In the short term, the G20 will try to build on this less-than-robust recovery and further enhance international cooperation to generate strong, sustainable and balanced growth. Toward that end, the G20 Seoul Summit will focus first on following up on previous G20 commitments within the established timeframe. Those commitments include: safeguarding the ongoing recovery and restoring fiscal sustainability; ensuring strong, sustainable, and balanced global growth; building a stronger international financial regulatory system; and modernizing international financial institutions
1. Ensuring Ongoing Global Economic Recovery
The world economy continues to recover faster than anticipated, but significant challenges remain. The recovery is uneven and fragile and unemployment in many countries remains at unacceptable levels.Moreover, recent events highlight the importance of sustainable public finances.
In June, at the Toronto Summit, the leaders of the G20 agreed on the importance of safeguarding and strengthening the recovery while laying the foundation for strong, sustainable
2. Framework for Strong, Sustainable, and Balanced Growth
At the Pittsburgh Summit, the G20 leaders launched the Framework for Strong, Sustainable, and Balanced Growth to strengthen international cooperation in the interest of future economic growth and stability.
The leaders of the G20 tasked the IMF to support a mutual assessment process for the Framework, in conjunction with other relevant international organizations with expertise on development, finance, labor market, and trade.
At the Toronto Summit, the leaders reviewed the results and agreed on a set of policy options which, if implemented, would bring the world economy closer to the G20's shared objectives.
At the Seoul Summit, the leaders will agree on a comprehensive policy action plan designed to lead the world toward strong, sustainable and balanced growth
3. Strengthening the International Financial Regulatory System The G20 leaders have committed to strengthening the financial regulatory system both to sustain global growth and to prevent future crises. These efforts toward financial sector reform are largely geared toward restoring the industry's integrity, transparency and accountability, thereby allowing it to regain the confidence of the general public.
According to the timeline created at the Pittsburgh Summit, more stringent international rules regarding bank capital and liquidity requirements will be created by the end of 2010. They will then be phased in as financial conditions improve and economic recovery is assured, with the aim of implementation by end-2012. In addition, the G20 tasked the Financial Stability Board (FSB) to develop capital and liquidity standards for systemically important financial institutions (SIFI) in order to prevent excessive risk taking. The G20 leaders also asked the FSB to suggest appropriate resolution tools to address the potential failures of SIFIs.
At the Toronto Summit, the G20 Leaders (i) affirmed their intention to reach agreement on a new capital framework by the Seoul Summit and (ii) called on the FSB to consider and develop concrete policy recommendations to deal with SIFIs by the Seoul Summit. In addition, the Leaders called on the FSB, the Basel Committee on Banking Supervision (BCBS)and other relevant organizations to report on the progress made, and new reforms required, in the areas of supervision, hedge funds, credit rating agencies and over-the-counter derivatives to the Finance Ministers and Central Bank Governors at their October meeting.
4. Modernizing the International Financial Institutions
"We called for an acceleration of the substantial work still needed for the IMF to complete the quota reform by the Seoul Summit and in parallel deliver on other governance reforms, in line with commitments made in Pittsburgh." G20 Communique, June 26-27, 2010
For the G20, the crisis has called into question the effectiveness of existing international financial institutions. In Toronto, the G20 Leaders reaffirmed the urgency of IMF reform and called for the reform to be completed by the Seoul Summit.
Those reforms entail a shift in quota share to dynamic emerging market and developing countries of at least 5% from over-represented to under-represented countries. In addition, the Leaders committed to addressing the issue of the size of any increase in quotas, size and composition of the Executive Board, ways of enhancing the Board's effectiveness, the Fund Governor's involvement in the strategic oversight of the IMF, staff diversity, and a merit-based selection of heads and senior leadership of all IFIs.
Going forward, the IMF is expected to strengthen its ability to provide even-handed, candid and independent surveillance of the risks facing the global economy and the international financial system. Moreover, in collaboration with the FSB, it is expected to provide advance warning of macroeconomic and financial risks, and offer appropriate recommendations to head them off.
Meanwhile, the World Bank has already reached agreement on shifting 3.13% of voting power to developing and transition countries, delivering on its commitment to reach the agreement by April of this year.