G-20 finance ministers focus on growth, regulation

Governments must absorb toxic debts worth as much as $3.6 trillion to save the global financial system and thwart recession, the finance ministers of Group 20 said in a joint statement after their week end meet in London.

The G-20, which accounts for 85 per cent of the world's economy, said that it has taken decisive action to boost demand and jobs and would continue to take action until growth is restored.

The key priority was to boost lending and that new regulations were needed for hedge funds and other financial institutions in the shadow banking system, it said.

The meeting also said that the credit ratings agencies should be registered, comply with the International Organisation of Securities Commissions code and have regulatory oversight.

They also agreed that credit flows had been frozen because large global banks were holding huge parcels of bad debts.

"This uncertainty, and the extent to which banks are holding capital to protect themselves from further potential extreme losses, is preventing them from restoring lending to business and households with damaging consequences to our economies," the statement noted.

The banks that receive taxpayers rescue money to prevent collapse will have to agree to strict conditions, including limits on dividends to shareholders and caps on salaries of their executives, they cautioned.

The finance ministers of the world's cash rich nations also assert the need to inject billions of dollars of new emergency funding into the International Monetary Fund to help it bolster failing economies across the globe.

US officials asked that the IMF's rescue fund be tripled to $750 billion from the current $250 billion. Although the amount has not yet been worked out, the finance ministers agreed to a "very substantial" increase.

Increasing IMF funding is seen as critical to helping the most troubled economies, including those in Eastern Europe.

The G-20 ministers agreed that emerging and developing economies, such as Brazil, Russia, India and China should have a greater voice at the IMF and moved forward on a review of its governing structures.

"Hopefully, we are seeing the eclipse of the G7 and the rise of the G20. That is a change that is good for Australia and good for the world because it reflects the fact that the G20 is where the growth in the world economy is happening, in places like China and India," Australian Treasurer Wayne Swan said after the meeting.

The power shift to the G20 was symbolised by the US surrendering its traditional power to appoint the president of the World Bank, and Europe giving up its monopoly on the top job at the IMF.

The memberships of two lesser-known financial groupings, the Financial Stability Forum and the Basel Committee, were broadened to give Australia and developing nations such as China and India greater roles in developing new regulations and redesigning the financial structure of recent decades.

The G-20 grouping has become the de-facto multilateral body dealing with the global financial crisis.

It gained prominence after the world leaders agreed last year that the G-7 grouping of industrialised nations had a narrow scope with the neglect of countries such as Brazil, India, China and other emerging markets.

The current meeting at West Sussex is seen as the main preparatory meeting of finance ministers and central bankers ahead of the London summit on April 2 at which heads of state of the G-20 countries, including US president Barack Obama, are expected to attend.

The G-20 includes the US, the UK, China, Japan, Germany, France, Italy, India, Brazil, Saudi Arabia, South Korea, South Africa, Russia, Australia, Canada, Argentina, Mexico, Indonesia, Turkey and the European Union's rotating presidency.