Balance Sheet of the G-20 Summit in London


Plusses:

  • holding the Summit at this time and bringing a semblance of unity was crucial in providing leadership to tackle the crisis
  • the boost to IMF resources by 500 bill $ was unexpectedly large and gives the unequivocal institutional winner of the crisis adequate resources for intervention
    • The extra 250 bill $ in Special Drawing Rights boost IMF resources additionally, even though they will accrue disproportionately to countries which might not need them
    • The extra 50 bill $ from the sale of gold by the IMF for poor countries is very welcome
    • The 250 bill $ in trade finance is necessary to unlock some of the impediments to falling foreign trade
    • To install an enlarged Financial Stability Board to work with IMF to provide early warning of macroeconomic and financial risk and reshape regulatory systems is necessary and positive: what it can achieve remains to be seen
  • To extend supervision and regulation to Credit Rating Agencies, hedge funds, other instruments and institutions and all jurisdictions proves good intention, if limited scope
  • To support additional lending by the Multilateral Development Banks of at least 100 bill $ is a positive signal whose implementation remains to be seen
  • To call for stronger representation of emerging and developing countries in IMF and World Bank, to be completed by 2010, resp. 2011, is long overdue

Gaps:

  • It is unclear who shall contribute how much to new IMF resources: some pledges had been made beforehand (Japan, EU to the total amount of around 200 bill $), but no firm commitments for the large “rest” have yet come forth
  • It is unclear who will pay for the additional trade finance and which channels will be used for them
  • It is unclear – and will have to be decided by the Governors of the MDBs to how to increase their lending volumes: will there be capital increases (so far only the Asian Development Bank has definite plans)
  • The division of competencies and labor between the IMF and FSB is open and can lead to frictions
  • On drying out tax havens, a number of G-20 members have not agreed to tackle tax haven regimes within their own countries; in addition, e.g. the easy creation of shell companies in many countries can do as much damage
  • The complete neglect of the fight against climate change defies all claims for a “new world order”
  • New trade finance is necessary, but cannot make up for lack of demand
  • The very sparse attendance of least developed countries (only the NEPAD president and the president of the African Development Bank and the chair of ASEAN were invited) calls into question the legitimacy of the G-20 Summit as the new global governance institution: the inclusion of non-G-20 members Spain and Netherlands increased to preponderance of rich countries
  • No agreement was reached on a deadline for concluding the Doha Trade Round
  • The declarations concerning increases in development assistance and anti-protectionism stand in stark contrast to real developments in both areas: in many OECD countries, ODA has fallen recently, in many G-20 countries new protectionist barriers were erected since the last meeting

Overall Balance

Many positive signals were given manifesting the joint will to combat the crisis; while G-20 (plus additional invitees) is an improvement vis-à-vis the G-7/8 for a, they still lack legitimacy as a new global economic governance institution, especially for lack of inclusion of the poorest countries; it will have to be seen how the promises made will be implemented: who will pay how much, who will move in changing voting rights and quotas in IMF and World Bank. The overall result is more money for important causes, more and tighter regulation of instruments, institutions and jurisdictions, but all this amounts at best to going back to the before-crisis system. In this sense this is mainly a stimulus package, and less a tackling of the roots of the previous economic system.

Such steps will require much more work, more international cooperation, inclusion of climate change measures and social problems into the solutions, a more balanced universal currency system, incentives to eliminate both deficit and surplus situations from countries’ foreign accounts and massive attempts to make income distributions more equitable, both within countries and between countries. For this we need the participation of more inclusive groups of countries, incorporating both rich countries, emerging countries and poor countries from all continents. Economic size cannot be the only criterion. The present crisis which originated in the rich countries shows that all types of countries, in all regions of the world, are massively affected.

 

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4 Comments

Filed under Crisis Response, Global Governance

4 responses to “Balance Sheet of the G-20 Summit in London

  1. We most usually don’t comment on blogs, but your blog made me, great work.. simply unbelievable! The contents are opposite but your Blog & Credit Free Report Blog are definitely both the most favorable I have read to this day. Keep it up.

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  3. kurtbayer

    Natacha
    I agree completely: such summits always produce inflated language – and large numbers. The proof of the pudding is in the eating, so we will have to see: who will pay how much for the IMF, how the SDR augmentation will be accomplished, how the quota in the IMF will be changed (only for China/India, or also for least developed countries), how tax havens will be treated (also those close to the heart of some of the G-20 leading countries), how better regulation of previously unregulated instruments and institutions will be managed, etc.
    But still: some clear messages were given, let us hold our politicians accountable

  4. Natacha

    Very clear analysis.

    I would also share an overall positive assessment.

    However, one additional aspect of the G20 I found – ex post – worth reflecting upon pertains to communication. Overall, we have had an inflation of large-scale and large-scope summits over the past half year, and it is not clear that such events will be able to manage expectations effectively for much longer. In this case, the G20 statement and its accompanying press messages sent simultaneously by the major meeting participants sounded very (over?) polished / optimistic / bombastic. After all, facts will tell whether or not the world is moving further in terms of macro-policy coordination.

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