Factbox: What global finance leaders are doing in Washington

(BestGrowthStock) – Finance ministers and central bank governors are gathering in Washington to grapple with some of the main challenges to the recovery of the global economy from a deep recession.

The Group of 20 major developed and developing economies meets on Friday. The International Monetary Fund and the World Bank hold their annual Spring Meetings on Saturday and Sunday.

Below is a summary of the main issues being discussed between now and Sunday.

Rebalancing of global economy:

The G20 agreed last September to try to rebalance global growth by adopting policies that would help big exporters such as China reduce massive surpluses while heavily indebted nations such as the United States boost savings and investment.

Currencies, particularly China’s yuan, are at the heart of that discussion because a stronger yuan would make China’s exports costlier.

G20 officials have said currencies will not be a major topic of their discussions in Washington, which suggests little will be accomplished on that front. With the exception of Brazil and India, few countries have openly challenged China’s currency policy in the run-up to this week’s meetings.

The IMF’s job is to evaluate national policies to see if they are working toward the shared rebalancing goal, but critics point out there is no means of enforcement beyond peer reviews.

Public debt:

The rich world’s debt mountain and how to exit from the huge fiscal and monetary stimulus plans countries extended to fight recession will be key issues on the G20’s agenda.

The European Union and the IMF think belt-tightening should start in 2011, at the latest, in most countries.

Withdrawal of stimulus measures would cut public spending by only about 1.5 percent of gross domestic product. Countries would need adjustments three times larger than that just to stabilize debt-to-GDP ratios, the IMF says.

Greece’s debt woes will add urgency to this discussion. While Greece is not officially on the G20’s agenda, there is little doubt the debt-laden country will be a hot topic. the country’s sovereign credit rating was cut by Moody’s Investors Service on Thursday, and its bond yields soared to new highs.

An IMF, EU and European Central Bank mission is in Greece discussing fiscal steps the country would have to take in 2011 and 2012 to secure emergency loans if it cannot successfully access financing in the market.

Global bank tax:

Proposals for making banks pay for the cost of future bailouts will be high on the G20 agenda on Friday.

The IMF last November began studying various options for a bank levy. This week it recommended two new taxes: one linked to a mechanism for closing down struggling banks and another on bank profits and pay.

Britain welcomed the IMF report. The principle of a levy has gained support in Washington and in some European countries as politicians try to appease public anger over bank bailouts and find a way to recoup the massive costs involved


The European Union is divided on how to implement a levy, and Canada is digging in its heels in opposition, saying its banks never needed bailouts and a tax would not do the job of insuring against failures.

Bankers say new taxes might hurt lending and slow economic recovery.

Emerging powers within the G20 have been relatively silent on the issue, but their views will likely become clear by the end of the meetings.

Critics of a levy say the G20 must first follow through on a promise to toughen regulations on bank capital by the end of 2010. A final G20 pronouncement on the bank levy issue will likely not come until a November leaders’ summit in Korea.

Shifting voting power:

G20 leaders in September last year agreed to recognize the rising clout of emerging economic powers via a shift in their voting power of at least 5 percent in the IMF and up to 3 percent in the World Bank.

The United States and European countries have long called the shots at the IMF and World Bank, but emerging market countries, such as India, China, Russia and Brazil, argue that it is time to change that structure.

A decision on the World Bank power shift is expected this weekend, though some developed countries, particularly in Europe, are reluctant to give up some of their voting power.

The deadline to complete talks on a power shift in the IMF is set for January 2011.

Penny Stocks

(Reporting by Lesley Wroughton, Emily Kaiser, Louise Egan and Kristina Cooke; editing by Patrick Graham and Padraic Cassidy)

Factbox: What global finance leaders are doing in Washington