NETHERLANDS: DUTCH POSITIONS IN ADVANCE OF G20 SUMMIT

UNCLAS SECTION 01 OF 04 THE HAGUE 000565

SIPDIS

STATE FOR EEB/OMA - AWHITTINGTON, EUR/ERA - JKESSLER
NSC FOR JOHN HENNESSEY-NILAND, TOBY BRADLEY
TREASURY FOR IMI - VATUKORALA
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT
STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS: DUTCH POSITIONS IN ADVANCE OF G20 SUMMIT

THE HAGUE 00000565 001.2 OF 004



1. Summary: At the Pittsburgh G20 summit, the Dutch will:

- highlight their new Banking Code (which includes a cap on bank
directors' bonuses of one year's salary) as an example of improved
corporate governance and risk management;

- strongly support the German Charter for Sustainable Economic
Activity;

- support a plan for international financing to help developing
countries meet aggressive climate change targets; and

- encourage G20 leaders in Pittsburgh to draw up a road map to
conclude the Doha Round in 2010. End summary.


2. In Pittsburgh, Prime Minister Balkenende and Finance Minister
Wouter Bos will represent the Netherlands. The following Dutch
officials will accompany the principals to the summit:

- Richard van Zwol, G20 and G8 Sherpa, Office of the Prime Minister

- Marjan Schippers, Senior Policy Advisor to Richard van Zwol,
Office of the Prime Minister

- Rene van Hell, Deputy Director, Office of Trade Policy and
Globalization, Ministry of Economic Affairs

- Geert Beekhuis, Senior Policy Advisor on the G20, Ministry of
Foreign Affairs

- Taco Stoppels, Head of the Financial and Economic Cluster,
Department of European Integration, Ministry of Foreign Affairs


3. The Dutch agree with us that Pittsburgh should not be another
pledging summit; the Dutch public and parliament have little
appetite for additional spending in the wake of the USD 14.07
billion that the Netherlands pledged in London. In recent
statements to parliament, however, Finance Minister Bos did not rule
out the possibility that future contributions to the work of the G20
and the international financial institutions would be necessary.
Bos quipped that the Netherlands' ticket to the Pittsburgh summit
had cost them over USD 18.2 billion, including their G20 pledge in
London and other financial guarantees provided to the IMF.

--------------
FINANCIAL SECTOR
--------------


4. Having the G20 push for an internationally coordinated effort to
improve risk management and corporate governance in the financial
sector is one of the Netherlands' key goals for the Pittsburgh
summit. At both the EU heads of state meeting on September 17 and
the Pittsburgh summit, the Dutch will highlight their new Banking
Code (see below) as an example of what G20 members could do. They
will encourage other countries to adopt similar measures; if no
international consensus can be reached, the Dutch will implement
their code unilaterally.


5. On September 9, the Netherlands Bankers Association announced a
new Banking Code that all Dutch banks headquartered in the
Netherlands - regardless of their presence in other countries - will
voluntarily adopt by January 1, 2010. Finance Minister Bos is also
considering whether to implement the Code as binding legislation.
This announcement is the result of months of public pressure on the
banks to rein in risky practices and, especially, to limit the hefty
bonuses paid to bank executives. The Code sets rules on risk
management and remuneration, including:

- "variable remuneration" (i.e., annual bonuses) for executive board
members not to exceed one year's salary;

- banks to develop a "meticulous, restrained" remuneration policy
for all other bank employees (including traders and investors);
Qfor all other bank employees (including traders and investors);


- all executive board members to sign a "moral and ethical conduct
declaration";

- chairman of the executive board to be responsible for bank's
overall risk policy;

- banks to implement a Product Approval Process in which complex new
products will be assessed by risk managers before their market

THE HAGUE 00000565 002.2 OF 004


release; and

- banks that do not implement these standards must explain why they
did not do so in their annual report


6. The Dutch will also recommend that G20 governments require a
capital add-on if a bank's remuneration policy is deemed to promote
imprudent behavior. Regarding bank failure, the Dutch believe that
financial institutions should be allowed to fail if doing so poses
no risk to the stability of the financial system. For institutions
too big to fail, the G20 should promote consistent "entry
mechanisms" that provide financial authorities with clear guidance
on when and how to intervene. The IMF and the Financial Stability
Board could develop the principles to define these entry mechanisms.
The Dutch also favor private sector solutions such as attracting
new capital, sales of activities, or mergers as important first
steps to prevent bank failures, before turning to government
bailouts.

--------------
MACROECONOMICS
--------------


7. To help ensure the fragile economic recovery continues, the Dutch
believe the G20 should focus in the short term on financial
stability and safeguarding the functioning of credit channels,
including by ensuring sufficient capitalization of banks and dealing
with impaired assets on their balance sheets as necessary. In the
medium term, governments should develop plans to return to
sustainable debt ratios - something with which the Netherlands is
struggling as its deficit climbs to an expected 4.6 percent of GDP
this year - including withdrawing financial sector support where
appropriate. The Dutch believe coordinated planning by central
banks is crucial to the successful drawdown of this support.


8. Regarding the process of peer reviews in which countries review
each other's economic and financial policies and performance, the
Dutch support an expanded role for the IMF's International Monetary
and Financial Committee (IMFC). The IMFC could initiate a broader
peer review process for all IMF members.

--------------
CHARTER FOR SUSTAINABLE ECONOMIC ACTIVITY
--------------


9. As they expressed at the London summit, the Dutch strongly
support the German charter; they view it as a useful "shell" to help
countries develop common principles of economic activity and address
shortcomings in the regulation of financial markets. They recognize
that it will be difficult to persuade China and India in particular
to agree to strong language on labor and environmental standards,
and that concerns remain about the charter replicating work already
taking place in the OECD.

