G-20 Statement to Back Stimulus, Call for More Market Oversight

By Michael McKee and Simon Kennedy

Nov. 15 (Bloomberg) -- World leaders meeting in Washington are moving to shore up the deteriorating world economy, while papering over differences on additional regulation of financial markets.

In a draft of the statement to be issued after their meeting today, members of the Group of 20 endorse steps already underway to fight a global recession by pursuing active monetary and fiscal policies, French officials told reporters on condition they not be named. There are also proposals to bolster the role of the International Monetary Fund.

The leaders hide disagreements between the U.S. and European governments over the future shape of the international financial system by agreeing each should pursue more effective regulation of financial markets and institutions in their own countries. They will commit to meet again by the end of April, after U.S. President-elect Barack Obama takes office, the French officials said.

``I'm pleased that we're discussing a way forward to make sure that such a crisis is unlikely to occur again,'' President George W. Bush told reporters before today's meeting. ``There's some progress being made, but there's still a lot of work to be done.''

Tumbling stock markets and forecasts for global recession are putting pressure on the G-20 leaders, who met last night for a dinner of quail, roast lamb and pear torte at the White House.

Fiscal Stimulus

Figures released yesterday showed the euro area entered a recession in the third quarter for the first time since the single currency was introduced a decade ago, and retail sales in the U.S. fell by the most on record in October. The Standard & Poor's 500 index fell 38 points yesterday to close at 873, a loss of 6 percent for the week and 41 percent for the year so far.

The first step in countering those developments is raising government spending to boost growth where necessary, the leaders will say. G-20 countries including the U.K., Japan, China and Germany are rolling out stimulus packages, and lawmakers in the U.S. are signaling they will pass a second round of stimulus legislation.

Some countries do disagree on the need for fiscal stimulus, U.K. Prime Minister Gordon Brown told reporters today. ``These are tough talks,'' he said. ``Countries are coming from very different positions.''

The communique will also offer a long list of measures for countries to pursue in improving oversight of financial institutions whose operations, and problems, cross national borders.

Ratings Companies

The list includes improving regulation of credit ratings agencies, extending surveillance to hedge funds, and greater exchange of information, the French officials said. Finessing a disagreement between Bush and European leaders, almost all of the measures are national in scope.

European Union nations, led by Brown and French President Nicolas Sarkozy, want the world's top banks to be subject to international regulation, an idea Bush has rejected. At a Nov. 7 meeting in Brussels, EU leaders called for the creation of regulatory ``colleges'' that would bring together bank regulators from various nations to coordinate oversight.

Bush argued against greater government intervention in his weekly radio address today. ``The surest path to that growth is free markets and free people,'' he said.

Europeans also disagree on how far and how fast to go. German Chancellor Angela Merkel favors a more gradual strengthening of regulation than the sweeping revamp of controls favored by Sarkozy, according to a German government document obtained by Bloomberg News.

Swaps Clearinghouse

Still, Merkel said yesterday that she'll do ``everything to ensure that there are more rules to prevent us from ever having to face such a situation again.''

Several other initiatives, in the works for some time, were announced on the eve of the summit.

The first central clearinghouse for the $33 trillion credit- default swap market should be in operation by year-end in the U.S., under an agreement signed yesterday by three U.S. financial regulators.

The clearinghouse would back trades and absorb losses in case of a dealer failure. Some in Europe have been pushing for a clearinghouse under government control, or within the IMF. Investors, supported by the Fed, want it to be independent. The New York Fed has been meeting with groups including CME Group Inc., Intercontinental Exchange Inc. and NYSE Euronext on plans to create a privately run organization.

Bolstering the IMF

The IMF will have a role, along with the Financial Stability Forum in conducting ``early warning exercises'' and issuing joint risk assessments of financial markets, the two organizations said yesterday. The FSF includes officials from the Group of Seven nations along with Australia, Singapore, Switzerland and the Netherlands.

Separately, Japanese Prime Minister Taro Aso's office said his government will offer up to $100 billion in lending to the IMF at the summit and ask other nations to give further resources. Some emerging market nations with large reserves have been reluctant to increase contributions to the IMF unless they are given more of a say in how the organization is run. Today's discussion will include ways to widen the role of emerging markets in the Fund.

The G-20 statement will set a deadline of March 31 for authorities to implement the measures in their statement. And they pledge to meet again before the end of April, when a new American administration is in office.

Obama's Call

The U.S. president-elect isn't attending the meeting, sending former Secretary of State Madeleine Albright and former Republican Representative Jim Leach to meet delegations instead.

Giving the Democratic response to the President's radio address today, Obama called the crisis ``the greatest economic challenge of our times.''

He urged Congress, returning for a lame-duck session this week, to immediately pass a ``down payment'' on a larger stimulus program that would include extending unemployment benefits for fired workers. Longer-term, he said he would push for increased spending on infrastructure, renewable energy, health care, and education.

G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

The Netherlands and Spain are also represented, as are the IMF, World Bank, and United Nations.

To contact the reporter on this story: Michael McKee in Washington at mmckee@bloomberg.netSimon Kennedy in Washington at Skennedy4@bloomberg.net;