Short assessment of the G20 Declaration-15th November 2008-Washington
What is the Declaration about?
The declaration is about financial markets and the world economy; it makes a short but comprehensive assessment of the root causes of the crisis; it reminds about background principles to remain the framework of future actions; it calls for actions to be taken immediately in a coordinated way, and draws up an Action Plan based on 5 major principles for reform, to be implemented in two steps: first by the end of March 2009 and then, on a medium term. The Finance Ministers are tasked with the development and implementation of the subsequent recommendations. The G20 agreed to meet again on April 30, 2009.
What are the 5 principles of the Action plan?
1-Strengthening transparency and accountability
2-Enhancing sound regulation
3-Promoting integrity in financial markets
4-Reinforcing international cooperation
5-Reforming international financial institutions (IFI)
- the assessment of the causes of the crisis is relevant and quite exhaustive
- the 5 principles are adequate and the Action plan meets our concerns
- all along the Declaration, the focus is rightly put on cooperation, coordination and convergence of
- practices, rules and standards
- all actors are concerned: regulators, supervisors, financial institutions and private bodies,
- standards setters, national and regional authorities, international institutions
- the respective roles of developed and emerging countries are recognised
- a link is made with trade issues and a commitment is made against protectionism and further
- barriers to trade or investments
- no aspect is left aside: the Declaration doesn’t exclude any element that is important to us.
- the non-cooperative jurisdictions (which means tax and regulatory havens) are touched upon (promotion of information sharing) but no concrete sanctions are spelled out in case of non-compliance
- for hedge funds and pools of capital, the proposed actions in terms of transparency and accountability are too weak (similar to self-regulation)
- as for the risk disclosures of financial institutions and their losses on an on-going basis, no proper regulation is envisaged
- “Credit Rating Agencies should be registered” (medium term action) : the oversight foreseen is not precise enough and the calendar could be shortened
- Incentives and compensation schemes which reward excessive shot-term returns or risk taking: this crucial issue is left too much into the hands of financial institutions without a clear commitment to take regulatory actions (“voluntary efforts or regulatory action”)
- Emerging and developing countries access to credit and boost capital flows which are critical for sustainable growth and development: no concrete action is proposed yet although it is considered as to be implemented by the end of March 2009.
On balance, the G20 Declaration can be considered an encouraging start, but on all the key issues bitter battles remain to be fought, to ensure strong action for economic recovery, protection of the interests of the developing world and genuinely far-reaching change in global financial and economic governance.
PES Group Secretariat, 17 November 2008