G20 COMMUNIQUE

Banks need to take note that they are all citizens' banks and this is the premise why if they have the right to offer public services i.e. banking licenses, in truth they all belong to governments and in a crisis that ownership can be readily exercised totally. Therefore, all banks needs to read and understand the G20 Communique fully. The total Communique is only 9 pages plus 8 pages of annexes.
The main statement states the following:
1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009.
2. We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men, and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution.
3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but of future generations too. We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.
4. We have today therefore pledged to do whatever is necessary to:
restore confidence, growth, and jobs;
- repair the financial system to restore lending;
- strengthen financial regulation to rebuild trust;
- fund and reform our international financial institutions to overcome this crisis and prevent future ones;
- promote global trade and investment and reject protectionism, to underpin prosperity; and
- build an inclusive, green, and sustainable recovery. By acting together to fulfil these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future.
5. The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.
Restoring growth and jobs
6. We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy. We are committed to deliver the scale of sustained fiscal effort necessary to restore growth.
7. Our central banks have also taken exceptional action. Interest rates have been cut aggressively in most countries, and our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.
8. Our actions to restore growth cannot be effective until we restore domestic lending and international capital flows. We have provided significant and comprehensive support to our banking systems to provide liquidity, recapitalise financial institutions, and address decisively the problem of impaired assets. We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector.
9. Taken together, these actions will constitute the largest fiscal and monetary stimulus and the most comprehensive support programme for the financial sector in modern times. Acting together strengthens the impact and the exceptional policy actions announced so far must be implemented without delay. Today, we have further agreed over $1 trillion of additional resources for the world economy through our international financial institutions and trade finance.
10. Last month the IMF estimated that world growth in real terms would resume and rise to over 2 percent by the end of 2010. We are confident that the actions we have agreed today, and our unshakeable commitment to work together to restore growth and jobs, while preserving long-term fiscal sustainability, will accelerate the return to trend growth. We commit today to taking whatever action is necessary to secure that outcome, and we call on the IMF to assess regularly the actions taken and the global actions required.
11. We are resolved to ensure long-term fiscal sustainability and price stability and will put in place credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand. We are convinced that by implementing our agreed policies we will limit the longer-term costs to our economies, thereby reducing the scale of the fiscal consolidation necessary over the longer term.
12. We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.
Strengthening financial supervision and regulation
13. Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. Confidence will not be restored until we rebuild trust in our financial system. We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.
14. We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace.15. To this end we are implementing the Action Plan agreed at our last meeting, as set out in the attached progress report. We have today also issued a Declaration, Strengthening the Financial System. In particular we agree:
- to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission;
- that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them;
- to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks;
- to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds;
- to endorse and implement the FSF’s tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms;
- to take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times;
- to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;
- to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and
- to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.
16. We instruct our Finance Ministers to complete the implementation of these decisions in line with the timetable set out in the Action Plan. We have asked the FSB and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report to the next meeting of our Finance Ministers in Scotland in November.
Strengthening our global financial institutions
17. Emerging markets and developing countries, which have been the engine of recent world growth, are also now facing challenges which are adding to the current downturn in the global economy. It is imperative for global confidence and economic recovery that capital continues to flow to them. This will require a substantial strengthening of the international financial institutions, particularly the IMF. We have therefore agreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support. To this end:
- we have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary; and
- we support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.
18. It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries’ balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexico’s decision to seek an FCL arrangement. 19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.
20. In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy. So alongside the significant increase in resources agreed today we are determined to reform and modernise the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalisation, and that emerging and developing economies, including the poorest, must have greater voice and representation. This must be accompanied by action to increase the credibility and accountability of the institutions through better strategic oversight and decision making. To this end:
- we commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011;
- we agree that, alongside this, consideration should be given to greater involvement of the Fund’s Governors in providing strategic direction to the IMF and increasing its accountability;
- we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings;
- we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and
- building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.
21. In addition to reforming our international financial institutions for the new challenges of globalisation we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.
Resisting protectionism and promoting global trade and investment
22. World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras. To this end:
- we reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010;
- we will minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries;
- we will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis;
- we will take, at the same time, whatever steps we can to promote and facilitate trade and investment; and
- we will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.
23. We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.
24. We will give renewed focus and political attention to this critical issue in the coming period and will use our continuing work and all international meetings that are relevant to drive progress.
Ensuring a fair and sustainable recovery for all
25. We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential. To this end:
- we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;
the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets;
- we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank’s Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund;
- we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;
- we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and
- we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.
26. We recognise the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labour market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future.
27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.
28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.
