The most powerful emerging markets will push this weekend for a new and broader global body to impose stricter rules on the world's capital markets in the midst of a deepening worldwide economic crisis.
After a meeting Friday in Sao Paulo, the so-called BRIC powers – Brazil, Russia, India and China – said they will push the industrial powers to replace the Group of Seven with a bigger, more effective group to address the global financial and economic crisis.
Finance ministers and central bankers from the so-called G20 nations are scheduled to meet Saturday in Brazil to hammer out a plan to take to world leaders in Washington next weekend.
“The present institutions have failed,” Brazilian Finance Minister Guido Mantega said. “They were not able to detect [the global financial crisis] in time, and stop it from happening.”
The days are over, when emerging markets sit on the sidelines of G7 meetings “drinking coffee” while they wait to be consulted, he warned.
Instead, they want to turn the existing G20 into a powerful decision-making body that is supported by heads of state and will impose strict global controls over derivatives and financial markets.
Their first demand is that the authorities in the United States and Europe move quickly and decisively to weed out and absorb bad loans from otherwise healthy financial institutions.
They also want the U.S. and Europe to ensure there is enough liquidity in financial markets that investors don't have to pull out of emerging markets in order to plug up holes in their balance sheets.
The liquidity and solvency measures taken to date have been helpful, Mr. Mantega said, but are not sufficient. Advanced countries should also continue to cut key interest rates.
His comments set the tone for Saturday's meeting with finance ministers and central bankers from the G20, in advance of next weekend's leaders' summit in Washington.
Emerging markets hold the United States and Europe to blame for the crisis, which has now started to undermine the currencies of these emerging markets and spark an unnerving outflow of capital flows. They argue that the way to resolve the crisis is to work with emerging markets, who now fuel more than half of the world's growth every year and whose economic strength could mean the difference between global health and global recession.
Attendance at the Brazil meeting this weekend suggests the industrial powers are not sold on the usefulness of the larger group. Only one G7 country – Canada – sent its finance minister, although most members sent their central bankers, including the U.S. Federal Reserve's Ben Bernanke.
Canada was a founder of the group, and is in a position to find participation in the G20 particularly useful right now, Bank of Nova Scotia chief executive officer Rick Waugh said.
That's because Canada, like many of the emerging markets, is feeling the effects of the financial crisis through no fault of its own.
“Canada has a lot of the attributes of emerging markets. It's sort of the New World versus the Old World,” Mr. Waugh said in an interview from Toronto.
Canada and the emerging markets have seen their currencies and the commodity prices they depend on devastated by the financial crisis.
