G20 finance ministers, central banks governors and other officials pose for a group picture during the G20 finance Minister's summit, at the Treasury in Westminster on September 5, 2009 in London, England.Pool
Top finance officials from rich and developing countries on Saturday pledged to maintain stimulus measures to boost the global economy, warning that the fledging recovery that provided the backdrop to their meeting is by no means assured.
Group of 20 finance ministers also promised a crackdown on bankers' pay - while stopping short of a European push for a cap on bonuses - and agreed to giving developing countries a greater say in international financial institutions.
A joint communique said that fiscal and monetary policy will stay "expansionary" for as long as needed to reduce the chances of a double-dip recession after the worst financial crisis since World War II.
"Financial markets are stabilizing and the global economy is improving, but we do remain cautious about the outlook for growth and jobs," British Treasury chief Alistair Darling, the host of the London meeting, said.
"We agreed that we would continue to implement our necessary support measures - including monetary and fiscal policies - consistent with price stability and long-term fiscal sustainability until recovery is secured."
The International Monetary Fund has said that the global economy is beginning a sluggish recovery from its worst recession since World War II, raising its estimate for global economic growth in 2010 to 2.5 per cent, from an April projection of 1.9 per cent.
But the IMF also downgraded its forecast for this year to a contraction of 1.4 per cent, from 1.3 per cent. Japan, Germany, France and Australia all recorded growth in the second quarter. Other countries like Britain, which is expected to move back into growth in the third quarter, have been slower to recover.
"The financial system is showing signs of repair," said U.S. Treasury Secretary Timothy Geithner. "Growth is now under way. However, we still face significant challenges ahead."
There is a fear that withdrawing any time soon from the trillions of dollars worth of extraordinary stimulus packages that have been pumped into the ailing world economy in recent months could result in a double-dip recession.
Germany and France had previously pushed for more discussion of a so-called exit strategy from the massive stimulus measures, arguing that spending measures have taken government debt to dangerously high levels, but have backed away from the issue in London.
The G-20 also pledged restrictions on excessive bankers' pay in a bid to address concerns about the risk-promoting bonus culture blamed for fueling the current crisis.
The communique said that work will continue on the possibility of introducing a cap mechanism for financial sector bonuses but did not commit to the measure after U.S. and British objections to the French-German proposal.
Instead, the G-20 proposed clawback mechanisms to ensure that bonuses are linked to the long-term success of deals and could be forfeited if they fail to deliver over a period of years.
Mr. Darling said the new measures would make sure that institutions "are focused on long-term sustainability and long-term strength."
Mr. Darling said banks must realize that "they would not be here had it not been for the efforts of countries, underwritten by the taxpayer," and there must be no more cases in which "people are being rewarded for reckless behaviour."
The Financial Stability Board, an international body established at the London Summit of G-20 leaders in April, was given the task of drawing up practical proposals for implementation at the Sept. 24-25 leaders meeting in Pittsburgh.
The United States had tried to put the focus of the London meeting, which is a preparatory gathering for the leaders summit, on its proposal for a new international accord to increase banks' capital reserves. The U.S. wants to establish stronger international standards for the reserves banks are required to hold to cover potential loan losses.
Going into the meeting, U.S. Treasury Secretary Geithner wanted to reach agreement on an accord by the end of 2010, with implementation by the end of 2012.
The communique did not directly address that plan, but called for rapid progress in developing stronger prudential regulation, including a requirement that banks hold more and better capital once recovery is assured.
British Prime Minister Gordon Brown won support for his push to take tougher action against tax havens, with the G-20 agreeing to a March 2010 deadline to start sanctions against tax havens which refuse to comply with new transparency rules agreed at the April G-20 leaders' summit in London.
The G-20 also reaffirmed its commitment to reform of the World Bank and the International Monetary Fund to give developing countries a great say on those bodies.
The BRIC proposed a quota shift of 7 per cent in the IMF and 6 per cent in the World Bank Group to reach an equitable distribution of voting power between advanced and developing countries.
The G-20 stopped short of that, but said it will complete World Bank reforms by spring 2010 and the next IMF quota review by January 2011.
The G-20 includes 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, Britain and the United States. The European Union, represented by its rotating presidency and the European Central Bank, is the 20th member.