IMF threatens to sour the mood. In addition, divisions persist over the level of capital the world's biggest banks should hold.
On yet another issue that has stoked controversy, the G-20 will pledge to move beyond the "name and shame" approach on tax havens it agreed to in April, according to a draft communiqué. Instead, it will move toward new systems of review and countermeasures to ensure that countries that promise to abide by transparency rules actually follow through.(...)
For the G-20, reaching an agreement with concrete and specific details is a priority as the group seeks to establish itself as the coordinating body for the world's largest economies and developing countries. It has been gradually assuming that role throughout the financial crisis, but as the global economy improves, countries are starting to go their own way.
The draft communiqué also calls for member states to move against oil-price speculation, largely by improving energy-demand forecasting and bolstering regulation of oil-futures markets.(...)
Meeting with reporters Thursday evening, Treasury Secretary Timothy Geithner acknowledged differences with European countries on raising the representation of developing nations in the governance of the World Bank and IMF, a U.S. priority.
"I don't think there's anybody who does not believe this is a necessary shift," Mr. Geithner said. "I think Europe recognizes that." But a final agreement on a revamped representation structure isn't going to be reached in Pittsburgh, he said. Rather, that will be completed in negotiations at the IMF set to conclude by January 2011.
In an area of particular interest to European nations -- tax havens -- the group appears to have made substantial progress.
"We're committed to maintain momentum in dealing with tax havens, money laundering, terrorist financing and prudential standards," said the draft communiqué. "We stand ready to use countermeasures against tax havens from March 2010."
Countermeasures could include allowing countries to band together to not accept tax deductions routed through jurisdictions determined to be out of compliance with the tax-haven standards.
The G-20 has focused much of its efforts in three areas: U.S. and British plans to get G-20 nations to remake economic policies to produce sustainable growth; financial regulations concerning executive compensation and bank capital; and restructuring the IMF so developing nations have a greater say.
The U.S. has proposed a five-percentage-point shift in the ownership of the IMF from industrialized to developing countries, and a cut in the number of IMF directors to 20 from 24. The loss in power would come from European nations, whose global economic clout has shrunk over the past two decades.(...)
The U.S. has pushed to require banks to have more capital, which European countries have said would hurt their firms. Europe, meanwhile, has pushed for tighter restrictions on executive compensation, in particular bonuses, than the U.S. wants.
The FSB's report, which will be presented at Friday's summit, will say the issues are two sides of the same coin.(...)
The announcement regarding the G-8 will clarify the future of what has become a round robin of economic summits. In the past year, the G-20 has met three times, in Washington, London and Pittsburgh. The G-8 met once, in Italy, but that summit included multiple iterations, such as the group of eight largest economies, the G-8 plus Egypt, the G-8 plus five other developing countries, the Major Economies Forum, and others. At that time, Mr. Obama expressed his annoyance, saying the system had to be streamlined.
—Alessandra Galloni contributed to this article.
