G-20 leaders call for reducing fiscal deficits by half by 2013, more sustainable, balanced growth

TORONTO - Leaders of the Group of Twenty (G-20) on Sunday issued a communique that includes aggressive deficit-cutting targets and allows individual countries to devise their own approach to meeting those goals.

Sunday’s communique saw advanced economies committing to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016.

The leaders also agreed to support economic growth policies and recognize that some countries will start cutting their budget deficits later than others.

“We are committed to taking concerted actions to sustain the recovery, create jobs and to achieve stronger, more sustainable and more balanced growth,” the communique said.

“These (actions) will be differentiated and tailored to national circumstances,” it added.

The G-20 has also concluded individual countries would decide whether they want to impose a bank tax or establish some kind of rainy day fund to offset another financial collapse that sparked the worldwide recession, the Toronto Star confirmed.

That is in keeping with Prime Minister Stephen Harper’s position that imposing an across-the-board tax, even on countries whose banks were solid, would be an unnecessary financial burden.

The final communique said that all countries should make sure ordinary people are not stuck with the bill when banks fail.

Countries like the U.S., Great Britain and France which were forced to bail out their banks to the tune of billions of dollars were aggressively pushing for a tax, but it was clear that many G-20 countries would not agree to an across-the-board global bank tax.

Since the G-20 last met in Pittsburgh in September 2009, Canadian Prime Minister Stephen Harper, as the president of the fourth G-20 summit, said “new risks” have emerged in the global economy. I would add to these the need to follow through on regulatory reforms in the financial sector and of course the siren song of protectionism.”

Harper also said that if the world’s economy is to bounce back, advanced countries have to cut their deficit by half in three years.

Harper said economic success, according to the International Monetary Fund, could boost global output by 6.5 per cent growth over the next five years which he said would translate into 52 million jobs and 90 million people lifted out of poverty. But that will only happen “if we act in a coordinated manner and avoid pitfalls.”

“It is incumbent upon us to act with the same unity of purpose, the same sense of urgency,” he said.

The 50-point communique said that the G-20 leaders have agreed on the next steps to ensure a full return to growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth.

Acknowledging that efforts till date have borne good results, it said the globally coordinated fiscal and monetary stimulus continues to play a major role in helping to restor private demand and lending, but equally strong steps needed to be taken to increase the stability and strength of financial systems.

It said a strong commitment must be maintained to resist protectionism.

Placing emphasis on strengthening recovery, the communique highlighted the importance of sustainable public finances and the need for member countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability tailored to national circumstances.

It said that the pace of consolidation must be accelerated to help ensure that global growth continues on a sustainable path.

It welcomed the actions taken and commitments made by a number of G-20 countries to boost demand and rebalance growth, strengthen public finances, and make financial systems stronger and more transparent.

The G-20 leaders said that they had completed the first stage of Mutual Assessment Process and concluded that there was room for improvement and a need for a more ambitious path of reforms, over the medium term:

The communique called for strengthening social safety nets, enhancing corporate goernance reform, financial market development, infrastructure spending, and greater exchange rate flexibility in some emerging markets; Pursuing sructural reforms across the entire G-20 membership to increase and sustain ur growth prospects and make more progress on rebalancing global demand.

It urged advanced deficit countries to take actions to boost national savings while maintaining open markets and enhancing export competitiveness, and added surplus economies will undertake reforms to reduce their reliance on external demand and focus more on domestic sources of growth.

“We have strengthened the global financial system by fortifying prudential oversight, improving risk management, promoting transparency, and reinforcing international cooperation. A great deal has been accomplished. We welcome the full implementation of the European Stabilization Mechanism and Facility, the EU decision to publicly release the results of ongoing tests on European banks, and the recent US financial reform bill,” the communique said.

It said the reform agenda rests on four pillars:

1.) A strong regulatory framework based on the recommendations of the Basel Committee on Banking Supervision (BCBS).

2.) Effective supervision backed by new and stronger rules. This must be complemented with more effective oversight and supervision. The FSB, in consultation with the International Monetary Fund (IMF), has been asked to report to G-20 Finance Ministers and Central Bank Governors in October 2010 on recommendations to strengthen oversight and supervision.

3.) Resolution and addressing systemic institutions i.e.design and implement a system to restructure or resolve all types of financial institutions in crisis, without taxpayers being burdened.

4.) Transparent international assessment and peer review.

The G-20 communique also vowed to strengthen the legitimacy, credibility and effectiveness of International Financial Institutions to make them even stronger partners for us in the future.

It also said that it would fulfill its commitment to ensure an ambitious replenishment for concessional lending facilities of the MDBs, especially the International Development Association and the African Development Fund. By Ashok Dixit (ANI)