G-20 Finance Officials Meet Amid Policy Divisions

Published March 14, 2009

| AP

HORSHAM, England - British Treasury chief Alistair Darling sounded upbeat Saturday about the potential success of talks among international finance officials who are divided on how to tackle the global economic crisis.

Opening the full session of finance ministers and central bankers from the Group of 20 nations, which represent more than 80 percent of the world economy, Darling said that he was confident of making progress and that early discussions were "very useful."

"We will start the first session which leads on from the very useful discussion we had last night when we discussed the situation that faces countries right across the world," he told the officials as they prepared for a discussion on macro-financial response to the crisis, including ways to restore credit channels.

The group is divided over whether to use fiscal stimulus - or big spending packages and tax cuts - or better regulation to drag the world economy out of its slump and many fear that the gathering will do little to set a common agenda for a full summit of G-20 heads of state and government on April 2.

"I'm quite sure that today we will make progress as part of the lead up to the meeting of leaders and finance ministers in London in April when we need to be concentrating on the three big issues of supporting our economy, getting bank lending going again and of course ensuring that not just some of the world, but all of the world is helped by what we do," Darling said.

On the agenda Saturday after a series of bilateral meetings and a working dinner on Friday, is a session called "reshaping the global financial system," which includes a discussion of the principles for financial regulation and supervision.

Officials will wind up the gathering at a country lodge in Horsham, 30 miles (about 50 kilometers) south of London, with talks on reform of the International Monetary Fund.

The United States wants countries to make a coordinated commitment to increasing spending as a vital part of any rescue effort, but many European countries are balking at loading up on debt, preferring to focus on reform of the international financial architecture.

The International Monetary Fund estimates that only Saudi Arabia, Australia, China, Spain and the United States will introduce budget boosts worth 2 percent of gross domestic product this year, the level that U.S. Treasury Secretary Timothy Geithner considers "reasonable."

Japanese Finance Minister Kaoru Yosano said he told Geithner during a bilateral meeting on Friday evening that Japanese Prime Minister Taro Aso is working on additional measures that would likely mean Japan's efforts would exceed that level.

Yosano added that the United States and Japan agreed on the necessity of beefing up regulations on the international financial system but also agreed that tackling the financial crisis was the top priority.

"Both are important problems," he said, of regulatory reform and direct action on tackling the crisis. "It's just the question of the order they are addressed."

Complicating matters here, China has raised warnings about what Washington's drive to spend its way out of recession might do to U.S. government debt, which Beijing holds in large quantities.

Chinese Premier Wen Jiabao has sent a clear warning: Don't devalue the dollar - and China's estimated $1 trillion in dollar-denominated U.S. government debt - through reckless spending.

U.S. Treasury spokeswoman Heather Wong countered that concern, saying that the U.S. Treasury market "remains the deepest and most liquid market in the world" and that U.S. President Barack Obama was committed to restoring growth and fiscal sustainability.

Geithner also met with Mexico's Treasury Secretary Agustin Carstens and European Central Bank Chief Jean-Claude Trichet on Friday. But he had no announced plans for talks with the Chinese delegation.

World Bank President Robert Zoellick on Friday stressed the importance of the United States and China in negotiations and warned the entire group that it would be dangerous to do "too little, too late" and that incremental changes would prolong and increase risks.

Zoellick, a former top U.S. State Department official who has forecast the world economy will shrink by 1-2 percent this year, said that 2009 "is shaping up to be a very dangerous year" and added that difficulties could extend "well into 2010."

Zoellick added that he was afraid that fiscal stimulus without reform to clean up the troubled assets weighing down banks balance sheets and recapitalize the banks would lead to a delayed headache after the immediate crisis.

One thing both U.S. and European officials do agree on is the need to increase funding to the International Monetary Fund so it can help countries in trouble. The 16 nations that use the euro agreed this week to urge governments to double the IMF's resources to $500 billion and give it a key role overseeing risks to the global economy.

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