Special

G20 ministers urge more financial reform

(Xinhua)
Updated: 2010-06-07 13:27

Major accomplishment

The Busan joint communique enabled financial leaders of the G20 countries to further probe into cooperative measures to enhance fiscal and financial soundness at practical level.

Not only the sealing of the joint communique itself but also its content, however, saw a leap forward from the previous G20 meetings, according to South Korean Finance Minister Yoon.

Among many agreements that the leaders reached, South Korea's finance minister highlights the acknowledgement of the need to beef up global financial safety net (FSN), saying the Busan meeting brought about noticeable progress.

The meeting was divided over the issue as emerging economies and advanced countries had conflicting interests over the issue.

While emerging economies supported the proposal as they had to brace for excessive capital inflows and outflows in the face of crises, advanced countries took it as too much burden as developing nations could be too reliant on them.

The meeting came up with an alternative, however, such as enlarging multilateral swap lines, which the South Korean finance minister pointed out as considerable progress.

"We will likely be able to reach a tangible outcome at the Seoul Summit in November with regard to the issue," Yoon told the press.

Remaining challenges

Bank taxes, which have been recognized as the thorniest agenda item of the Busan meeting, were not included in detail in the joint communique seemingly as leaders could not narrow differences due to strong oppositions from many countries.

According to James Flaherty of Canada, the majority of countries were opposed to a unified form of bank regulation at the global level, while they agreed on the need for regulating financial institutions who have been accused of the main culprit of the recent global financial turmoil.

It is in line with the earlier remarks by US Treasury Secretary Timothy Geithner, who said before he left for the financial leader meeting that it is unlikely to see a tangible outcome on the issue in Busan.

"I don't think we're on the verge of a global consensus on bank levies yet," Geithner told a news conference.

Known as the Obama tax, a global bank levy has been strongly supported by some countries, such as the United States and Germany, approved of the need to burden banks with future rescues in a bid to brace for future financial crises.

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Those who have not been hard struck by the recent financial turmoil, however, remained skeptical over the need to require their banks to pay for the cost.

As a chair country, South Korea supported the proposal, with South Korean Finance Minister Yoon Jeung-hyun saying the adoption of the bank levy will discourage banks from moving around too much capital.

"(Bank levy) will thus improve the healthiness of the foreign exchange market and also contribute to the general improvement of the current financial system," Yoon said in an e-mail interview with local media Korea Times.

Despite the failure of drawing detailed measures on bank levy, the G20 leaders came up with a larger-frame resolution, or a five- step principle, that will be a guideline for countries to consider when they devise ways to regulate the banking sector.

With the remaining challenge to harmonize the ongoing disputes on the bank levy issue, the Busan G20 meeting will be followed by the June 2010 Toronto Summit and the November 2010 Seoul Summit where more practical outcomes are expected.