Delivering our commitments
29. We have committed ourselves to work together with urgency and determination to translate these words into action. We agreed to meet again before the end of this year to review progress on our commitments.

To download go to:
http://www.londonsummit.gov.uk/resources/en/PDF/final-communique
Annexes:
http://www.londonsummit.gov.uk/resources/en/PDF/annex-ifi
http://www.londonsummit.gov.uk/resources/en/PDF/annex-strengthening-fin-sysm
The annexes add 2 + 6 pages to the main communique of 9 pages. The whole statement is commitment to do things expressed as principles. There is a lot of room for interpretation.

GLOBAL MEANS EVERYONE: CHINA TOO

I have just returned from a week in South Africa training bank executives and discussing with them the way in which the credit crunch and global downturn is spreading. I said Africa is only the GDP size of Belgium, 1% of world GDP. South Africa with over four times the population of Belgium is only half the GDP of Belgium. For some listeners such comparisons are quite contrary to their subjective assumptions about what is real in the world. At another end of some similar perspective is China. Its economy is larger than Italy's but only just about the size of France, but onl;y if you accept the official figures with minor adjustments for error.
Political geography and fiscal and monetary degrees of freedom that any one country can muster is no protection ultimately from the worst of the crisis. I said i expect even China may fall into recession this year, and if it can so can anyone. China was also a bubble economy even if it is the surplus trading counterpart to the US bubble. Trading surplus is not a bellweather measure of fundamental economic growth. That said, the US, UK and other credit-boom deficit countries have clearly produced a major filip for trading partners like China and this has been good on balance for poorer developing countries. But, just because they were trade suplus-earning dfoes not means they are better placed to survive or ride-out the global crisis! China also needs a stimulis package, proportionately one much bigger than the USA. It has at least the foreign currency reserves to leverage this. Other countries do not and they need external assistance. The GDP growth of China is very impressive even if it reflects considerable and crude PR artifice in national income accounting whereby the growth rates have really been about one third less than advertised and inflation accounting is circumspect. This year and last year are the first since records began when the aggregate of the world's economic growth is negative. In countries where growth is currently positive it is not tenable to make plans on the presumption that this dissonence is sustainable. No place can remain positively disconnected. There has been a delusionary presumption that some countries are too insignificant to register on the radar of the world's markets, that the richer the country the worse matters are going to get, while poor countries may just cruise along and by the time the shocl-wave reaches them the rest of the world will alreday be well underway in fixing the problems.
According to the World Bank: "What began six months ago as a massive de-leveraging in financial markets has turned into one of the sharpest global economic downturns in recent history." That is a mild and optimistic statement. Hans Timmer, manager of World Bank Global Prospects adds, "Even with a return to positive growth, the problems that are being created at the moment because of the sharp fall [in growth] will remain with us in 2010 and 2011." Also, relatively optimistic in my opinion, though it is meant as a warning to countries maintaining some false confidence.
OECD, representing the world's richest nations, has a gloomy forecast that predicts global trade will shrink by more than 13% in 2009. That is obviously an under-estimate in volume terms given that petroleum trade, which is half of world trade has fallen by more in $ price and not the only commodities to do so compared to last year. The dramatic volatility in investment flows and interbank lending combined with major falls in demand by major importing, trade deficit countries will so disrupt the pattern of world trade that the uncertainties produced must have at least a 15% negative growth effect. If world trade, which is mainly denominated in $ dollars, falls by 13%, it is possible to envisage the volume of world trade falling by 20% after taking account of a 30% rise in the $ exchange rate. However, it works out the disruption to the pattern of trade will be traumatic round the world.
