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RPT-SCENARIOS-What can the G20 realistically achieve?

Published 03/30/2009, 05:34 AM
Updated 03/30/2009, 05:48 AM

(Repeats story first filed on Friday, with no changes)

By Matt Falloon

LONDON, March 27 (Reuters) - Leaders from established and emerging economies meet in London on April 2 under pressure to restore confidence and plot a pathway to recovery out of the world's worst economic crisis since the 1930s.

They will seek agreement on what fiscal and monetary measures are needed to restore growth, what regulatory changes are needed to the financial system and how to reform international forums such as the International Monetary Fund.

Wary of the threat to confidence any overt disagreements may pose, G20 leaders have been keen so far to show as much of a united front as possible.

British Prime Minister Gordon Brown hosts the G20 summit and has been globe-trotting in recent weeks in an effort to achieve a "grand bargain" that will lay the foundations for a new global economic order.

A successful summit could also boost his dwindling popularity ratings in Britain where an election is due by mid-2010. Some analysts say it is make or break time for Brown.

But cracks have started to show among policymakers -- particularly over support packages and regulation -- with fears growing that a disappointing summit could rattle markets again.

Below is a look at what the G20 can realistically hope to achieve.

FISCAL AND MONETARY STIMULUS

Best outcome for Brown: A strongly-worded commitment to raise spending and do whatever it takes, in a co-ordinated manner, to get the global economy back on track. No public bickering between nations on the best way forward.

Most likely outcome: A firm commitment to act as necessary to restore growth. Some criticism from France and Germany of excessive public spending plans.

Where the G20 stand: The United States, Japan, China and Britain have all voiced support for further fiscal stimulus measures to boost demand -- eager to act now and risk doing too much rather than hesitate and find out later that not enough was done to avoid a slump.

Much of continental Europe has been far cooler, arguing there is already plenty of support in train which should be allowed to work before committing to further spending, given the precarious state of many nations' public finances.

One area of a genuine, growing unity is among global central banks who are either using unconventional monetary policy tools or considering using them as interest rates near zero.

IMF REFORM AND RESOURCES

Best outcome for Brown: A solid commitment to increase the IMF's resources by a large, specific amount of at least double the existing $250 billion with contributions from both old and emerging powers.

A detailed, timetabled agreement on how to make the International Monetary Fund more representative, giving more say to emerging economies such as China, India and Brazil.

Most likely outcome: A solid commitment to double the IMF's coffers, largely based on developed world contributions, but only a pledge to transform international institutions.

Where the G20 stand: The United States favour a trebling of the existing $250 billion fund the IMF has at its disposal to support struggling economies, indicating it could contribute up to $100 billion.

The IMF and European leaders want to see the IMF's resources doubled and the European Union is prepared to offer about $100 billion. Japan has offered $100 billion and China has recently also warmed to the idea.

But the size of any contribution from China or other cash-rich economies such as India is likely to be dependent on what is done to make global financial institutions more reflective of the changing economic order.

Australia, Brazil and Russia also want to see more voting rights for developing nations.

REGULATION

Best outcome for Brown: A detailed agreement on banks' capital requirements, regulating credit rating agencies, risk taking, hedge funds and clamping down on tax evasion. An agreement to establish effective early warning systems and monitoring of financial markets, including empowered regulatory bodies.

Most likely outcome: A commitment to drastically improve regulation -- with reference to much of the above -- but falling short of any timetable for implementation.

Where the G20 stand: How to police the developed world bankers and financial market operators that lie at the root of the worst financial crisis in living memory is an area rife with disagreements among global policymakers.

Some, such as the European Union, want overarching, cross-border bodies with strong powers to enforce strict rules of engagement. Others, including Britain and the United States want regulatory changes but prefer a lighter touch approach.

Many developing nations are keen to see the developed world take tough action given that what was once purely a financial market crisis has now spilled over to every corner of the globe.

Commitments to clamping down on excessive risk taking, greater transparency in financial markets -- particularly hedge funds and banks' balance sheets -- more openness on tax and bigger capital requirements for banks are likely to be agreed.

And more countries are warming to the idea of offering insurance to banks to protect them from toxic asset losses.

PROTECTIONISM

Best outcome for Brown: A commitment from the United States and India to a timetable to push for a successful conclusion of the nearly 7-year old Doha round of global trade talks. A promise by all to avoid any protectionist measures during the downturn.

Most likely outcome: A recognition of the urgency of the need to reach a global trade deal, but no timetable, alongside firms words renouncing protectionism.

The World Trade Organisation has warned that global trade will slump 9 percent this year, the biggest drop since the Great Depression, heaping pressure on the United States to take the lead in finding a solution to the stalled trade talks.

The talks -- aimed at increasing global free trade -- collapsed in July because of differences between the U.S. and India over safeguards to protect farmers from food imports.

TRADE FINANCE

There is also a good chance leaders may agree on offering financial support to grease the wheels of global trade -- British Prime Minister Gordon Brown wants a $100 billion expansion of trade finance to help boost exports.

(Editing by Ruth Pitchford)

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