PITTSBURGH -- Leaders of the world's most developed economies agreed late Friday to restrict runaway financial-sector executive pay, give emerging powers a bigger role in global institutions and create a new structure to promote global economic growth.
"In short, our financial system will be far different and more secure than the one that failed so dramatically last year," President Barack Obama said at the close of the Group of 20 summit.
The G-20 members launched what they termed a Framework for Strong, Sustainable and Balance Growth. This framework, sought by the Obama administration, requires member nations to develop a common gauge of sustainable economic growth and to assess their progress.
Summit participants agreed to give big developing economies such as China, India and Brazil a greater voting stake in the International Monetary Fund and World Bank a rebalancing that reflects their growing stature on the global stage.
Most of the summit drama centered on executive compensation, with France pushing for strict caps in how much financial sector executives can be paid. The Obama administration successfully beat back that effort, and the G-20 leaders instead agreed on a series of steps to address excessive risk-taking by executives. These include deferring compensation and tying bonuses to performance over a longer timeline.
Although not a binding commitment, the framework for growth could create a face-saving structure for both the U.S. and China to address imbalances in consumption, trade and currency policies that have helped fuel a deep global economic downturn.
"Our new framework will allow each of us to assess each others policies," Obama said.
The meeting in Pittsburgh was the third this year by leaders of the U.S., European Union and other large economies. Here, the leaders decided to bury the old Group of Eight meeting of the world's most industrialized economies and replace it with G-20 meetings to reflect a changing world.
"It is a historic change, because the system we had is the system we came up with after World War II. Now we recognize the importance of the big emerging powers," said Uri Dadush, the director of economics programs at the Carnegie Institute for International Peace.
The shift is significant because big emerging economies represent important seats at the bargaining table when negotiating everything from global trade accords to environmental policies.
"That means that the G-20 is going on to bigger, more-important issues and going beyond the financial crisis," Dadush, a former World Bank director of international trade, said in a phone interview from Geneva, Switzerland.
On the environmental front, G-20 leaders reached a general agreement on the elimination of fossil-fuel subsidies over the medium term. They agreed to develop implementation strategies and timetables, and report these back at next year's G-20 summit meetings, to be held in Canada and South Korea. Significantly, however, they failed to agree on how to wean poorer countries off fuel subsidies.
"Overall, the Pittsburgh G-20 summit represents a missed opportunity to move the ball forward on climate change," Alden Meyer, the director of policy at the Union of Concerned Scientists, said in a statement. "On the critical issue of funding for developing countries to deploy clean technologies, reduce deforestation and adapt to the impacts of global warming, the G-20 leaders didn't take the bold steps needed."
As Congress begins revamping regulation, the Pittsburgh summit amounted to a bullet dodged for the financial sector, because pay caps weren't adopted.
"The right way to regulate is to focus on the risk and pay-for-performance, connecting the employee's compensation with the long-term risk horizon," said Scott Talbott, the senior vice president of government affairs for the Financial Services Roundtable, which represents banks and other big financial players.
The new pay rules_ which are currently being drafted in the U.S., Britain and Europe_ address what industry officials, including Talbott, acknowledge was a severe shortcoming.
"The failure in the past was an overreliance on the short-term and not enough on the long term. Now that's changed," he said. "You've seen a number of companies fail because they didn't manage that risk properly."
G-20 members also agreed to:
- Agreed to require that companies that sell pools of mortgages or other loans retain an unspecified portion on their books to discourage excessive risk taking.
- Adopt international rules by 2010 and implement them by the end of 2012 on capital buffers for banks. Banks will have to retain more cash in reserve, especially in good times, to be able to weather stormy times.
- Pledged to facilitate the transfer of clean energy technology from rich nations to poor ones.
- Agreed to publish, beginning on Jan. 1, complete and timely data on oil production, consumption, refining and stock levels.
- Reaffirmed support for multilateral development banks to address poverty in Latin America, Africa and Asia, pledged to find new funding sources.
(Talev reported from Pittsburgh, Hall from Washington. Renee Schoof contributed to this article from Washington.)
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