G20 financial leaders meeting draws joint communique on financial reform

British chancellor of the exchequer George Osborne (R, front) and Britain's Central Bank Governor Mervyn King attend the G20 Finance Ministers and Central Bank Governors Meeting in Busan, South Korea, June 5, 2010. The meeting of the G20 finance ministers and central bank governors continued here on Saturday. (Xinhua/Pool)

by Na Haejung

BUSAN, South Korea, June 5 (Xinhua) -- The meeting of the G20 finance ministers and central bank governors on Saturday ended in South Korea's southeastern port city of Busan, leading to a joint communique calling for member countries' continued efforts on financial reform.

In the face of the lingering eurozone fiscal debt risks, financial leaders of the 20 member countries had in-depth discussions on cooperative measures to boost up fiscal soundness and spent time on developing a basket of policy options to be brought up to the discussion table at the Toronto Summit.

The two-day meeting drew up a joint communique signed by participant leaders, although there have been some thorny issues, such as a global bank levy, accompanied by disputes among participant leaders.

South Korean Financial Minister Yoon Jeung-hyun, wrapping up the meeting, highly exalted the event, saying it succeeded in reaching an agreement despite discords among the participant countries on some issues.

"With respect to the content of the communique, we have reached an almost-perfect result without major disputes, which I think is the most outstanding outcome of the meeting," Yoon told the closing press conference.

JOINT COMMUNIQUE

The joint communique was founded on the Framework for Strong, Sustainable, and Balanced Growth, which is a key mechanism to meet the immediate challenges of supporting the global recovery and mid- term shared objectives.

Based on the framework were adopted a range of policy options that will later be discussed in details at the June 2010 Toronto Summit, according to the communique.

The leaders agreed on further progress on financial repair, requiring greater transparency and further strengthening of financial firms' balance sheets and better corporate governance.

They also vowed to speed up in reaching agreement on stronger capital and liquidity standards as the core of the reform agenda, calling on the Basel Committee on Banking Supervision to propose internationally agreed rules to improve the quantity and quality of bank capital.

The proposal also urged to discourage excessive leverage and risk taking by the November 2010 Seoul Summit, the communique said.

Also, the leaders agreed on the need to reduce moral hazard, while pledging to accelerate regulation and supervision of hedge funds, credit rating agencies, compensation practices and OTC derivatives in a internationally consistent and non-discriminatory way.

The communique also remarked on the World Bank's reform voice to increase the voting power of developing countries, while protecting the smallest poor nations, embracing the proposal.

The agreement also called for continued institutional reforms at international financial institutions (IFIs) led by the World Bank.

Constructing global financial safety nets was also one of the major items on the communique, with the G20 countries acknowledging a need for national, regional and multilateral efforts to deal with capital volatility and prevent crisis contagion.

However, bank levy, the core of the disputes, was not elaborated in detail in the communique, only endorsed as a need for a fair and substantial contribution towards paying for any burdens to repair the banking system or fund resolution.

MAJOR ACCOMPLISHMENT

The Busan joint communique enabled financial leaders of the G20 countries to further probe into cooperative measures to enhance fiscal and financial soundness at practical level.

Not only the sealing of the joint communique itself but also its content, however, saw a leap forward from the previous G20 meetings, according to South Korean Finance Minister Yoon.

Among many agreements that the leaders reached, South Korea's finance minister highlights the acknowledgement of the need to beef up global financial safety net (FSN), saying the Busan meeting brought about noticeable progress.

The meeting was divided over the issue as emerging economies and advanced countries had conflicting interests over the issue.

While emerging economies supported the proposal as they had to brace for excessive capital inflows and outflows in the face of crises, advanced countries took it as too much burden as developing nations could be too reliant on them.

The meeting came up with an alternative, however, such as enlarging multilateral swap lines, which the South Korean finance minister pointed out as considerable progress.

"We will likely be able to reach a tangible outcome at the Seoul Summit in November with regard to the issue," Yoon told the press.

Bank taxes, which have been recognized as the thorniest agenda item of the Busan meeting, were not included in detail in the joint communique seemingly as leaders could not narrow differences due to strong oppositions from many countries.

According to James Flaherty of Canada, the majority of countries were opposed to a unified form of bank regulation at the global level, while they agreed on the need for regulating financial institutions who have been accused of the main culprit of the recent global financial turmoil.

It is in line with the earlier remarks by U.S. Treasury Secretary Timothy Geithner, who said before he left for the financial leader meeting that it is unlikely to see a tangible outcome on the issue in Busan.

"I don't think we're on the verge of a global consensus on bank levies yet," Geithner told a news conference.

Known as the Obama tax, a global bank levy has been strongly supported by some countries, such as the United States and Germany, approved of the need to burden banks with future rescues in a bid to brace for future financial crises.

Those who have not been hard struck by the recent financial turmoil, however, remained skeptical over the need to require their banks to pay for the cost.

As a chair country, South Korea supported the proposal, with South Korean Finance Minister Yoon Jeung-hyun saying the adoption of the bank levy will discourage banks from moving around too much capital.

"(Bank levy) will thus improve the healthiness of the foreign exchange market and also contribute to the general improvement of the current financial system," Yoon said in an e-mail interview with local media Korea Times.

Despite the failure of drawing detailed measures on bank levy, the G20 leaders came up with a larger-frame resolution, or a five- step principle, that will be a guideline for countries to consider when they devise ways to regulate the banking sector.

With the remaining challenge to harmonize the ongoing disputes on the bank levy issue, the Busan G20 meeting will be followed by the June 2010 Toronto Summit and the November 2010 Seoul Summit where more practical outcomes are expected.

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