Business | Economy
A new world order with less US influence
Global leaders took their biggest steps yet toward a new world order that's less US-centric with more heavily regulated financial industry and a greater role for international institutions and emerging markets.
- Bloomberg
- Published: 23:01 April 3, 2009
- US first lady Michelle Obama watches Brenda Mensahperform during a visit to the Elizabeth Garrett AndersonLanguage School in London during the summit.
- Image Credit: Reuters
London: Global leaders took their biggest steps yet toward a new world order that's less US-centric with more heavily regulated financial industry and a greater role for international institutions and emerging markets.
At the end of a summit in London, policy makers from the Group of 20 yesterday delivered a regulatory blueprint that French President Nicolas Sarkozy said turned the page on the Anglo-Saxon model of free markets by placing stricter limits on hedge funds and other financiers. The leaders also pledged to triple the resources of the International Monetary Fund and to hand China and other developing economies a greater say in the management of the world economy.
"It's the passing of an era," said Robert Hormats, vice chairman of Goldman Sachs International, who helped prepare summits for presidents Gerald R. Ford, Jimmy Carter and Ronald Reagan. "The US is becoming less dominant while other nations are gaining influence."
A lot was at stake. If the leaders had failed to forge a consensus - Sarkozy had threatened to quit the talks if they didn't back much tighter regulation - it might have set back the world's economy and markets just as they're showing signs of shaking off the worst financial crisis in six decades.
President Barack Obama junked the at-times go-it-alone approach of his predecessor, George W. Bush, and adopted a more conciliatory stance toward his fellow leaders.
"In a world that is as complex as it is, it is very important for us to be able to forge partnerships as opposed to simply dictating solutions," Obama told a press conference at the conclusion of the summit.
Stock markets rose in response to the steps taken by the G20 leaders. In an effort to promote harmony, Obama soft-pedalled earlier US demands that the summit agree on a specific target for fiscal stimulus in the face of opposition from France and Germany. Instead, he settled for a vague pledge that the leaders would do whatever it takes to revive the global economy.
The president also signed on to a communique that Nobel Laureate Joseph Stiglitz said repudiated the previous US-led push to free capitalism from the constraints of governments.
"This is a major step forward and a reversal of the ideology of the 1990s, and at a very official level, a rejection of the ideas pushed by the US and others," said Stiglitz, an economics professor at Columbia University.
In bowing to that view, the leaders conceded in a statement that "major failures" in regulation had been "fundamental causes" of the market turmoil they are trying to tackle. To make amends and to try to avoid a repeat of the crisis, they pledged to impose stronger restraints on hedge funds, credit rating companies, risk-taking and executive pay.
A new Financial Stability Board will be established to unite regulators and join the IMF in providing early warnings of potential threats. Once the economy recovers, work will begin on new rules aimed at avoiding excessive leverage and forcing banks to put more money aside during good times.
The US did, though, take the lead in getting the summit to agree on an increase in IMF rescue funds to $750 billion from $250 billion now. Japan, the European Union and China will provide the first $250 billion of the increase, with the balance to come from as yet unidentified countries.
Citigroup Inc economists Don Hanna and Jurgen Michels called the summit agreement "a boon to emerging markets" in a note to clients Thursday.
Emerging-market stocks, bonds and currencies rallied on speculation other developing nations will follow Mexico's lead. Gains in Polish, Czech and Brazilian stocks helped push the MSCI Emerging Markets Index up 5.6 per cent to 613.07, the highest since October 15.
To help combat that, the G20 said they will make at least $250 billion available in the next two years to support the finance of trade through export credit agencies and development banks such as the World Bank.
The summit took place amid speculation among investors that the deepest global recession in six decades may be abating. Data released Thursday showed orders placed with US factories rose in February for the first time in seven months, UK house prices unexpectedly gained in March and Chinese manufacturing increased. Still, a report later yesterday was forecast to show US unemployment at its highest in a quarter-century.
"If the economy turns more favourable, this meeting will probably be viewed as a milestone," said C. Fred Bergsten, a former US official and director of the Peterson Institute for International Economics in Washington.
The G20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the US, the UK and the European Union. Officials from Spain and the Netherlands were also present
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