(Article) G20 Summit: Leaders Agree to Cut Deficits by 2013

The fourth G20 summit in less than two years has ended at Toronto on 26-27 June, 2010. The summit ended with global leaders evolving a consensus of sorts on several issues of economic importance. India, which was represented in strength at the summit, says it is happy with the outcome. The leaders of the world's most powerful economies pledged to slash back spiraling debts on Sunday as they sought to rebalance a global economy knocked off its axis by a financial crisis.

The heads of the G20, which groups established world powers and the most dynamic emerging players, vowed to nurture the still shaky recovery with coordinated measures to spur growth and ensure financial stability.

But observers quickly noted the agreements were not binding and the summit statement was filled with caveats and exemptions, pushing many of the tougher decisions on to the next G20 summit in Seoul in November.

The leaders' joint statement, released at the end of two days of talks in Toronto, warned that "failure to implement consolidation where necessary would undermine confidence and hamper growth."

"Reflecting this balance, advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016," it promised.

Nevertheless, the group exempted Japan and its huge public deficit from the pledge and noted that measures should be "tailored to national circumstances."

The statement called for "greater exchange rate flexibility in some emerging markets" but shied away from specifically fingering China, which is under pressure to allow the yuan to strengthen to ease trade imbalances.

Amid US fears that global growth may once again become over dependent on American consumers, the G20 called for "efforts to rebalance global demand to help ensure global growth continues on a sustainable path."

European leaders- Germany's Chancellor Angela Merkel, French President Nicolas Sarkozy and Britain's Prime Minister David Cameron -- came to the talks calling for fiscal restraint and a new levy on bank profits.

They made some headway on the former, but will be forced to go it alone on the banking tax, as countries like Australia, Canada and India that have experienced no banking failures rejected the proposal out of hand.

The G8 statement said "We agreed the financial sector should make a fair and substantial contribution towards paying for any burdens associated with government interventions." "We recognized that there are a range of policy approaches to this end. Some countries are pursuing a financial levy. Other countries are pursuing different approaches."

Observers said the degree of divergence in the countries' policies for dealing with the recovery showed that, now that the initial shock of recession has passed, national agendas are once more crowding out G20 cooperation.

Outcome For India

The first point was the civilian nuclear pact with Canada. Canada is an important supplier of Uranium and nuclear technologies. The pact is actually going to help take India’s plans on that front forward. In fact the bilateral that the India prime minster had with the Canadian prime minster actually seems to signal a new beginning in the relationship. Stephen Harper said that the 70s are over and in fact this is the first visit by an Indian prime minister after 1973.

There were several other agreements for mining and other MoUs signed. Another key bilateral was the India US bilateral, Manmohan Singh meeting Barack Obama. Much of it was political; no Warren Anderson extradition demand was raised there. The key thing was that India told the US to take disclosures by Headley; the 26/11 accused more seriously and wanted the United States to get Pakistan to act more on terror.

PM asks rich nations to resist protectionism Making it clear that each country needed to devise its own strategy to weather the deepest global  financial crisis in decades, Indian Prime Minister Manmohan Singh on Sunday asked rich nations to resist protectionism.

Stating that the India was better placed in handling the situation with an average growth of 7 per cent in the past two fiscals, the prime minister said emerging economies must also rely less on exports and push domestic demand.

As the leaders of the Group of 20 advanced and emerging economies listened in attention, the Oxford-educated economist-prime minister said India on its part will go for medium-term fiscal consolidation and halve its fiscal deficit by 2013-14.

Manmohan Singh said he understood that fiscal consolidation obviously needed high priority in those advanced nations that were experiencing exceptional fiscal stress and in those where sovereign debt was shaky.

"But other advanced countries should opt for a much more caliberated exit from the stimulus. We should adopt a carefully differentiated approach, reflecting the circumstances of individual countries," the prime minister added.

China sets strongest yuan rate in years after G20 pressure:

China set the strongest yuan exchange rate in years after Beijing came under renewed pressure at the Group of 20 summit to let the currency appreciate.

The People's Bank of China said it set the central parity rate -- the centre point of the currency's allowed trading band -- at 6.7890 to the dollar.

It was the strongest level policymakers have set since China unpegged the currency in July 2005 and moved to a tightly managed floating exchange rate.

China had effectively pegged the yuan at about 6.8 to the dollar for the past two years to prop up exporters during the global financial crisis. Critics say the policy gives Chinese producers an unfair advantage.

Manmohan meets Obama at G20 summit: Prime Minister Manmohan Singh and US President Barack Obama held their second substantive dialogue in two months, during which they are understood to have discussed terrorism, global economy and other issues of mutual concern.

Singh and Obama met on the sidelines of the G20 Summit and are believed to have discussed the situation in the region.

This was the the first meeting between the two leaders after they met and reviewed bilateral ties on the sidelines of the Nuclear Security Summit in Washington in April.

During the meeting, the two leaders are also understood to have discussed about the global economic recovery and the G20 Summit. At the Summit, India and the US had cautioned against winding up of the government funding.

