Following its two-day meeting in Lecce, Italy, the G8 Finance Ministers released a statement over the weekend acknowledging the coordinated efforts taken by international community to address the global economic crisis and focusing on the actions that must be taken in the months ahead to ensure “the soundness of systemically important institutions” and that “consumer and investor confidence is fully restored and that growth is underpinned by stable financial markets and strong fundamentals.” While recognizing that they still needed to remain cautious and vigilant regarding economic recovery efforts, the G8 Finance Ministers also recognized “the need to prepare appropriate strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured.” They indicated that the International Monetary Fund (IMF) would be undertaking analytical work to assist in determining “exit strategies.”
Significantly, the G8 Finance Ministers agreed on the need to develop the “Lecce Framework,” a set of common principles and standards for propriety, integrity and transparency in the conduct of international business and finance, intended to “buil[d] on existing initiatives [led by various international organizations] and la[y] the foundation for a stable growth path over the long term.” The Lecce Framework will be a comprehensive framework “to identify and fill regulatory gaps and foster the broad international consensus needed for rapid implementation.” The Lecce Framework will establish principles and standards with respect to corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data, and will specifically address issues of “executive compensation, regulation of systemically important institutions, credit rating agencies, accounting standards, the cross-border exchange of information, bribery, tax havens, non-cooperative jurisdictions, money laundering and the financing of terrorism, and the quality and dissemination of economic and financial data.”
In addition to discussing the proposed Lecce Framework, the G8 Finance Ministers discussed international regulatory reform, including the implementation of decisions taken at the London G20 Summit [http://www.alston.com/financialmarketscrisisblog/blog.aspx?entry=1795] this past April, the progress in “negotiations of agreements on the exchange of information for tax purposes,” the development of an effective peer-review mechanism to assess compliance with OECD standards and the engagement by the Financial Action Task Force “with the G20 to fight against money laundering and the financing of terrorism.” They also reaffirmed their commitment to refrain from implementing protectionist measures, to implement trade finance support particularly for emerging and developing countries and to “improve the functioning and transparency of global commodity markets.” Finally, the G8 Finance Ministers discussed their commitment to expand the IMF’s lending capacity, “to increase investment in [poor developing] countries aimed at raising sustainable agricultural productivity and food security” and to explore global solutions to address the economic, financial and developmental aspects of climate change.
In a separate statement following the meeting, U.S. Treasury Secretary Timothy Geithner emphasized the need for fiscal sustainability to support economic and financial recovery, stating that the Treasury’s “programs to repair the credit markets and the financial system [were] designed to be temporary and quickly reversible,” and that next week Treasury will outline comprehensive proposals for U.S. regulatory reform. He hinted that these proposals will “put in place more conservative standards for financial oversight of internationally active financial institutions and global markets such as derivatives,” and that the international group of banking regulators will continue developing reforms with respect to capital ratios and requirements that would “constrain future increases in leverage.”
Secretary Geithner remarked that the international playing field should be leveled and that the “financial rules of the game we are responsible for at the national level need to converge toward higher standards,” since “risk and leverage will always tend to migrate to where the constraints are weakest.” Indicating his support for the reform of international financial institutions, Secretary Geithner noted that legislation to increase the U.S. contribution by up to $100 billion to the New Arrangements to Borrow at the IMF is under consideration by Congress. He further noted the U.S.’s commitment to support reforms with regard to enhancing global food security, to design a new financial framework on climate change and to protect “the integrity of the international financial system from threats of illicit finance.”