G20 Summit

November 15 will be another roadmap for global leaders to respond, perhaps in a coordinated way to the unfolding financial and economic crisis. The G-20 grouping accounts for 90% of the global economy, includes 10 major emerging economies – Brazil, China, India, Saudi Arabia and South Africa among others along with members of the G-8, Australia and the European Union.

Markets will be watching attentively to see what reforms might be on the cards. Among possible agenda includes:-

• Submit rating agencies to registration and surveillance, especially within the Basel II capital requirement framework
• Convergence of accounting standards
• No discrimination in terms of regulation and oversight
• Establish codes of conduct to avoid excessive risk-taking in the financial sector, including the renumeration of executives
• Give the IMF the necessary resources for recommending the measures to restore confidence and stability in the international financial system

There have also been calls for a global fiscal stimulus to offset the decline in private aggregate demand and cushion consumers and firms from the prolonged global slowdown. While surplus countries like China, Germany and the GCC states have enough fiscal room for this, deficit-laden nations might face the risk of higher future sovereign debt and nominal yields.

The expanded IMF agenda may call for new capital injection since its current available funds are just over US$200bn. Japan has suggested it might channel funds from its forex reserves through the IMF, if needed to support vulnerable emerging markets. China argues that the best way it can support the global economy is by maintaining Chinese growth through a series of monetary and fiscal stimuli through 2010. They are also beginning to need more capital at home as the sovereign wealth funds may have suffered significant losses in the last few months.

For now, it is very clear that the financial crisis seems to be contributing to an unwinding of some of these imbalances with the correction in oil and commodity prices and easing capital flows in surplus countries, but the economic outlook is worsening before it gets better.