Leaders vow to tackle economic crisis
G-20 agrees to stimulate economies and bolster financial market rules - sets agenda ahead of another meeting after Obama takes office.
WASHINGTON†(CNNMoney.com) -- World leaders unveiled a set of sweeping plans on Saturday aimed at tackling the ever-expanding economic crisis, but as expected they sketched out an agenda for more work in coming months and another meeting early next year.
Following a two-day meeting in Washington, D.C., presidents and prime ministers from Group of 20 countries managed to find some common ground on both the causes of the crisis and areas that need to be fixed.
G-20 leaders said they would meet again by the end of April to review the progress on the initiatives announced Saturday.
President Bush, who is set to depart the White House in a little more than two months from now, characterized the summit as "very productive" but was quick to point out that much work lay ahead.
"All this is an important first step," Bush said at the conclusion of the conference. "In other words, this is a beginning of a series of meetings."
In the meantime, leaders said they would continue to work toward stimulating economic demand. The final 3,600-word announcement endorsed several stimulative measures, including interest rate cuts by central banks around the globe or potential economic stimulus packages.
They added that they would boost developing countries struggling under the weight of the crisis. That could entail funneling additional funds to the International Monetary Fund.
The group also called for regulators to improve oversight of credit rating agencies and to take swift action to minimize the risk of the giant and largely unregulated market of credit default swaps - complex financial instruments whose proliferation some say poses a great danger to financial stability.
Leaders agreed not to raise new trade barriers over the next 12 months and vowed to reach a resolution on the Doha trade talks, which were launched in 2001 to help liberalize trade international trade policies.
They pushed existing global organizations including the Financial Stability Forum, which represents central bankers and regulators, and the International Monetary Fund, to take a greater role in the current crisis, while helping to identify potential risks going forward.
Saturday's announcement also included guidance for regulatory agencies, which some experts have faulted for not stopping the crisis before it got out of hand.
Regulators and finance ministers were encouraged to:
- create "supervisory colleges" for major financial institutions that do business around the world;
- to work toward aligning global accounting standards;
- take a hard look at compensation policies; and
- identify companies that are critical to the global financial system.
World leaders stopped short of attacking free-market principles, as some feared would happen.
"It went as far as it should have gone," said Raghuram Rajan, a professor at the University of Chicago Booth School of Business, who served as the chief economist at the International Monetary Fund between 2003 and 2006.
"It [the agreement] contains all that could be reasonably expected from such a reasonably quick gathering."
Some observers had characterized the summit as "Bretton Woods II" - a nod to a similar global economic summit held in July 1944 to reverse some of the painful trade and foreign exchange policies enacted in the wake of the Great Depression.
But in the days leading up to the talks, there was widespread speculation that leaders would simply narrow the focus for future talks given competing agendas among some of the attendees and the conspicuous absence of U.S. President-elect Barack Obama at the summit.
In his place, Obama sent former U.S. Secretary of State Madeleine Albright and Jim Leach, a former Republican congressman from Iowa.
"There is one president at a time, so the president-elect asked us to represent him in receiving the views of these important partners," Albright and Leach said in a statement late Saturday. "We also conveyed President-elect Obama's determination to continuing to work together on these challenges after he takes office in January."
Attendees, including UK Prime Minister Gordon Brown, seemed convinced that Obama would not undermine the progress made during the weekend talks when leaders meet again.
"What we decided today - to use fiscal measures to stimulate demand, and all countries signed up - is very much in line with what Obama said he would do," said Brown.
Attending the summit were leaders from 19 of the world's largest economies including China, Brazil, Saudi Arabia and Japan, as well as the European Union. Combined the G-20 represents 90 percent of the world's economy and 75 percent of the global population.
To be sure, the pace of the world's financial problems - rooted in large part in the collapse of the U.S. housing market and the risky lending and borrowing that went along with it - have accelerated in recent weeks.
Major indexes around the globe have fallen off a cliff over the last two months. The Russian stock market has lost 65.5% of its value since the start of the year. Stocks in Japan and the United States have been equally hard hit, falling 42% and 33%, respectively.
In Europe, the pain has been particularly acute. The European Union on Friday officially declared that the 15-nation group had entered into a recession, with its gross domestic product declining 0.2% for the second straight quarter.
And other countries have nearly collapsed under the weight the economic crisis.
In Iceland, where the government intervened to save the banking system from total failure, inflation is running at a painful 12.1% while economic growth has nearly flatlined.
Hoping to halt the contagion, central bankers and government officials have taken unprecedented steps in recent weeks.
Britain, France and the United States have bought ownership stakes in banks and pumped them full of capital in the hopes of unlocking frozen credit markets. Earlier this week, China unveiled a massive, $585 billion economic stimulus package to try to keep its once red-hot economy moving forward.