Cautious steps on economy

Reynolds is a Times staff writer.

Considering how rapidly the global economic crisis has escalated, leaders converging in Washington for a weekend financial summit might be accused of taking a lackadaisical approach to developing a strategy to solve it.

After all, they're saying this will be just the first of several such summits. And agreeing on a joint plan of action lies months down the road at best.

President Bush called the summit on short notice several weeks ago as the financial markets plunged and demands rose for a coordinated, global response to stem the crisis and prevent future ones.

But Bush says now that though delegates may agree on principles this weekend, big decisions will come later.

"The issues are too complex, the problem is too significant to try to solve, or to come with reasonable recommendations in just one meeting," Bush said in a speech Thursday at a Manhattan Institute event at Federal Hall in New York. "So this summit will be the first of a series of meetings."

There are several other reasons leaders plan to kick the can down the road on the hard decisions. First and foremost is that the United States has a president-in-waiting, Barack Obama, and any agreement without his participation probably would be ineffective.

Also, developed nations continue to have differences over the specifics of a common strategy. And the fissures are even more pronounced when the views of developing and underdeveloped nations are added to the equation.

Under the circumstances, the risk that the summit could go badly is much greater than the likelihood that it could go well, said Charles Freeman, a scholar at the Center for Strategic and International Studies.

"If you're Obama, you want your fingerprints nowhere near this thing," Freeman said. "You'll take up the process when it's launched and more stable down the road. But he said there's only one president, and he's pretty glad it ain't him right now."

Still, Obama has named two representatives to meet with foreign officials on the sidelines of the summit, former Secretary of State Madeleine Albright and former Republican Rep. Jim Leach of Iowa, a former House banking committee chairman.

Obama aides emphasize, however, that the advisors will not attend summit gatherings or play any formal role in the discussions.

"There is one president at a time in the United States, so the president-elect has asked Secretary Albright and Congressman Leach, an experienced and bipartisan team, to be available to meet with and listen to our friends and allies on his behalf," Obama senior foreign policy advisor Denis McDonough said in a news release.

The summit will be the first meeting of the heads of state and government of the G20 -- a group of developed and emerging countries that coalesced in the wake of the Asian and Russian financial crises of 1998. Until now, it was the finance ministers and state central bankers who met.

Last week, G20 finance ministers met in Sao Paulo, Brazil, to complete plans for this weekend's meeting, including drafting a list of five principles their leaders are expected to approve Saturday in Washington.

The principles are: increasing transparency and accountability of financial institutions; increasing government spending on economic stimulus efforts; providing more cash to banks that need it; avoiding trade restrictions; and shoring up the reserves of the International Monetary Fund and other international organizations.

That agenda is far less ambitious than the one initially envisioned by French President Nicolas Sarkozy, who called for a "second Bretton Woods" conference to remake international financial organizations.

The Bretton Woods conference, held in 1944 at a rambling resort hotel in New Hampshire as World War II raged, was convened to lay out a financial system for the postwar world. It led to the founding of the International Monetary Fund and the World Bank, among other institutions.

This weekend, with so many presidents and prime ministers at the table, the crucial message of the G20 gathering will be political, not financial. The leaders will be trying to send the message that they are willing and able to do whatever it takes to end the crisis -- and then set up working groups of financial officials to work out the details.

"It is essential that the G20 meeting signals an unmistakable common resolve to overcome the crisis, to act together, to act with urgency and to show solidarity toward the neediest," United Nations Secretary-General Ban Ki-moon, who will be attending the conference, said in a letter to other leaders.

The G20 nations, which account for almost 90% of global gross domestic product, or total value of goods and services, are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Spain, Turkey, Britain and the United States.

Tensions between the more developed and developing countries has been growing because many of the emerging economies are far more robust than the more established ones. The IMF estimates that economies in the developed world, including the United States and Europe, will go into recession for the next year, while emerging economies will continue to grow, but at a slower rate.

Some experts are looking to countries with stronger economies and large central bank reserves -- primarily China and Brazil, but also Russia and India -- to help tide over the rest of the nations by, for instance, helping to fund an expanded IMF.

But those countries are hesitant to rush into the breach. They have their own domestic economies to take care of; they also are a bit irked that they are being roped in to be the saviors in a crisis that began elsewhere.

U.S. officials are anxious to avoid finger-pointing. Bush even referred to that fear in his remarks Thursday.

"Some blame the crisis on insufficient regulation of the American mortgage market," the president said in New York, but insisted that "the crisis was not a failure of the free market system."

"History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market," he said.

But tougher regulation of the financial markets and closer international supervision appear to be high on the priority list for several other countries at the summit and beyond.

"Everyone is talking about improving transparency of major financial sector players," said Arkady Dvorkovich, economic advisor to Russian President Dmitry Medvedev. "Everyone, including Russia, is saying that accounting standards should be harmonized around the world . . . to make sure investors understand financial risks clearly."

But even in its waning days, that may be a hard sell to the Bush administration. In his remarks Thursday, the president heralded the robust economies of Japan and South Korea as examples of the triumph of the free market, while criticizing the "devastating results" of other economic models in the Soviet Union, Cuba and Iran.

"The record is unmistakable: If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go," Bush said. "And it would be a terrible mistake to allow a few months of crisis to undermine 60 years of success."


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