--------------
CLIMATE CHANGE
--------------


10. The Dutch view progress in the G20 and other international fora
on climate financing as a crucial step to success in Copenhagen.
They want G20 leaders to endorse a plan for international financing
to help developing countries meet aggressive climate change targets.
The Dutch noted that debate continues within the EU about how much
it should pledge toward this international fund, with
recommendations ranging from 2 billion to 15 billion euro in annual
contributions to the fund by 2020. Since this issue will be
discussed at the October meeting of the European Council, the Dutch
Qdiscussed at the October meeting of the European Council, the Dutch
said EU members will not discuss a specific pledge amount at the
Pittsburgh summit.


11. The Dutch emphasize that all countries except the least
developed should contribute to the international fund, and that it
should be a new instrument so as not to detract from pledges already
made to achieve the climate-related Millennium Development Goals.
Developing countries should institute low-carbon growth plans that
fund members could evaluate when considering how much financing to
provide. The Dutch want all countries to move toward a global
emissions cap-and-trade system; to that end, they want the G20 to
take measures to ensure sufficient demand for international carbon
offsets.

--------------
INTERNATIONAL FINANCIAL INSTITUTIONS

THE HAGUE 00000565 003.2 OF 004


--------------


12. The Dutch believe that the Pittsburgh summit could be
instrumental in building consensus on governance reform of the IFIs.
However, they caution that the G20 process must be linked to
similar discussions underway at the IMF and World Bank to enable all
IFI member countries to participate in the decision-making. The
Dutch favor a larger voice for developing countries in IMF/World
Bank governance - although not at the expense of the Netherlands'
seat on the IMF Board of Governors. Rather than replacing existing
board members (like the Netherlands),the board should be expanded
to include more developing countries. To offset the expansion, the
IMF could reduce board members' threshold for voting by qualified
majority from 85 percent to 70 or 75 percent.

--------------
LOW INCOME COUNTRIES
--------------


13. Achievement of the Millennium Development Goals (MDGs) to halve
world poverty by 2015 is a core principal of the Netherlands'
substantial development assistance program (about USD 7.5 billion
annually). The Dutch are increasingly concerned that the economic
crisis will derail low income countries' (LICs) progress toward
their MDGs. They therefore strongly support continued G20 attention
to the LICs. They want G20 members to follow through on their
pledges at the London summit to support the LICs through financial
contributions to the IMF and other IFIs. They also want countries
to follow through on their commitments to allocate 0.7 percent of
their GDP to foreign development assistance. (Note: The
Netherlands allocates 0.8 percent of GDP, including 0.7 percent for
all forms of assistance and an extra 0.1 percent specifically for
sustainable energy projects. End note.) The Dutch stress the need
to remain vigilant about the IFIs' capital base, ensuring in
particular that the multilateral development banks have sustainable
income models that can ensure financing is available in times of
need. The Dutch have also expressed interest in helping the IMF
raise up to USD 8 billion in additional concessional financing to
LICs.


14. The Dutch will encourage the G20 to remain focused on several
specific activities to assist LICs. These include support for the
G8 initiative on food security - an area in which the Dutch are
extremely active. (Despite cuts to their development assistance
necessitated by a rising budget deficit, they will invest about USD
2 billion over the next three years in sustainable agriculture and
rural development in Africa, amounting to about 10 percent of their
total assistance budget.) They also favor additional G20 support to
cooperative banks with a strong base in LICs as a way to spur
entrepreneurship among farmers. They point to the example of the
Netherlands' Rabobank (the world's largest cooperative bank,
according to the Dutch) and its efforts to invest in local African
banks. The Dutch also highlight trade finance as another important
means of supporting LICs, noting their recent USD 50 million
contribution to the International Finance Corporation's Global Trade
Liquidity Program.

--------------
ENERGY SECURITY
--------------


15. The Dutch believe that improving energy efficiency and diversity
Q15. The Dutch believe that improving energy efficiency and diversity
of supply in LICs is critical to achieving the MDGs. A priority of
their development assistance program is therefore promoting
renewable energy in LICs. They believe that the World Bank's
"Scaling-Up Renewable Energy Program for Low Income Countries"
(SREP) could catalyze renewable energy investment in LICs. As one
of the founders of the SREP, the Netherlands has given USD 80
million to the SREP fund; they will call on G20 members to pledge
additional financial support for the fund in Pittsburgh.

--------------
TRADE
--------------


16. The Dutch argue that, despite strong political signals from the
U.S. and others, the Doha negotiations have made little progress
since the G20 summit in Washington in November 2008. Asserting that
trade is essential to economic recovery, the Dutch will encourage
G20 members in Pittsburgh to draw up a road map to conclude the Doha
Round in 2010. They will also stress the need for continued
vigilance against anti-protectionist trade measures.


THE HAGUE 00000565 004.2 OF 004


--------------
COMMENT
--------------


17. Comment: The Dutch are fully cognizant that, despite three
successive summit invitations, they remain guests in the G20
process. They firmly believe that they can make substantive
contributions and will present their recommendations at the summit -
but in a quiet, reserved manner. Our Dutch interlocutors have also
noted some tension between EU members that are G20 participants and
those that are not; the Belgians, for example, have expressed
concern about a G20 "super group" within the EU that consults on the
issues first before bringing the discussion to the larger EU
community. As guests in the G20, the Dutch are trying to walk a
fine line between wanting to punch above their weight with the big
EU economies in the G20 and foster their usual spirit of
inclusiveness and consultation with all EU member states. End
comment.

LEVIN