Klaus Schmidt-Hebbel, OECD Chief Economist said, "We are in the midst of the steepest, most synchronized recession in our lifetime, certainly since the 1930s." It will reach even to Chongqing, the world's biggest city by population, 33 millions, deep in the inland heart of China with an economy roughly that of Manchester, England. The Chinese started out sometime not long ago with only 20% of the poulation in cities and towns ('urbanised'). Present trends suggest 70& urbanised by 2040 roughly. This urbanisation has been the single biggest factor in China's growth, pulling 200 million into the cities and eventually nearly twice this. It means that many people brought into urban economy where every transaction, every action, has to be mediated by money. Continuing alonmg this trend means building as much metropolitan townscape again as currently exists. That is not physically possible from an infrastructure and services perspective. Nor is it in political-financial systems terms possible. For these reasons alone China cannot maintain its recent growth trajectory. Ans, in fact, it is now taking steps to try and stop the inward migrations. There are even signs of return migrations; the shock of big city delights is not pleasing to everyone. China has an advantage compared to most developing countries by having a large number of major urban centres (USA has a world-beating number of 80), but it lacks the balancing between all these of a sufficiently developed and complementary range that it can internally generate the domestically redistributive growth that development economists and now G20 are talking of globally. The credit crunch and global recession will variously hit China and its centres and regions much as the wave is rippling through the wider world. Like the World Bank, OECD also expects economic contraction to be worst for the wealthiest parts of the world (w.g. OECD countries which means three-quarters of the world economy by value if only a fifth by population), falling by over 4% (= a loss of two weeks of annual income and spending). That, they say, would be the "deepest and most widespread recession in 50 years,." UK is expected to shrink 3.7%, U.S. by 4%, Germany 5.3%, and Japan by 6.6%. The latter two are especially export-dependent for their GDP numbers, but so too is China. China may well experience recession in 2009, but will we know that; will the Chinese government permit the official figures to show that? It is bad enough that US official figures show the following: But jobless figures and trade protection may be the least of the issues that can cause sufficient stress and strain to lead to warfare. Robert Zoelick, President of the World Bank, is so worried that he thinks we could see an upsurge in warring and violence on the streets. "These events could next become a human and a social crisis, with political implications. People in developing countries have much less cushion: no savings, no insurance, no unemployment benefits, and often no food. There is a greater risk in doing too little than in doing too much. No one can be certain whether these packages offer enough stimulus for a long enough time."
That is one reason for the G20 pledge of an additional $1.1 trillion of stimulus money from the 20% of people enjoying 80% of world income to the 80% of the world's population not enjoying only 20% of world income. What some extremely prudential commentators argue against this is that you can't borrow-and-spend your way to prosperity. These commentators (and their political representatives who cut the G20 package from $2 trillions to $1.1 trillion) think such sound-bites are pearls of wisdom, but clearly are no students of economic history, which points entirely the other way. I could go further and say there is no such thing as 'spending' without 'borrowing'. Spending only out of income is thought by some to be the route to growth by transferring income from less productive activety into investment into more productive activety and forgets that excess income is mostly saved or spend on acquiring assets, not on reinvestment into new production. This is why we have banks who take assets as collateral alongside savings and convert these into investment spending loans. If you decide credit and borrowing is not the way to go, then you risk other means that people will resort to for equality of opportunity. The extent to which everyone relies on banks one way or another is surely a measure of the extent that we all have to borrow to grow. The opposite theory presumes that only those who generate excess savings have the right (not necessarily the duty) to be the only ones to invest in new growth.
One US investment curmudgeon said to me, "Heck, all it took was massive government spending to cure a comatose economy, Russia would be ruling the world today... you and I know better than that?" Er, um, no. The USA may be a quarter of the world economy, but it strikes me that they don't seem to know that money comes in many flavours, in different currencies. The same pundit tells me that, "If yall wanna invest in countries with a positive balance of trade, don't spend more than they make, and think yall can still have growing economies." Trade supluses do not a world economy make, not least because any currency earnings cannot be spent just anywhere as if they are all domestic value money. The US economy may be shrinking by anything up to about 6% this year while according to the World Bank, China will grow by 6.5% in 2009. This does not mean shedding U.S. assets and loading up on Asian stocks. The US $ exchange rate has risen fast even as the economy is touching bottom. China is shrinking and that alone plus likely devaluations may in $ dollar terms make an investment shift from US to say China lose money. The reverse may also become true. The problem is that the currency denomination of gains and losses is unpredictable when currencies are realigning by larger margins than GDP growth rates. China's economy is about one seventh that of the USA by value and that may include some exaggeration on the Chinese data side. It is inconceivale that China, whose GDP estimate for 2009 was 9.6% in September 2008 and 6.5% today, will not be 3% shortly and possibly zero or negative by year end. It shares the same world as other countries and has good reason for proposing one of the biggest fiscal stimulis packages on the planet. My US pundit forgets to notice that the Chinese stock market index grew 400% from 2005 to 2008 having doubled from mid-2006, but that this coincided with massive growth in domestic day-trader speculation and a relaxation of bank reserve requirements plus lower interest rates, which then all had to go rapidly into reverse to try and get excess liquidity out of the market i.e. this was also a credit-bubble boom, and consequently the long run growth rates and other charting assumptions are unreliable. It is a point worth making again, share prices are moved by frequency of direction of buy sell orders more than by volume or value. It is a confidence and belief matter more than one of fundamental value theories. It is part of the anxiety of US investors that they can be enticed into believing foreign markets are somehow more real than there own. The professionals know better.