Updated June. 07, 2010 13:38
Finance ministers and central bank governors of the Group of 20 economies agreed to take differentiated approaches to tackle global jitters stemming from the fiscal crisis in southern Europe.
At a two-day meeting ending Saturday in Busan, senior financial leaders agreed that countries with serious fiscal deficits should accelerate fiscal reform and those with sound finance expand domestic consumption.
Under the agreement, the majority of G20 member countries, including South Korea, are likely to delay the implementation of exit strategies.
They also agreed on the necessity for a global financial safety net as suggested by South Korea and agreed to improve the lending system of the International Monetary Fund.
In a joint communiqué adopted at the end of the meeting, the term exit strategy was replaced with fiscal soundness.
To deliver fiscal sustainability, differentiated measures tailored to national circumstances are necessary, the communiqué said, adding, Countries with serious fiscal challenges need to accelerate the pace of consolidation.
On monetary policies, the communiqué said, Monetary policy will continue to be appropriate to achieve price stability and thereby contribute to recovery. This means interest rate hikes are not necessary since prices have remained stable.
Korean Finance Minister Yoon Jeung-hyun told reporters, The fiscal crisis in southern Europe has had the indirect effect of delaying exit strategies in certain countries.
Major progress was made in the establishment of a global financial safety net to be presented as the Korean Initiative in November`s G20 summit in Seoul. The financial ministers and central bank chiefs encouraged progress on financial safety nets and acknowledged a need for national, regional and multilateral efforts to deal with capital volatility and prevent crisis contagion.
Under the agreement, measures will be reviewed such as multilateral currency swaps and the utilization of the Chiang Mai Initiative, a multilateral currency swap arrangement among the Association of Southeast Asian Nations, China, Japan and Korea.
U.S. Treasury Secretary Timothy Geithner said financial institutions will better withstand another economic crisis due to the G20`s efforts to regulate capital and restrain investment on borrowed funds, and that detailed measures for capital regulation will be devised before the G20 summit in Seoul in November.
Senior financial officials from G20 economies failed to reach an agreement on a bank tax, which seeks to recover public funds used to help financial institutions in the economic crisis. They included, however, five principles including the protection of taxpayers and the reliable provision of credit.
They also agreed to present rules to improve bank soundness at the Seoul G20 summit. Such rules were originally scheduled to be presented by year`s end.