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World Leaders Agree to Seek Major Reform
Many leaders frown on Obama's calls to bail out the auto industry as a form of protectionism. The section of the communique on the issue of protectionism prompted fierce debate, with discussions dragging on until 11 p.m. Friday, in a pitched battle between France and the United States, diplomats said.
Sarkozy, diplomats present at the summit said, was the slowest to commit to a moratorium on protectionist measures and a reaffirmation of free trade, flustering some of the developing world leaders whose nations have been badly hit by a drop-off in exports as the global economy slows. Sources said other leaders, including Canadian Prime Minister Stephen Harper, spoke out against Sarkozy's calls for broad global regulation, arguing that even in progressive Canada, the idea would be seen as violating national sovereignty.
"Here you had everyone at the table trying to come together, and Sarkozy was out there trying to write the world according to Sarkozy," said a senior diplomat present at the summit. "It was not helpful."
Obama, in the Democratic Party's weekly radio address, commended Bush yesterday for holding the summit and also called for a new fiscal stimulus package -- which Bush has resisted. On that issue, the communique leaned toward Obama's position, calling for "using fiscal measures to stimulate domestic demand to rapid effect, as appropriate."
"Whereas five or six weeks ago you had coordinated central bank cuts, now it's moving to the fiscal side, and I think the U.S. can speak for its own position . . . but it is my own judgment that you will see a major fiscal expansion under the president-elect's administration," World Bank President Robert Zoellick, who attended the summit, said in an interview.
Dominique Strauss-Kahn, managing director of the IMF, who also attended, called for nations to approve a fiscal stimulus equal to 2 percent of gross domestic product. Such a move, he said, would result in a 2 percent increase in growth. When asked where fiscal stimulus was need, he said, "everywhere, everywhere where it is possible."
During the talks, developing countries demanded a greater role in elite financial institutions, and the conference's communique called for the immediate expansion of the Financial Stability Forum to a "broader membership of emerging economies."
The Swiss-based organization brings together finance ministry officials and central bankers, but while it includes Singapore and Hong Kong, China is not yet a member. In what one diplomat said was a contentious debate, Brazil and China demanded that they should be represented on the FSF.
The communique also said that, over time, the IMF and other global institutions "must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy."
Traditionally, global economic shocks would be handled by the Group of Seven -- the United States, Britain, France, Germany, Japan, Canada, Italy -- or the G-7 and Russia, known as the G-8. The G-20 folds the G-8 into a larger group that includes emerging economies -- China, Brazil, Saudi Arabia, Indonesia and South Africa among them.
"We are talking about the G-20 because the G-8 doesn't have anymore reason to exist. In other words, the emerging economies have to be taken into consideration in today's globalized world," Brazilian President Luiz Inácio Lula da Silva said as he headed to the session.
At the meeting, Chinese President Hu Jintao called for "a new international financial order that is fair, just, inclusive and orderly," according to a translation of his remarks. Hu, however, did not address demands from Western countries that China use some of its $2 trillion in reserves to bolster the IMF.
In an interview, British Chancellor Alistair Darling said that it is not appropriate now to talk about changes in the power structure of the IMF, including possible adjustments to voting, or quota, rights. He said that it is most important that countries with surpluses contribute as much as they can. "I think people should be less concerned at the moment about quota and therefore voice than actually making sure the IMF's got money in the till," he said. "What I'd say to them is, I understand that, but there's a bigger prize here."
The communique minced no words in outlining the causes of the crisis, blaming "weak underwriting standards, unsound risk-management practices, increasingly complex and opaque financial products and consequent excessive leverage." While many nations have blamed the United States for failing to monitor excesses in the securities markets, the communique diplomatically did not.
A British official, speaking on condition of anonymity because he was not authorized to speak publicly, said U.S officials privately acknowledged their role in the crisis. "The U.S. threw up their hands and said that our subprime mortgage industry left a lot to be desired," the official said. "But there was determination not to have any finger-pointing."
No decision has been made on where the next summit will be held. Sarkozy publicly recommended London because Britain will chair the G-20 in 2009.
Staff writers David Cho and Amit Paley contributed to this report.