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10 Nov, 2008 04:27

G20 meeting looks for overhaul of global financial architecture

G20 finance ministers and the heads of central banks met in Sao Paulo, Brazil, last week. They looked at ways to stop a global slowdown that could shrink trade world wide next year for the first time since 1982.

The crisis proved it’s time to dump the Group of Seven and embrace the Group of 20 as the main global economic policymaker.
That’s according to Brazilian President Luiz Inacio Lula da Silva who addressed the G20 finance leaders on Saturday.

“This is a global crisis and it demands global solutions. This is the moment to formulate proposals for a substantial change of the world's financial architecture.”

And the proposals have poured in. Russia’s Finance Minister Aleksey Kudrin says Russia alone made several suggestions of how to change the system:

“We have discussed the possibility of something similar to the Maastricht Treaty, but on a global level. Also, we proposed the creation of new regulatory bodies, and making sure that following their rules and regulations is mandatory for all countries. It would prevent future crises.”

Russia agrees with its BRIC counterparts – the International Monetary Fund and the World Bank failed to prevent the crisis and to stop it from spreading.

But as the focus shifts from the finance ministers’ meeting here in Sao Paulo to the G20 heads of state gathering in Washington DC this week, Russia is likely to side not just with emerging economies, like Brazil, but also with its G8 partners.

Which it aligns itself with will depend on the issue at hand according to Yaroslav Lissovolik, Chief Economist, Deutsche Bank.

“Russia will be pragmatic and would not unite with only one group (like the BRIC’s). It will side with G8 or BRIC on different matters.”

The financial leaders laid the groundwork for next week’s G20 summit in Washington. Now all eyes are on the heads of state, who should put their competing agendas aside before the crisis chokes the global economy.