World leaders agree to tighter economic controls

World leaders agreed Saturday to put tighter controls on financial markets and work together to halt the economic crisis now cascading across the globe, but their summit was overshadowed by the knowledge that any long-term plan depended on someone who did not even attend: President-elect Barack Obama.

Gathering in Washington for the hastily arranged summit of the world’s developed and developing countries, the leaders agreed to spur economic growth through increased government spending and other “stimulus”; expand the mission and resources of international organizations, including the International Monetary Fund; and create a “college” of international regulators to serve as an early warning system for global financial crises.

“We must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again,” the leaders said in a joint statement.

Although the so-called G-20 summit took only the first small steps toward building a “new financial architecture” to protect the world from the kind of turmoil now wrenching markets from Hong Kong to London, President Bush defended the gathering as a good start.

“A meeting is not going to solve the world’s problems,” Bush said. “A meeting will help begin a process so that we can say over time that we will have a regulatory structure in place that will make this less likely to happen in the future.”

Tellingly, most of the “action” in the leaders’ five-page “plan of action” consisted of developing recommendations to approve at their next meeting, which they set for April 30. That’s roughly 100 days after the inauguration of Obama, whose advisors met with foreign officials on the sidelines of the summit.

“The president-elect believes that the G-20 summit of leaders from the world’s largest economies is an important opportunity to seek a coordinated response to the global financial crisis,” Obama’s representatives, former Secretary of State Madeleine Albright and former Republican Rep. Jim Leach, said in a statement.

Bush, at one of his final summits as president, took pains to indicate that the current and future administrations were working together.

“I told the leaders this, that President-elect Obama’s transition team has been fully briefed on what we intended to do here at this meeting,” Bush told reporters as the meeting wound up ahead of schedule less than 24 hours after it convened. “I told them that we will work tirelessly to make sure the transition between my administration and his administration is seamless.”

French President Nicolas Sarkozy, who first called for the 20-nation economic conference, defended the summit from criticism that it accomplished little.

“Mind-sets have changed,” Sarkozy said at a news conference afterward. “We’ve used this crisis to say that you must do something, and fast. And that was by no means a foregone conclusion when we arrived here.”

But the outcome was far from the kind of sweeping “Bretton Woods II” summit that Sarkozy originally envisaged to remake global institutions in the wake of the most damaging financial crisis since the Great Depression of the 1930s.

Sarkozy said that comparisons to Bretton Woods, the 1944 conference in New Hampshire that established a system of rules, institutions like the IMF and procedures to regulate the international monetary system, are overdrawn.

“This cannot be sorted out in a matter of three weeks,” Sarkozy said, referring to how long it took Bush to convene the G-20. “Bretton Woods took two years.”

The G-20 summit was a kind of economic coming-out party for large developing countries, including China, India, Brazil and Russia.

“There’s no sense in making political and economic decisions without the G-20 countries,” Brazilian President Luiz Inacio Lula da Silva told reporters in Washington. Indian Prime Minister Manmohan Singh said organizations such as the G-8 “are no longer sufficient to meet the demands of the day.”

Because of these countries’ higher growth rates and large central bank reserves, the developed world may not be able to ease the crisis without their help.

These countries, however, have expressed some vexation over the role they are being urged to play, especially given that the crisis began in the United States. Russia has accused the United States of poor market oversight.

“Our joint opposition to the financial crisis will only be effective if we find a common understanding of the causes and the mechanisms that caused this crisis,” said Arkady Dvorkovich, chief economic advisor to Russian President Dmitry Medvedev. During the summit, “President Medvedev noted that the contemporary structures which regulate economic security and stability are not adequate, and we need new ideas and institutions adequate to the challenges we face now.”

In deference to that view, the joint statement criticized regulation in “advanced countries,” saying that regulators “did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, to take into account the systemic ramifications of domestic regulatory actions.”

But Bush also persuaded the leaders to sign off on one of his signature themes, that free markets are the engine of economic growth.

“We recognize that these reforms will only be successful if grounded in a commitment to free market principles,” the statement said. “Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth.”

Although firm deadlines were few, the leaders did agree to take actions before the spring in a number of areas.

One was a commitment to develop a global accounting standard to make it easier to assess risk across countries. And the leaders agreed to form a kind of “college” of regulators from different countries who would meet regularly with multinational financial institutions to better assess whether their practices pose a transnational risk.

But in the end, leaders insisted that most action would be taken by the countries themselves, not by international groupings such as the G-20. Whether that would be more or less reassuring to people around the world remained to be seen.

“We have to take account of diverse situations. . . . We cannot talk about one recipe across the board,” said Jose Manuel Barroso, president of the European Commission.

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maura.reynolds@latimes.com