Obama said the two countries would continue to see how businesses of both countries can get to work together and then generating recommendations to "each of us in terms of how we can improve ties between the United States and India."

What is the G-20

The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 15-16, 1999, hosted by German and Canadian finance ministers.

Mandate

The G-20 is the premier forum for our international economic development that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. By contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions, the G-20 helps to support growth and development across the globe.

Origins

The G-20 was created as a response both to the financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance. Prior to the G-20 creation, similar groupings to promote dialogue and analysis had been established at the initiative of the G-7.

The G-22 met at Washington D.C. in April and October 1998. Its aim was to involve non-G-7 countries in the resolution of global aspects of the financial crisis then affecting emerging-market countries.

Two subsequent meetings comprising a larger group of participants (G-33) held in March and April 1999 discussed reforms of the global economy and the international financial system.

The proposals made by the G-22 and the G-33 to reduce the world economy's susceptibility to crises showed the potential benefits of a regular international consultative forum embracing the emerging-market countries. Such a regular dialogue with a constant set of partners was institutionalized by the creation of the G-20 in 1999.

Membership

The G-20 is made up of the finance ministers and central bank governors of 19 countries:

The European Union, who is represented by the rotating Council presidency and the European Central Bank, is the 20th member of the G-20. To ensure global economic for a and institutions work together, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings on an exofficio basis.

The G-20 thus brings together important industrial and emerging-market countries from all regions of the world. Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world's population. The G-20's economic weight and broad membership gives it a high degree of legitimacy and influence over the management of the global economy and financial system.

Achievements

The G-20 has progressed a range of issues since 1999, including agreement about policies for growth, reducing abuse of the financial system, dealing with financial crises and combating terrorist financing. The G-20 also aims to foster the adoption of internationally recognized standards through the example set by its members in areas such as the transparency of fiscal policy and combating money laundering and the financing of terrorism. In 2004, G-20 countries committed to new higher standards of transparency and exchange of information on tax matters. This aims to combat abuses of the financial system and illicit activities including tax evasion. The G-20 has also aimed to develop a common view among members on issues related to further development of the global economic and financial system.

To tackle the financial and economic crisis that spread across the globe in 2008, the G-20 members were called upon to further strengthen international cooperation. Since then, the concerted and decisive actions of the G-20 helped the world deal effectively with the current financial and economic crisis. The G-20 has already delivered a number of significant and concrete outcomes. For examples, it committed to implement the unprecedented and most coordinated expansionary macroeconomic policies, including the fiscal expansion of US$5 trillion and the unconventional monetary policy instruments; significantly enhance the financial regulations, notably by the establishment of the Financial Stability Board (FSB); and substantially strengthen the International Financial Institutions (IFIs), including the expansion of resources and the improvement of precautionary lending facilities of the IFIs.

Reflecting on these achievements and recognizing that more needs to be done to ensure a strong, sustained and balanced global recovery, the G-20 Leaders at Pittsburgh Summit designated the G- 20 as the premier forum for international economic cooperation.

Chair

Unlike international institutions such as the Organization for Economic Co-operation and Development (OECD), IMF or World Bank, the G-20 (like the G-7) has no permanent staff of its own. The G-20 chair rotates between members, and is selected from a different regional grouping of countries each year. In 2010 the G-20 chair is the Republic of Korea, and in 2011 it will be France. The chair is part of a revolving three-member management Troika of past, present and future chairs. The incumbent chair establishes a temporary secretariat for the duration of its term, which coordinates the group's work and organizes its meetings. The role of the Troika is to ensure continuity in the G-20'swork and management across host years.

Meetings and activities

It is normal practice for the G-20 finance ministers and central bank governors to meet once a year. The last meeting of ministers and governors was held in St. Andrews, UK on 6-7 November 2009. The ministers' and governors' meeting is usually preceded by two deputies' meetings and extensive technical work. This technical work takes the form of workshops, reports and case studies on specific subjects, that aim to provide ministers and governors with contemporary analysis and insights, to better inform their consideration of policy challenges and options.

Interaction With Other International Organisations:

The G-20 cooperates closely with various other major international organizations and for a, as the potential to develop common positions on complex issues among G-20 members can add political momentum to decision- aking in other bodies. The participation of the President of the World Bank, the Managing Director of the IMF and the chairs of the International Monetary and Financial Committee and the Development Committee in the G-20 meetings ensures that the G-20 process is well integrated with the activities of the Bretton Woods Institutions. The G-20 also works with, and encourages, other international groups and organizations, such as the Financial Stability  Board and the Basel Committee on Banking Supervision, in progressing international and domestic economic policy reforms. In addition, experts from private-sector institutions and non-government organisations are invited to G-20 meetings on an ad hoc basis in order to exploit synergies in analyzing selected topics and avoid overlap.

External Communication

The country currently chairing the G-20 posts details of the group's meetings and work program on a dedicated website. Although participation in the meetings is reserved for members, the public is informed about what was discussed and agreed immediately after the meeting of ministers and governors has ended. After each meeting of ministers and governors, the G-20 publishes a communiqué which records the agreements reached and measures outlined. Material on the forward work program is also made public.

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