KEY THEMES AND FACT SHEET ON LONDON G20 SUMMIT

UNCLAS STATE 031659 E.O. 12958: N/A TAGS: ECON EFIN KPAO SUBJECT: KEY THEMES AND FACT SHEET ON LONDON G20 SUMMIT REF: (A) 08 STATE 134465 (B) 08 STATE 113810 ¶1. (U) This cable provides key themes and messages for posts' use in commenting on the April 2 London Summit. A detailed fact sheet outlining U.S. goals and objectives for the Summit is reproduced at para 3 below. The fact sheet has already been released to the U.S. press and may be distributed at post. ¶2. (U) For updated press statements, public remarks, and other information related to the Summit, posts should refer to Infocentral. KEY MESSAGES -------------- -- As the President has emphasized, we face a global financial and economic crisis which requires a coordinated global response. -- The G-20 countries must take bold, comprehensive and coordinated action on two key fronts - first to restart global growth now, and secondly to reform the supervisory and regulatory framework so that similar crises do not happen again. -- For our part, the United States has taken dramatic and unprecedented action to put our own economic house in order - by approving a far-reaching economic stimulus package, by taking steps to stabilize our financial system and restart the flow of credit, and by comprehensively reforming our supervisory and regulatory structure. -- To assist those countries hit hard by the global crisis, the United States and its global partners are moving to significantly increase the resources available to the international financial institutions. -- We also strongly support modernizing the governance of the IFIs to better reflect the realities of today's world economy. -- Open markets for trade and investment have been a key driver of world prosperity, and we must resist the temptation of protectionist measures and economic nationalism as we fashion a response to the crisis. -- As this crisis unfolds, we must also pay attention to the special needs of the poorest. The United States remains committed to ensuring that the multilateral development banks and the IMF have the sufficient resources to fulfill their missions, and to substantial increases in our own national programs. FACT SHEET ON THE LONDON ECONOMIC SUMMIT -------------- ¶3. (U) The Fact Sheet below was developed by the Treasury and can be used to explain U.S. goals and objectives going into the April 2 Summit. It was released to the press on March 31 and may be distributed at post. Begin text: President Obama and world leaders will gather in London representing more than 20 countries and more than 85 percent of the global economy. At no time since World War II have world leaders come together in the same way to address economic challenges and the international financial system. With global income set to decline for the first time in 60 years and unemployment rising in nearly every country, this is a global crisis and it requires a coordinated global response. During the course of the meeting, Leaders will discuss the path to global growth and recovery and efforts to avert future crises of this magnitude. The G-20 countries together must take aggressive action on two fronts - first to ensure economic recovery and restart global growth and second to reform the supervisory and regulatory framework to prevent economic crises from occurring in the future while encouraging innovation and growth. These policies will affect the economic well- being of the world's population for generations to come. For our part, the Obama Administration has taken decisive action to stimulate domestic economic growth, restore the health of our banks, provide credit to households and businesses, and develop a regulatory and supervisory structure to ensure such a crisis never happens again. Improving the health of the U.S. economy is good for the world, just as a robust global economy is necessary to support U.S. exports, jobs, and growth at home. Moreover, export growth was responsible for half or more of U.S. economic growth in the first three quarters of ¶2008. These exports depend crucially on economic growth in our trading partners, as the economies of our trading partners have faltered, our exports have declined. Increasingly, our exports are going to emerging markets - markets that have been hard hit both by the global downturn and by a decline in international lending. Against this backdrop, the United States is taking concerted actions to jumpstart growth, promote financial stability, and lay the groundwork for financial sector reform both here at home and abroad. KEY OBJECTIVES OF THE SUMMIT -- Renewing our commitment to coordinated and comprehensive action to boost demand and jobs and to take whatever action is necessary until growth is restored. -- Acting forcefully to fix the financial system to get lending moving again. -- Discouraging protectionism and economic nationalism. -- Ensuring sufficient resources and tools to address the impact of crisis on emerging markets and developing countries, including the poorest. -- Ensuring that all systemically-important financial firms and products are subject to strong oversight. -- Taking action to strengthen international standards for weakly-regulated jurisdictions in the prudential, tax haven, and money laundering areas. -- Adopting a robust international regulatory framework to prevent crises of this kind from occurring again. A STRONG RECORD AT HOME The United States has taken a leading role in supporting economic growth and regulatory reform. -- The American Recovery and Reinvestment Act, passed by Congress and signed into law by President Obama in February will inject $787 billion into the economy over the next two years, creating or saving 3.5 million jobs. -- The Federal Reserve has lowered the federal funds rate target to near zero and substantially expanded its balance sheet to lower the cost and increase the availability of credit in the economy. -- The Treasury Department has developed a Financial Stability Plan with detailed programs to address the key problems at the heart of the current crisis: (a) Assessing banks' need for an extra capital cushion in the face of a worsening economy and providing them with access to capital through the Capital Assistance Program. (b) Buying up troubled assets weighing down bank balance sheets through a Public Private Investment Program, allowing banks to raise private capital and increase lending. (c) Addressing falling housing prices through a mortgage refinancing and modification program that will help up to 9 million Americans stay in their homes. (d) Unlocking frozen credit markets through a Consumer and Business Lending Initiative to jumpstart new auto, credit card and student loans. -- The Administration has put forward a framework for regulatory reform with new rules of the road to deal with systemic risk, protect consumers and investors, eliminate gaps in our regulatory structure and foster international coordination. (a) Under the plan, financial products and institutions will be regulated for the economic function they provide and the risks they present, not the legal form they take. For example, for the first time, hedge