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Prelude to reform of int'l financial system
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17:06, November 17, 2008

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Faced with a very grim challenge in world economy and global financial market, the G-20 leaders who gathered in the summit on the Financial Market and World Economy held in Washington D.C. issued a declaration on Sunday, November 15th. They vowed in the declaration to enhance cooperation and work together to restore global economic growth and achieve needed reforms in the global financial setup and prevent similar crises from recurring. So, world opinions have cited this summit as opening a prelude to the reform of global financial system.


Today's financial crisis has clearly shown that the present world financial system has failed to comply with the demand of global financial market, said International Monetary Fund Managing Director Dominique Straus-Khan, so there is some doubt about the legitimacy and effectiveness of this system.

It is the consensuses of the summit participants to reshape the current financial system and enable it to conform to the demand of the 21st century. There are still grave disparities among some countries, however, on questions of how to step up financial supervision and particularly on how to enhance financial supervision.

French President Nicholas Sarkoz has insisted that all financial spheres, including the transnational capital flows, should all be brought under supervision, whereas U.S. President George W. Bush stood firm against calling into question the very fundamentals of "democratic capitalism," and against excessive regulation. Bush said: "I regret saying some things I shouldn't have said, "… All our nations must reject calls for protectionism, collectivism, and defeatism in the face of our current challenge."

In spite of differences, the parties partaking in the summit made comprises in the spirit of coordination. On the transnational capital flows, the declaration issued at the end of the G-20 meeting noted that supervisory institutions of various countries should enhance in general "coordination and cooperation" and, with regard to the market intervention, the declaration adheres to the free market principles, which are crucial to the economic growth and prosperity.

At the G-20 summit in Washington, Chinese President Hu Jintao urged the international community to earnestly draw lessons from the ongoing financial crisis and undertake necessary reform of the international financial system through full consultations among all stakeholders.

"Reform of the international financial system should aim at establishing a new international financial order that is fair, just, inclusive and orderly and fostering an institutional environment conducive to sound global economic development," Hu said, and the reform should be conducted in a comprehensive, balanced, incremental and result-oriented manner.

Critics here have considered the next few years would as a period to shape the new, international banking system. As a matter of fact, the current summit, which has been widely placed on a par with the 1944 Bretton Woods Conference that gave birth to the International Monetary Fund, a Washington-based institution, will create a new, international banking system.

British Prime Minister Gordon Brown has said the accords at the G20 summit provide a "route map" to economic recovery. The prime minister insisted that the world was on the Road to a new Bretton Woods agreement. Moreover, when President Bush hosted a world financial summit in the U.S. on Nov. 15th, he was quoted as saying that "talk of a Bretton Woods II" has been aroused to different degrees for 30 years.


The most pressing issue, according to the G-20 leaders, is how to cope with the escalating financial crisis. In the past year, partial or regional financial crisis has been extended or spread worldwide, transferring from the fictitious economy to real economy and from the developed nations to newly emerged economic entities. Developed economies will land themselves in an all-round recession next year, note relevant IMF forecasts, and newly-emerged economies, too, will face severe punches.

Despite disagreement on such issues as the cause of the crisis, and on how to step up supervision and how to shape the future financial system, it is in the common interest of all parties concerned to take forceful actions to restore the market confidence as quickly as possible so as to curb the extension and spread of financial crisis. For this purpose, the summit has agreed upon six emergency measures, such as a further interest cut, economy revitalization plans and support to give scope to the positive role of IMF, the World Bank and other global financial institutions. Meanwhile, the G-20 leaders have worked out action plan based on measures to cope with the financial and economic problems the present world is facing.

European Commission President Jose Manuel Barroso said that the outcome of the G-20 summit would help countries avert an even more severe crisis. Only actions resultant from consensuses reached at the summit can help stabilize world economy. And World Bank President Robert Zoellick praised the Group of 20 for agreeing to unify against the financial crisis and world economic slowdown. "What matters now are the follow-up actions," Zoellick said in a web front page of today's most important business and market news.


In reshaping the international financial setup, the interests of new-emerged economics and developing countries must be fully embodied. At the G-20 summit, President Luiz Inacio Lula da Silva of Brazil, the current rotary chairman state of the Group of 20, said that multilateral financial institutions and international values have been abandoned by history, and so IMF and the World Bank should expand the involvement of developing countries and increase their representation and voting rights.

Meanwhile, Indian Prime Minister Manmohan Singh said "emerging market countries were not the cause of this crisis, but they are amongst its worst effected victims". Singh called for the attention of developed nations to the issues the financial crisis had brought to developing countries. In faced with this reality, people can definitely not turn indifferent or apathetic to the appeals of new-emerged economies.

The summit on Financial Market and World Economy is a milestone event beyond any doubt, noted ace world analysts, as it has formulated emergency measures and made the action plan curb the current financial crisis, reached consensuses to upgrade the status of new-emerged economies and developing nations, and thus opened the prelude to the reform of the international financial system.

Nevertheless, people are still waiting anxiously to see how these commitments made at the summit be turned into reality. On this issue, acknowledged UN Secretary-General Ban Ki-moon, history will judge it very favorably.

By People's Daily Online and contributed by Xinhua resident reporters in U.S. Liu Hong, Guo Xiangwen and Chen Gang

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