Global Leaders Agree on IMF Reform

WASHINGTON - Leaders of the world's 20 largest economies Saturday agreed to strengthen regulatory regimes for financial institutions to head off a recurrence of the ongoing global financial crisis blamed on inadequate oversight.

In a declaration adopted at the end of the one-day G20 economic summit held at the National Building Museum here, the leaders also concurred that they will pursue reform of the International Monetary Fund (IMF) and the Financial Stability Forum (FSF) to better represent developing countries in a changing global financial environment.

The IMF, the lending agency launched after the Bretton Woods agreement at the end of World War II, has often come under criticism for being a tool of U.S. economic dominance. The FSF is a Switzerland-based gathering of central banks and financial regulators from the G7 and several other advanced economies.

Acknowledging such criticism, U.S. President George W. Bush told a news conference after the summit, "These institutions have been very important -- the World Bank, IMF -- but they were based on an economic order of 1944."

Bush said the key achievements of the G20 summit were the "establishment of certain principles" and a plan of action for adapting "current financial systems to the realities of the 21st century."

"Part of the regulatory structures that are in place were 20th century regulatory structures. And obviously, you know, the financial industry went way beyond them," Bush said. "And the question is, how do we establish good regulatory structure without destroying the incentive to innovate, without destroying the marketplace."

On the reform of international financial institutions, the declaration said, "We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness."

"In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation," it said. "The Financial Stability Forum must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership."

The U.S., which holds nearly 16 percent of IMF equities, has a virtual veto right in the global lending agency, with Japan, Germany and several other advanced economies also dominant players.

South Korean President Lee Myung-bak, French President Nicholas Sarkozy and several other heads of state have called for sweeping reform of the IMF and are pressing for the establishment of a new global financial system to keep pace with recent changes in the global economy.

"The ongoing financial crisis shows the current financial system has not kept up with changes being made in the finance industry," Lee said in a recent interview. "Under the new financial transaction environment, it is time for us either to greatly reform the existing regime or to make a completely new one."

Lee backed away from his calls for immediate restructuring of international institutions during the summit, however, citing a lack of time, commenting only briefly that the IMF has "not been seen positively by emerging and developing economies."

"I think this short session should prioritize stabilization of the global financial market and minimize its adverse impact on economic fundamentals, although today's session was supposed to deal with reform of the international financial systems to prevent recurrence of the financial crisis," Lee said.

Sarkozy and several other leaders also called for less dependence on the U.S. dollar in international trade, blaming the global financial crisis on what they called excessive reliance on the greenback.

The G20 leaders assigned their finance ministers to "initiate processes and a timeline" for concrete proposals for enhanced oversight and regulatory regimes by the end of March. They also called for another round of meetings in Europe by April 30 "to review the implementation of the principles and decisions agreed today."

"We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances," the declaration said. "We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct."

The leaders, however, cautioned against such enhanced regulatory measures stifling innovation and discouraging expanded trade in financial products and services.

Also agreed upon was increased cooperation among national and regional regulators on cross-border capital flows.

The leaders underscored the importance of rejecting protectionism. (Yonhap)