G-20 Countries

 G-20 members are:

 Argentina, Australia, Brazil, Canada, China, France, Germany,
India, Indonesia, Italy, Mexico, Russia, Saudi Arabia, South Africa,
South Korea, Turkey & USA, EU Presidency, currently Czechs
Republic, Spain & Netherlands.
 Besides the above, the World Bank, IMF, UN will also
participate in the meeting.
 The above countries are called as ‘Systemically important
industrialized and developing economies’.
 G-20 was formed as a group of finance ministers, central bank
governors to co-ordinate on issues affecting global finance.
 With elevation to summit level in April 2009, its mandate got
broader with Heads of the Government attending the present
summit.
 G-20 Countries
 The G-20 occasion did serve as the first
exposure of the charismatic US President
Mr.Barrack Obama, to the leaders of
developing and developed nations.
 But it was the British Prime Minister, Mr.
Gordon Brown, who grabbed the most
media attention, especially as he was
responsible for announcing the conclusions
at the Summit.
 G-20 Countries
 The G-20 countries met on 02/04/09 at London, UK.
 The goal, as British Prime Minister and Chairman of
the London G-20 Summit Gordon Brown said was to
prevent a global recession.
 British PM further said, ’This the day that the world
came together, to fight back against this global
recession, Not with words but a plan for global
recovery with a clear timetable.’
 US President Barack Obama called the agreements
entered in the G-20 summit a, ’turning point in our
pursuit of global economic recovery’.
 G-20 Countries
 The leaders accepted in a statement that ‘major
failures’ in regulation had been ‘fundamental
causes’ of the present market turmoil.
 To make amends and to try to avoid a repeat of the
crisis, they pledged to impose stronger restraints on:
 Banking institutions, especially the shadow banking system such
as hedge funds.
 Credit rating companies.
 Risk-taking processes.
 Executives pay and bonuses.
 G-20 Countries
A new Financial Stability Board will be
established to unite regulators and join the IMF in
providing early warnings of potential threats.
 Once the economy recovers, work will begin on
new rules aimed at avoiding excessive leverage
and forcing banks to put more money aside
during good time to absorb future shocks.
 G-20 Countries
 US took the lead in getting the summit to agree on
an increase in IMF rescue funds to $ 750 billion from
the existing $ 250 billion.
 Japan, European Union and China will provide the
first $ 250 billion of the increase, with the balance
coming from as yet unidentified countries.
 The above move will provide the IMF with enough
resources to meet the needs of East European
nations and also provide back-up funding to a
broader set of countries.
 G-20 Countries
 The G-20 also agreed to an allocation of $ 250 billion in
Special Drawing Rights (SDRs), the artificial currency that
the IMF uses to settle accounts among its member nations.
 The above move is akin to a central bank such as Fed
Reserve effectively creating money out of thin air, except it
is on global scale.
 The increase in SDRs will allow countries to tap IMF money
without having to accept changes to economic policies
often demanded as a condition to IMF aid.
 The cash is disbursed in proportion to the money each
member-nation pays into the fund.
 Rich nations will be allowed to divert their allocations to
countries in greater need.
 G-20 Countries
 The G-20 agreed that emerging economic power
houses such as China, India and Brazil will be given
a greater say in how the IMF is to be run and how
the financing moves are to be stepped up.
 In a bid to avoid another mistake of the depression
era, G-20 leaders pledged to avoid trade
protectionism.
 G-20 said they will make at least $ 250 billion
available in the next two years to support the
finance of trade through export credit agencies and
development credit banks such as the World Bank.
 Detailed Recommendations
 Capital should serve as an effective buffer to absorb losses over the
cycle for the financial institutions to:
 improve their solvency.
 increase their ability to lend.
 protect in the event of losses.
 Capital buffers above minimum requirements and loan-loss
provisions should be built in good times in order to enhance the
ability of financial institutions to withstand larger shocks.
 The global regulatory framework should promote stronger liquidity
buffers of the financial institutions.
 Greater focus to be given for loan to value ratios more particularly
for mortgage loans / mortgaged back securities.
 Accounting standard setters should strengthen accounting
recognition of loan-loss provisions (mtm exercise to be
strengthened).
 G-20 Countries
 To sum up, the following agreements were concluded in the summit:
 $ 1 trillion will be channeled through international bodies for restoring credit,
growth and jobs. This amount includes:
 Additional $ 500 billion in IMF financing.
 Extra $ 250 billion - the amount of trade that will be financed or guaranteed over a two
year period.
 G-20 has arrived at spending requirement of $ 5 trillion for battling the present crisis
(this nothing but the total of the fiscal stimulus of countries provided / going to be
provided) before the end of 2010, which is expected to raise the global output by 4%
and accelerate the transition to a green economy.
 Agreements entered to name and shame protectionist countries.
 Agreements on the regulation of tax havens. The scope for banking secrecy has been
more or less reduced to nil.
 New rules for pay and bonuses for corporate chiefs.
 IMF will sell gold reserves worth billions to help poor countries.
 Agreement to ‘act urgently’ to conclude the WTO’s Doha round.
 G-20 leaders to meet again later this year.
 Follow up G-20 Summit
 To what extent the conclusions of the G-20 will translate
into revival of world economies depends on the sincerity
with which they are implemented by individual governments.
 Much depends, in turn, on the commitments of the national
governments to the programs agreed to at G-20.
 Much also depends on the success of the Geither Plan in
getting rid of the US banking system of toxic assets.
 As per IMF recent report (07/04/09), the toxic debt held with
banks and insurers across the world will reach four trillion
dollar mark by 2010. This includes:
 About 3.10 trillion dollars in the US.
 0.90 trillion dollars in Europe and Asia
 US Economy
 In order for the world to grow, it is incumbent that US, the
super power should grow, which is in recession presently.
 To revive US economy this main things have to happen:
 To get rid of the toxic assets.
 To improve the employment rate.
 Obama administration has already come out with a plan to
get rid of the toxic assets.
 The gist is that a public-private partnership will be
established to acquire loans and securities from banks
through two programs:
 Legacy Loans Program
 Legacy Securities Program
 US Economy
 Legacy Loan Program:
 Pool of Loans will be auctioned to private investors
who will be provided with financing from the Federal
Deposit Insurance Corporation (FDIC) to acquire
the loans.
 Both Government and the private sector will
contribute to the initial capital of FDIC.
 If and when the loans are recovered or sold off, the
Government gets a share of the profits.
 US Economy
 Legacy Securities Program:
 This is similar to Legacy Loans Program.
 The objective is to enable banks to dispose their illiquid
mortgaged back securities to the new special purpose
vehicle / entity, which will be funded by the Fed under its
existing Term Asset backed Securities Loan Program.
 Again, the hope is that when the economic and market
conditions normalize, there will be a profit opportunity in
the securities for Government and private investors.
 US Economy
 The Government hopes to help banks to unfreeze and unload 1
trillion $ and more of toxic assets through these two programs.
 Government believes that:
 This is the only way to restore confidence and impel banks to get credit
flowing.
 At the same time, private investors in the programs are protected from
losses.
 In effect, the above would be a win-win situation.
 The latest stimulus package (public spending) is expected create
about 4 million jobs for the US national. The present jobless rate is
10% of GDP. This is to be arrested first.
 Let us hope for the BEST.