Washington - The leaders of the world's top economic powers are expected to agree Saturday to close off all gaps in the regulation of world finance markets following a financial crisis threatening to plunge the global economy into recession. The government heads of the Group of 20 nations gathered Friday night in the White House for a dinner hosted by US President George W Bush and are expected to sign off on the agreement at an historic summit Saturday.
The move to monitor world financial markets comes in the wake of a round of stock market turmoil and a sharp downturn in the global economy.
"The stakes are high," Bush said in opening the dinner. "We are determined to fix the problems that led to the (financial) turmoil and return the global economy to long-term prosperity."
According to a draft declaration obtained by Deutsche Presse- Agentur dpa, world leaders aim to ensure "all financial markets, financial products and market participants" are subject to regulation or appropriate supervision.
This is likely to involve a crackdown on hedge funds, tax havens and other financial instruments that have emerged in recent years as part of the fast-paced globalization of world financial markets.
Saturday's summit marks the first ever meeting of leaders of the G20, a bloc that brings together leading industrial nations and emerging economies, and comes amid growing pressure for significant changes to the regulatory structures governing the global financial system.
The leaders are meeting against the backdrop of a sharp economic slowdown, with banks curbing lending activities, consumers keeping their wallets closed and a drop in commodity prices hitting developing countries' exports. The International Monetary Fund last week forecast a global recession in 2009.
Bush told the world leaders they faced "urgent work" in reviving the global economy's fortunes and praised the unprecedented cooperation witnessed between countries to date.
The G20 may call for its members to pursue stimulus packages aimed at spurring economic growth through increased government spending. US Federal Reserve Chairman Ben Bernanke said in Frankfurt that central banks stood ready to take additional monetary steps if necessary.
Global stocks have been decimated by the financial turmoil that was triggered by a meltdown in the US mortgage market. Banks and mortgage lenders offered loans to homeowners that could not afford them, and the excessive risk taking went unnoticed by US regulators.
European leaders have sought a dramatic overhaul of global regulations to keep financial firms in check in the future, while developing countries are looking to contain the fallout spreading from the crisis that began in advanced economies.
"We cannot leave here empty handed," said Guido Mantega, finance minister of Brazil, which chairs the G20.
Finance ministers have set a deadline of March 31 to hammer out the specifics, followed by another summit of the G20 leaders at a later date.
Emerging economies came to Washington hoping to see the G20 meeting of government leaders become a regular event.
"The G7 is too narrow and too small," Indian Finance Minister P Chidambaram said on the plane to Washington, according to PTI news agency. "An inclusive system which can serve as a global oversight and serve as a nearly warning system is needed."
The G20 includes the G8 industrial nations and some of the largest emerging economies, including China, India, Brazil and South Africa.
The draft document also calls for more transparency of financial products and regulation of financial markets, along with improvement in risk management procedures and greater international cooperation, in particular between national supervisory bodies.
This could result in the creation of a new supervisory system to monitor the actions of the world's top financial firms and set up an early warning system to prevent the next financial crisis from spiralling out of control.
The agreement would put pressure on states to bring their own regulatory systems in line with international standards. But there is no language in the document about sanctioning countries that fail to comply.
Leaders also instructed the World Bank to beef up its lending to developing countries, some of which are facing critical cash shortfalls.
Though hosting the gathering, Bush's clout at the summit is limited as many governments are already looking toward the incoming administration of Barack Obama, who will be inaugurated January 20.
President-elect Obama will not be attending the summit but sent former secretary of state Madeleine Albright and former Republican Congressman Jim Leach to meet with world leaders on his behalf.
Both Albright and Leach were scheduled to meet with the leaders of South Korea, Argentina, Australia, Turkey and Mexico along with representatives of 10 other nations.