funds above a modest size will now need to register with the Securities and Exchange Commission to ensure that we monitor and contain the risk they pose to the financial system. (b) The plan also recognizes that markets are global and high standards at home need to be complemented by strong international standards enforced more evenly and fairly. A CALL FOR GLOBAL RESPONSE Economic Recovery The Group of Twenty countries have adopted policies to restore growth and improve the health of their financial systems and have committed to do what is necessary to restore growth. Representing 85 percent of the global economy, significant actions from the G-20 to stimulate demand and stabilize markets has ramifications across the world. G-20 actions include: -- Fiscal stimulus packages aimed at boosting employment and income. For example, China has announced a stimulus plan of 2.0 percent of its GDP for 2009 and Saudi Arabia has a stimulus plan for 2009 representing 3.3 percent of its GDP. -- Interest rates have been cut aggressively in most countries, and G-20 central banks will maintain expansionary policies as long as needed, using the full range of monetary policy instruments, including unconventional policy instruments, consistent with price stability. -- Financial sector policies to protect the deposits of households and restore the operations of credit markets. -- Measures to improve the health of the financial sector through continued liquidity support, bank recapitalization, and removing impaired assets from bank balance sheets. An increase in international support is necessary to help the Emerging Markets recover from the crisis. Many emerging markets escaped the initial effects of the financial crisis but are now been hard hit by the contraction in the advanced economies. Recognizing the considerable risk to global growth should emerging markets continue to falter, the Leaders have committed to unprecedented support for the international institutions to ensure they have sufficient resources to help stem the deepening of the crisis. And as emerging and developing economies contract so do their imports of U.S. goods and services. This downturn is made more challenging because countries that used to be able to borrow on capital markets are finding it more difficult, requiring them to turn to the international financial institutions for assistance. The G-20 will be exploring a number of mechanisms for expanding resources available to emerging markets and developing countries: -- International Monetary Fund/New Arrangements to Borrow (NAB): The United States has called for a significant increase in NAB resources and expanded participation to include more G-20 countries. The New Arrangements to Borrow is a 1998 agreement by 26 IMF member countries to provide billions in supplemental lending resources to the IMF to use in case of crises; current NAB resources total $50 billion. -- International Liquidity/Special Drawing Rights (SDR) Allocation: Special Drawing Rights (SDRs) are reserve assets that only the IMF can create and whose valuation is based on a basket of key currencies (the US dollar, the euro, the yen, and sterling). The G-20 will consider an allocation of SDRs, which could provide supplemental liquidity to help emerging market and developing countries in particular cope with the impacts of the crisis. -- Trade Finance: The current decline in trade volumes is attributable to the economic decline and frozen financial markets, which has impeded the availability of short-term trade finance in private markets. To help facilitate trade flows, the G-20 members and multilateral development banks will work to ensure the availability of short-term trade financing over the next two years, through a variety of national and multilateral mechanisms. -- Financing from the multilateral development banks (MDBs),such as the World Bank, can be instrumental in helping countries continue to finance health, education, and infrastructure projects during a time of budget shortfalls. These resources are also critical for the poorest countries that have made significant inroads in improving growth rates and increasing access to health and education. The G-20 will call for a significant expansion of the financial commitments of the MDBs. -- Aid to the Poorest: The G-20 will explore financing mechanisms specifically targeted at the needs of low income countries. FINANCIAL REFORM To avert another crisis, the Leaders will also need to reshape how we cooperate on financial issues internationally. In recent weeks, we have made progress on enhancing regulatory cooperation that will improve understanding of the risks in other economies and provide a common framework for addressing risks as they arise. In line with good corporate governance, we must also ensure that our international financial institutions are well governed with representation increased for dynamic emerging markets. INTERNATIONAL REGULATORY COOPERATION AND CRISIS PREVENTION -- Financial Stability Forum: The United States took the initiative to expand the Financial Stability Forum (FSF) to all G20 members, strengthen its mandate, and elevate it to serve alongside the IMF, World Bank and World Trade Organization (WTO) as a strong institution leading efforts to create a more robust framework of standards for the global financial system. -- Weakly-regulated jurisdictions: The G20 is taking strong action to strengthen the implementation of international standards by offshore financial centers. -- Counter-cyclical measures: U.S. regulators have played a leading role in an FSF effort to agree on the importance of financial institutions building up capital in good times to use in bad times, but we have agreed that now is not the time to raise capital requirements. -- Crisis management: We have agreed to embrace the FSF's international crisis management recommendations, including the need to develop a common set of tools, improve information sharing, and remove practical barriers to cooperation. -- Supervisory colleges: "Supervisory colleges" for at least 25 of the 30 systemically-important financial firms have already met, which facilitates information sharing among the most relevant regulators in those countries most significant for the health of the financial firms. -- Compensation principles: We have agreed to the FSF's Principles for Sound Compensation Practices, which are intended to align compensation with risk taking at significant financial institutions. IFI GOVERNANCE Governance of the international financial institutions (IFIs) must be modernized to enhance their legitimacy and effectiveness, and to reflect today's world economy. Dynamic emerging markets must have greater representation. -- The U.S. is advocating for an acceleration of the completion of the next review of IMF quotas to January 2011 in order to see a further shift in voice and vote to emerging market and developing countries. -- We support aligning the governance reform process at the World Bank with that of the IMF. -- The U.S. believes the full range of governance issues should be addressed, including reform of the IMF Executive Board. End fact sheet text. CLINTON