As the worst financial crisis since the 1930s continues, a call for international financial reform has been dominating headlines for more than a year.

More obstacles, including the coordination of reforms, have begun to emerge despite the resumption of economic growth.

Charles Dallara, managing director of the Institute of International Finance (IIF), says coordination was crucial to successful international financial reforms, one of the key issues to be discussed by the Group of 20 (G20) leaders here later this week.

"It is very difficult to coordinate, and yet it is central," Dallara told Xinhua in an interview.

ECONOMIC SITUATION CHANGES

When the G20 leaders met in Washington last November, the world financial system was on the brink of a meltdown. Five months later in London, the leaders faced an ever-deepening global recession and the real risk of its worldwide spread.

Now, another five months have passed, and the leaders are gathering in Pittsburgh for their third meeting within a year. This at a time when the world economy has resumed growth, and global financial markets remain stable.

U.S. Federal Reserve Chairman Ben Bernanke announced last week that the recession was "very likely over."

Now, the focus of the G20 meeting is how to get out of the financial mess and return the world's economy to sustainable growth.

OPTION: EXIT STRATEGY

As the economy recovers, G20 leaders will pay more attention to the option of an "exit strategy," former Undersecretary of the U.S. Treasury Department Tim Adams said.

Since the outbreak of the financial crisis, the world's major economies have carried out a series of measures to save the market, including low interest rates, nationalization of banks and the implementation of easing policies.

Emerging signs of recovery are pulling central banks and governments out of market intervention. Analysts have pointed out that governments need to make sure their exits were well-timed because the basis of the recovery was not firm, and the credit situation had not shown obvious improvement.

In a report released on Monday, the International Monetary Fund (IMF) acknowledged various exit models for public sectors. The IMF stressed that restored confidence in financial institutions and market health should be a common goal.

AGENDA FOR FINANCIAL REFORM

There is no doubt that international financial reform will be on top of the agenda at the G20 summit.

Firstly, regulatory reform is a key issue. A lack of regulation is one of the causes behind the global financial crisis. The G20 summit that started here Thursday aims to tighten regulations in order to ensure that a similar crisis does not happen again.

Higher liquidity standards, capital ratio, leverage ratios and consumer financial protection are key regulatory issues among others.

However, as some experts proposed expanded regulation to cover the entire financial system, instead of single banks, others worried that such expansion may lead to higher costs, lower creativity and systematic fragility.

Secondly, restrictions on bankers' bonuses also draw wide attention.

From the Europeans' perspective, the G20 should restrict bankers' bonuses, believed to be an effective way to reduce risk. In their view, bankers' bonuses should be linked to the long-term performance of the financial institutions they manage.

Part of bankers' bonuses, the Europeans argue, must be deferred over an appropriate period of time and can be canceled in case of a negative development in the bank's performance. Stock options should also be prevented from being exercised for an appropriate period of time.

On the U.S. side, the Federal Reserve and the government propose to limit bankers' income. However, the standards of both sides are different.

Thirdly, reform of the administration of international financial institutions, such as the quota reform of the IMF, is driven mainly by the emerging economies. Developing countries believe that the IMF's quota-based governance was mismatched with that of the world economic powers because the developing world's proportion has been increasing dramatically.

In an interview with Xinhua, He Jianxiong, executive director representing China at the IMF, said that major irrationality in the global financial system was reflected by the lack of clout of developing countries and rising market economies. This gave too much power to the developed world.

Developing countries and rising economies' proportion of decision-making rights rose only five percent in the past 30 years, and the imbalance had been detrimental to the IMF's judgment, He said.

Fourthly, the dollar's status as the world's key reserve currency is questionable. Many economists believe that the dollar is one of the major reasons behind the unstable world financial market.

Since the U.S. government is still implementing a quantitative easing monetary policy to pull the economy out of recession, many economists are more concerned about a plunge in the value of the dollar after the crisis.Some emerging economies such as China have called for an alternative reserve currency for the dollar.

Despite the focus on international financial reform, there are voices of caution.

Jaime Caruana, general manager of the Bank for International Settlements (BIS), warned Monday that the financial sector could not afford to slip into complacency because of market rebounds after the worst global downturn in decades.

The BIS chief said that banking reform should be an evolution, not a revolution.

GLOBAL COORDINATION ESSENTIAL

As the U.S. and world economies begin to recover, some experts say the political awareness of international financial reform was reduced, and that even the G20 was no longer needed. At this moment, global coordination was essential.

True, it is hard to reform the financial system on a global basis. However, the necessity remains.

"It is challenging to get 20 different countries to agree on very complex issues. However, I think it is good to continue this discussion at this level. Maybe they don't need to meet three times a year. But I think we should keep the political leadership in a political class," Tim Adams told Xinhua.

Adams, now managing director of the Lindsey Group, noted that it was challenging to get different participants with different experiences and different regimes to come to the table and agree on very complex issues.

As for the IMF, any reform aimed at giving more influence to developing nations would be regarded by developed countries as a threat to their acquired interests, He believed.

Higher and broader participation of developing countries was a major point in the international financial reform, and was also undoubtedly a sticky point, He said.

The IIF said that international coordination of reforms would be essential, given the global nature of financial markets. National authorities, the IIF added, should roll back uncoordinated emergency measures that had contributed to fragmentation of the global financial system.

Despite the G20's commitment to global coordination at the London Summit, the strengthening of the international financial system is being put at risk because governments have been introducing regulatory measures with a decidedly national orientation and without close international coordination.

"Only the G20 has the authority to mobilize coordinated action to address this challenge to the global financial system," the IIF said. "We would urge G20 leadership in commissioning a major effort to carry this forward, and the private sector stands ready to assist in such a crucial project."

The G20 leaders may applaud the end of the recession, but they know that hard work to reshape the financial system still lies ahead.

Undoubtedly, there are uncertainties. But one thing is certain: Political awareness of coordination will determine the future of international financial reforms.