Obama, G-20 to Pledge to Keep Stimulus in Place, Froman Says

By Rebecca Christie and Hans Nichols

Sept. 17 (Bloomberg) -- President Barack Obama and other Group of 20 leaders next week will pledge to keep economic stimulus policies in place until a recovery is certain, the White House’s G-20 liaison said.

In talks in Pittsburgh, the U.S. also will seek to phase out fossil-fuel subsidies and agree on how to rein in bankers’ bonuses, said Michael Froman, a deputy assistant to Obama, in an interview yesterday. The U.S. wants to build on a G-20 agreement in London earlier this month to toughen oversight of compensation practices and curb pay excesses, he said.

“It is important to plan for exit but it is still too early to begin to withdraw stimulus,” Froman said in the interview. The global financial situation has “changed dramatically” since the April G-20 meeting in London, he said in a separate briefing with reporters.

The leaders gather as economies from Brazil to Japan show signs of emerging from recessions. The G-20, a collection of industrial economies and emerging nations, will try to ensure the expansion is balanced, a goal economists say will require more savings in the U.S. and greater domestic demand in countries such as China.

The Standard and Poor’s 500 Index is up 34 percent from early April and the London interbank offered rate, or Libor, is down 100 basis points from its peak, Froman said. Still, he cautioned that “Pittsburgh is not intended to be a victory lap.”

The Obama administration will use the summit to emphasize “the need to remain vigilant to avoid premature withdrawal of stimulus.”

IMF Forecasts

The International Monetary Fund expects G-20 countries to grow 3.2 percent next year after contracting 1.1 percent in 2009, according to estimates circulating among the G-20 ahead of the IMF’s annual meeting next month.

The U.S. has called on G-20 countries to take steps to increase domestic, private-sector demand, just as Treasury Secretary Timothy Geithner has urged China to do in recent months.

Froman said the results from the Sept. 24-25 summit may solidify commitments G-20 finance ministers made earlier this month. They agreed to sustain efforts to nurture a nascent recovery, while also agreeing on proposals to curb bank bonuses and force lenders to hold more capital.

In their Sept. 5 statement, the ministers united on a plan to tie executive pay to long-term performance and also allow for the “clawback” of cash awards if company conditions deteriorate.

Executive Pay

Next week, the U.S. will press the group to move quickly on executive pay and other proposals that would force banks to hold more capital, in order to guard against a repeat of the worst financial turmoil since the Great Depression.

“There will likely be a robust package of reforms on executive pay touching the structure of pay packages as well as their governance and their transparency,” Froman said in the Bloomberg interview. The U.S. also will move ahead with Geithner’s proposal to tighten capital requirements and limit the amount of leverage a bank can take on, he said.

At the Pittsburgh summit, the U.S. will seek G-20 pledges to reduce budget deficits, contain inflation and improve the way their economies operate. The U.S. wants to reach agreement on a framework for sustainable growth, along with renewed commitment to overhaul the IMF and avoid protectionist policies.

Froman said the U.S. so far isn’t overly concerned that recently erected trade barriers are hampering global trade flows. Next week’s meetings will provide an opportunity to reinforce commitments to maintain and expand trade where possible, he said.

‘Come Together’

“The G-20 leaders are likely to come together again and reaffirm their commitment to avoiding protectionism and to rectifying protectionism when it arises,” Froman said.

On climate change, Obama will press his counterparts to eliminate subsidies for fossil fuels and electricity, Froman said. The U.S. also wants to increase transparency in the oil market by making more data available and tightening supervision of derivatives markets.

“We’re in dialogue with countries about how to make sure that countries can continue to provide the sort of social policy around energy that they need to, while at the same time reducing greenhouse gasses,” Froman said. He said studies predict that if broad-based fossil-fuel subsidies were phased out, greenhouse-gas emissions would fall 10 percent or more by 2050.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Hans Nichols in Washington at Hnichols2@bloomberg.net;