G20 watchdog to monitor global economic health

The idea is to identify problems sooner

Finance officials in the US and other members of the Group of 20 major economies said the new programme will closely follow key measurements of economic health such as government budget and trade deficits, personal savings levels and investment flows between nations.

The hope is that the monitoring process will highlight problems before they become so big that they pose a threat to global growth. But the deal by the G20 left many questions unanswered about just how effective the new procedures will be. Global financial reform will continue to be the focus of meetings of policy-setting committees of the 187-nation International Monetary Fund and the World Bank.

After the day-long G20 talks, French Finance Minister Christine Lagarde told reporters that the monitoring agreement was a significant achievement in efforts to restore confidence and prevent future financial crises. “We have made huge progress in relation to the framework for growth," she said. "This is a major step in the right direction."

Lagarde said that all G20 nations will take part in the monitoring process but in the beginning the focus would be on seven of the world’s largest economies. She declined to name all of those countries but the group is expected to include the US, China, Japan, Germany, France, Britain and India. Much about the monitoring process, however, is still to be determined including whether countries found to have dangerous imbalances will be identified publicly.

The initial monitoring effort will be reviewed at an October meeting of the G20 finance officials who will report on how the process is working to G20 leaders who are scheduled to meet in Cannes, France, in November. Since there is no enforcement mechanism, it was unclear what pressure can be brought to bear on countries found with dangerous imbalances. However, officials sought to portray the agreement as a major step forward in addressing the types of problems that were uncovered by the financial crisis that erupted in the United States in the fall of 2008 and contributed to pushing the global economy into the worst downturn since the Great Depression of the 1930s.

“The subprime crisis in the United States — that’s exactly the kind of accident we want to avoid in the future,” Canadian Finance Minister Jim Flaherty said.

G20 leaders meeting in Pittsburgh in September 2009 agreed to a goal of rebalancing global growth. Russian Finance Minister Alexei Kudrin said a key remaining question will be “whether we make the monitoring mandatory and have sanctions.”