At the G20 summit last week, the leaders of the world's major economic powers promised to do all they can to restore world economic order by reforming global financial control.
The Group of 20 includes both the most industrialized countries and the fastest developing nations. However, it is becoming increasingly obvious that the center of financial and economic power is moving from the West to the East.
The summit's primary achievement was the adoption of a joint declaration with recommendations on overcoming the global financial crisis. Next April, the G20 will gather for another summit, most likely in London, in order to discuss implementation of these proposals.
This is clear evidence that the G20 rather than the G7 or the G8 will play the first fiddle in international relations while overcoming the global financial crisis and, probably, after it as well.
It is becoming obvious that as a result of the crisis, China, India, Russia, and the rich Persian Gulf countries are becoming heavyweights in the international financial organizations, the International Monetary Fund and the World Bank.
The declaration does not blame the crisis on the United States, which is relatively successful at world diplomacy, but castigates greedy investors for a failure to adequately assess the risks in the rush for huge profits. It also criticizes some unnamed regulating bodies for overlooking these risks or not addressing them properly.
First and foremost, the G20 stands for stronger control of banks and financial markets. Now that the financial markets and many banks have become global, national regulators have failed to control them properly. It suggests "establishing supervisory colleges for all major cross-border financial institutions, as part of efforts to strengthen the surveillance of cross-border firms."
In addition, it is necessary to strengthen the resilience and transparency of the credit derivatives markets, which have come to look like uncontrolled financial pyramids. Traditionally credit security was derived from an underlying asset.
Now there are derivatives based on other derivatives that are based on an underlying asset. A bright example is the subprime debacle in the United States, which triggered the credit crisis.
The problem was created by the issue of an enormous amount of unregulated credit. On Friday, American regulators announced their intention to set up an agency to oversee credit practices. Europe is planning to take similar measures.
Moreover, the United States and the European Union plan to toughen control over the rating agencies, including those who assess securities.
What to do with the freedom of trade?
The G20 urged against protectionist measures during the crisis, and expressed caution against trade barriers and other export and investment restrictions during the next 12 months. This is correct because such measures destroy world economic ties and worsen the crisis.
However, national governments are not likely to give up the temptation to protect domestic producers. In many Asian countries, protectionism is a corner stone of economic policy. The United States likes talking about free trade, but resorts to obvious protectionist measures when American companies lose their competitive edge.
Russia is also engaged in protectionism. One recent example is an increase in import duties for foreign cars older than a year. The Ministry of Agriculture is talking about the need for permanent "food security," which can only create new food import barriers.
There is one more problem. The proposals to set up supra-national global financial regulators also contradict the idea of a free market.
Having signed the declaration, U.S. President George W. Bush, who will lead America for two more months, instantly declared that only free market principles will produce economic growth.
G20 finance ministers were instructed to submit plans on implementing these proposals by March 31 of the next year. The G20 will discuss these plans at its next summit in April.
Oleg Mityayev is an economics commentator for the Russian News and Information Agency Novosti, online at http://en.rian.ru/.