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As Leaders Urge Financial Reform, U.S. Urges Caution On Oversight

U.S. Vice President Joe Biden (file photo) warned leaders in Chile that a "free market still needs to be able to function."
Center-left national leaders from around the world have called for reforms for better oversight of the global financial system.

The leaders, gathering in Chile, said they wanted major economic powers to agree on those reforms at the Group Of Twenty (G20) summit later this week in London.

But U.S. Vice President Joe Biden, who joined the Chile meeting, cautioned against too much regulation, saying free markets need space to function.

The talks came as tens of thousands of people marched across Europe -- including in Britain, France, Germany, and Italy -- to urge world leaders to take action to reduce poverty, create jobs, and protect the environment from global warming during the G-20 summit.

In Chile, leaders from Latin America, Europe, and the United States exchanged views during a four-hour roundtable marked by demands for controls on world financial markets and reforms of international financial institutions.

Speaking during the meeting in the seaside resort town of Vina del Mar, Brazilian President Luiz Inacio Lula da Silva said that "the eyes of the word are set on us." The leader of Latin America's largest country, who will participate in the G20 summit that starts on April 2 in London, said that a lack of controls have turned the world economy "into a gigantic casino."

"The bankers must take on responsibility, because separating the financial system from the productive sector is a life lesson that I hope the 21st-century has learned," Lula da Silva said. "I hope that the leaders who come after us will guarantee that for someone to earn a dollar, a real, or a peso has to produce something -- at least a piece of paper or a toothpick."

British Prime Minister Gordon Brown said the markets cannot regulate themselves and that cross-border regulations are required on all global issues.

'Not Either...Or...'

Biden said the United States supports international cooperation to reduce systemic risks to global markets. But he cautioned against too much regulation.

"We should not overreact," Biden warned. "This is not a choice of markets or governments, in my view. A free market still needs to be able to function." Biden called for protesters around the world to give governments a chance to tackle the economic crisis.

The host of the summit, Chilean President Michelle Bachelet, said the leaders agreed to combat protectionism.

Brown promised that measures will be taken "to help create jobs, stimulate business, and get the economy moving."

In an interview, German Chancellor Angela Merkel had dampened expectations of a significant breakthrough in Chile. She said one meeting would not be enough to solve the economic crisis and finish building a new structure for global markets.

Also attending were the presidents of Argentina and Uruguay (Cristina Fernandez de Kirchner and Tabare Vazquez) and the Spanish and Norwegian prime ministers (Jose Luis Rodriguez Zapatero and Jens Stoltenberg).

View From Beijing

The Chinese central bank's governor, Zhou Xiaochuan, said the same day before an Inter-American Development Bank (IADB) meeting in Colombia that it is uncertain whether China's economic slowdown has ended and he has urged more financial reforms in the face of the worldwide slump.

Zhou said he expected the G20 summit to discuss finance and regulatory measures, including those involving development banks.

China is facing a challenge to its economy as demand slows in the United States and Europe amid the global crisis. Exports have dropped from year-ago levels in the last four consecutive months, including a 26-percent drop in February.

"You know it still very much depends [on] if this global financial crisis reached bottom," Zhou told reporters when asked if China's slowdown had halted. "This kind of dependence is the most important. Up to now it is still uncertain. We don't know yet."

Zhou said he hoped to meet U.S. Treasury Secretary Timothy Geithner, who was scheduled to attend the IADB summit on March 28.

China caused a stir ahead of the G20 summit when it suggested recently that the world move to greater use of IMF Special Drawing Rights as an international reserve currency.

"I don't think that this will be the question that really will be discussed thoroughly in London," visiting EU External Relations Commissioner Benita Ferrero-Waldner said after talks with Chinese Foreign Minister Yang Jiechi and Vice Premier Li Keqiang on March 29.

Likewise, she said, China's call for a bigger role in the International Monetary Fund (IMF) and other international financial bodies would not be a focus of the summit.

"I think it's too early for us to give a really concrete answer," Ferrero-Waldner said of these calls. "I think it is within the IMF, it is within the international financial institutions, that these questions have to be discussed."

The idea of a new reserve currency system based on the IMF special drawing rights has not been entirely knocked down, but many G20 leaders have made clear that for now the U.S. dollar's status as the dominant reserve unit remains.