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G20 Sets Timetable For Policies To Rebalance Global Economy

By Laurence Norman and Paul Hannon, Of DOW JONES NEWSWIRES

ST. ANDREWS, Scotland -(Dow Jones)- Finance ministers and central bank heads from the Group of 20 leading economies approved a timetable for agreeing polices that will rebalance the global economy at their meetings Friday and Saturday.

But they failed to make progress on the question of how to finance developing country efforts to combat climate change, adding to the challenge of reaching a comprehensive deal when members of the United Nations meet in Copenhagen next month.

In another key development, the U.K. government threw its weight behind calls to charge a levy on financial transactions that would be used to pay for future bank bailouts, although Prime Minister Gordon Brown acknowledged that getting global agreement would be difficult.

As expected, G20 governments agreed to keep their stimulus measures in place, despite signs that the global economy is in recovery.

"Economic and financial conditions have improved following our coordinated response to the crisis," the G20 officials said in a statement. "However, the recovery is uneven and remains dependent on policy support, and high unemployment is a major concern. To restore the global economic and financial system to health, we agree to maintain support for the recovery until it is assured."

But the finance officials are preparing to move beyond crisis management, which has given the G20 its new role as the body responsible for running the global economy.

At their last meeting in Pittsburgh in September, G20 leaders agreed a framework for peer review that is designed to ensure that national economic policies are consistent with balance in the global economy.

G20 finance officials said they will begin to discuss options for ensuring that the global economy grows in a more sustained and balanced way in January of next year, setting out their national and regional programs and their economic forecasts.

By April, they expect to have completed their mutual assessment of those national and regional policies, with the aim of providing options to G20 leaders when they meet in June. By November, they intend to refine those policy options "and develop more specific policy recommendations."

"The first challenge in using the framework will be the transition from crisis response to stronger, more sustainable and balanced growth," G20 finance officials said.

Agreeing mutually acceptable economic policies will be a difficult task, and will depend on large economies such as the U.S., the euro zone and China accepting and responding to criticism of their economic policies.

China has come under mounting pressure to allow its yuan to appreciate, to which the International Monetary Fund added, by noting in a report to the G20 that the currency is "significantly undervalued."

Officials say currencies won't be excluded in future discussions on how to rebalance the global economy, and the fate of the yuan may prove an early test of how workable the new framework really is.

G20 officials will hope to make more progress than they have in striking a deal on finance for efforts to combat climate change. Talks barely got off the ground here, with developing economy officials arguing that it wasn't the right venue, and that the issue should be settled at the U.N. conference next month.

The G20 appears unlikely to agree to a levy on financial transactions, even if the U.K.'s conversion adds significantly to its momentum.

G20 leaders at the Pittsburgh summit tasked the IMF with preparing a report for options on "how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system."

In Brown's view, there needs to be a "better social contract" between banks and the rest of society.

"It cannot be acceptable that the benefits of success are reaped by the few, while the costs of failure are borne by all of us," Brown told finance ministers and central bank heads from the G20. "We need to consider if we need to go further in terms of mitigating costs to the rest of society."

Over the last century, bank failures have become increasingly expensive for taxpayers, and short of war pose the greatest threat to the solvency of governments.

If it could be enforced, a levy on transactions would help build up resources to pay for future crises, the cost of which could threaten to bankrupt some governments.

"A global...tax could make a useful contribution to reducing the risk of future financial crises, and sharing the costs more fairly," said Julian Jessop, an economist at Capital Economics.

But Brown acknowledged that the challenge of charging a levy that isn't victim to widespread avoidance and doesn't distort capital and credit flows is a big one.

"I do not in any way underestimate the enormous and difficult practical and technical issues that will need to be overcome," he said.

-By Laurence Norman and Paul Hannon, Dow Jones Newswires; 44-207-842-9270; laurence.norman@dowjones.com

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