EMERGING AUSTRALIAN VIEWS ON G-20 LEADERS MEETING

C O N F I D E N T I A L CANBERRA 000203 NOFORN DEPARTMENT FOR EEB, EAP, EAP/EP AND EAP/ANP NSC FOR BADER AND LOI WHITE HOUSE FOR NEC TREASURY FOR SOBEL AND WINSHIP E.O. 12958: DECL: 02/27/2019 TAGS: EFIN ECON AS SUBJECT: EMERGING AUSTRALIAN VIEWS ON G-20 LEADERS MEETING Classified By: Economic Counselor Edgard Kagan. Reasons 1.4 (b/d). Summary -------------- ¶1. (C/NF) Australia is focused on doing whatever it can to ensure that the G-20 Leaders meeting produces results that help restore global confidence and lead to tangible results. PM Rudd is very concerned about ensuring effective coordination to deal with "toxic assets" as well as securing a strong political commitment to serious IMF reform as a way to promote a larger and more positive Chinese role. Rudd also wants to institutionalize the G-20 leaders meeting as the main global vehicle for international action on the global economy by arranging for another meeting the second half of 2009. Australia wants to support U.S. efforts and looks forward to working closely with us to ensure that the London meeting helps restore global confidence. Very worried about the implications of continuing financial market turmoil, the Australians would like to see an agreement on steps to strengthen the ability of regional development banks to promote financial stability. PM Rudd will argue for stronger and more effective regulation of global markets as well as promote an end to geographic restrictions to the choice of senior officials for major multilateral institutions such as the IMF, the World Bank and the Asian Development Bank. End Summary ¶2. (C/NF) Econcouns met February 26 with Mike Callaghan, PM Rudd's Special Envoy for the Global Economy and Australia's Deputy in the G-20 process. Noting his recent meeting with National Economic Council Director Summers, Callaghan praised U.S. action to address our domestic economy, stressing that this is critical for Australia and the global economy. Noting that PM Rudd had discussed his views on the global economy during his conversations with the President and Secretary Clinton (as well as passing a paper with Australian ideas),Callaghan said that Rudd had been impressed by the discussions. Australia recognizes that U.S. attention is focused on domestic economic challenges, but expects that the President and other senior officials will focus more on the G-20 basket of issues in the runup to the London Summit, according to Callaghan. He stressed that Rudd is very aware of the importance and difficulty of what the Administration has accomplished in its first weeks and has tried to emphasize this point in discussions with other leaders. The magnitude of the U.S. stimulus plan sends the right signal to global markets and should energize further stimulus efforts in countries that have yet to take that level of action. Qin countries that have yet to take that level of action. Toxic Assets -- And Keeping the G-20 At the Center -------------- -------------- ¶3. (C/NF) While promoting further stimulus efforts is an important goal, Callaghan said PM Rudd is particularly concerned with stabilizing the international financial system by dealing with toxic assets. Scott Dewar, Rudd's junior Foreign Policy Advisor told Econcouns February 27 that the PM believes that the global financial system will not be able to support a broad and sustained recovery unless toxic assets are addressed successfully. The issue is tricky for Australia because its financial institutions have comparatively little exposure to toxic assets, but because they depend on the ability to raise overseas capital, will suffer greatly unless the problem is addressed. Rudd believes that the April G-20 meeting will have too many other issues to address to be able to help come up with a solution and that there should be another G-20 leaders meeting in the second half of 2009 to try to make progress on the issue. Dewar and Callaghan separately said Australia believes the G-20 is the best forum to address toxic debt. Noting that some will read this as an effort to institutionalize a G-20 leaders meeting, Dewar said that while Australia does want to promote the G-20 over the G-7/8 or G-8 plus 5, Rudd recognizes that the key challenge is showing results and genuinely believes that the G-20 has the best chance. As a result, securing commitment to another G-20 meeting in 2009 has emerged as Rudd's top priority. IMF Reform and China -------------- ¶4. (C/NF) The PM's other top priority is to encourage China to play a larger and more effective role, Callaghan said. In particular, Australia wants to see China provide greater financial support to the IMF and regional development banks. Stressing that Australia and the United States have long agreed on the need to reform the IMF, Callaghan complained that "too little has changed" because of the global economic crisis. Praising his U.S. counterpart Mark Sobel's role in working with the other officials, Callaghan said too many other officials are still focused on process rather than results, with Europeans offering "weasel words" rather than the kind of clear commitments that Australia believes China wants in order to give the kind of increased support that will be necessary. Callaghan said Australia wants the London meeting to produce clear guidance saying that reforms will be done by a specific date (perhaps January 2011). In this regard, Callaghan noted informal discussions with Chinese officials in which they said that it would be easier for Beijing if the IMF issued bonds which China could buy rather than have to provide significant amounts of money without first obtaining a stronger role in the IMF. London Outcomes -------------- ¶5. (C/NF) Australia recognizes that the United States will have the greatest influence on what happens in London and looks forward to supporting our efforts. Callaghan said that Australia believes that international markets will be most reassured if they see clear signs of tangible progress on principles for reform of financial markets that are transparent and that address systemically important Qtransparent and that address systemically important institutions while showing a clear commitment to markets. PM Rudd has stressed to Australian officials the importance of working with the United States to support the Administration's efforts, Callaghan commented. Regional Development Banks -------------- ¶6. (C/NF) In addition to IMF reform, Australia would like to see a commitment to strengthen the capacity of regional development banks to support countries threatened by global financial turmoil. PM Rudd is very concerned about the implications of recent uncertainty in Central Europe and is worried that this will be repeated in other areas. Australia would like to see a major agreement in London that includes commitments to strengthen the EBRD, the Asian Development Bank and the Inter-American Development Bank. Effective reform of international financial institutions should also include ending geographic criteria for senior positions, Callaghan said. CLUNE