April 10 , 2009
G20 Consensus on Measures to Revive Paralyzed Economy
Belying predictions of conflict and failure, bridging instead the divide over measures to revive the paralyzed world economy, the G 20 conference in London, representing the world’s largest economies, recommended unanimously on April 2 the measures expected to stimulate world trade, bail out the badly hit economies of developing countries and regulate financial firms more stringently.
The consensus did not however recommend any major shift from the existing paradigm of global economy. Gordon Brown, British PM, convener of the conference, had forecast that the conference might alter the fiscal arrangements laid down in July 1944 at Bretton Woods conference in New Hampshire towards the end of WWII. Thousands of protesters marched in the streets of London attributing the crisis to the excesses, greed in particular, of the corporations dominating world economy and trade. Some economists doubted the efficacy of Keynesian stimuli in the current context. China had called for an alternative to the US dollar as the world reserve currency. Also, it feared that any huge infusion of dollars into the world economic system might cause inflation and a consequent reduction in the real value of its US $1 trillion holdings in Treasury bonds and its other dollar investments worth another trillion.
Despite all such apprehensions and reservations, the conference decided to seek rectification not through a radical shift in the system, which might have proved cataclysmic, but by strengthening and modifying the existing institutions.
Many participants and observers at the conference have complimented President Obama’s skills of communication and canvassing and his team’s spirited negotiations for the laudable outcome. This was Mr. Obama’s first foray in the international field after assuming office. Yet, his modesty, his suave and an exceptional tolerance of dissent presented a sharp contrast from the hubris, self-righteousness and obstinacy of the earlier leadership. He made it quite clear by his conduct that the days of “you are with us or against us” are gone forever. Gone also are the days of Pax Americana when the US made the rules for others to follow. Obama summed up his approach: “It is very important for us to be able to forge partnerships as opposed to simply dictating solutions.” The British Prime Minister, Gordon Brown, aptly remarked at a press conference, “The President (Obama) has changed the way the world saw the US.”
It may be helpful to the readers of this piece if we give first some background of the summit and its aims.
The G 20 is a group of the world’s most powerful countries that together represent 85% of the world economy. The group includes both major industrial powers such as the US and Germany and emerging economies such as China, Brazil and India. It was formed in 1999 at a meeting of G7. Members are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK, US, and the European Union.
The objective of the group is to have “an open world economy based on market principles, effective regulation, and strong global institutions to ensure a sustainable globalization with rising prosperity for all”. Going by this statement, it becomes clear that the chief aim of the conference was to strengthen the existing system of a market/capitalist economy and make it a going concern once more. It would be a folly to think that the decisions have affected “a new Bretton Woods” or “a new global order” as envisaged earlier by the British Prime Minister.
Yet, the summit communiqué places great emphasis on help for emerging market economies instead of steamrolling a purely capitalist agenda. It was, in point of fact, the greed of the corporations and their focus on expanding the margins of profit that led to the exodus of jobs to far off lands and turning China into the manufacturing floor of the world which has led to that country becoming the second biggest economy of the world.
The worst sufferers of this system of globalism have been weak economies like that of Pakistan. The conference took this situation into account and trebled the funding of the International Monetary Fund so that it could provide fiscal support to weak economies to make them productive. The world leaders have committed an additional $1.1 trillion that would greatly enhance the capital available to the IMF mainly for revival of trade.
The next significant and perhaps related decision is about global financial regulation and supervision. Stricter supervision of the fiscal institutions was called for by all concerned quarters.
Another important decision taken is about the anti-protectionist pledge which asks countries to promptly notify the World Trade Organization (WTO) of any protectionist measure noticed, and calls on the WTO to monitor and report publicly, on a quarterly basis, the status in this regard. This decision also lays down that the member countries would refrain from competitive devaluation of their currencies. China’s Yuan is generally believed to be undervalued to make that country’s products cheaper for exports. According to media reports, 17 of the 20 member countries have already placed some such restriction on imports. The US is insisting on the Buy America theme while offering funds to various organizations under its stimulus plan.
The G 20 communiqué recommends some reforms of the international financial institutions. The leaders of IMF and the World Bank and the WTO are likely to be selected on the basis of merit only, and not because of the clout of any power. For instance the US contribution to the IMF works out to 18% of the total, giving it the right to select its chief.
As already mentioned earlier, the G20 summit has made no significant change in the global economy and the fiscal institutions overseeing its parameters. The new dispensations towards Pakistan, under bilateral arrangement, or under international decisions like those in the G20 summit, might serve as palliatives, not as curatives of the basic weaknesses. The capabilities of the current leadership of the country to launch it on the path to progress is clearly open to question. It has a tradition of an aversion to IMF restrictions on the utilization of the funds offered. For, it restricts the subjective use of the IMF funds. The US leadership has recently declared that there would no longer be blank checks. Apart from this weakness, the country is facing an ever-increasing threat of terrorism. While I write this column, news is coming of a bomb blast in Islamabad. Perhaps our security czar is not up to the challenge or he is caught nodding like Homer.
President Obama has succeeded in giving a humane face to globalization by canvassing support at the G20 summit for greatly enhanced fiscal support to developing economies. One hopes that the policy makers in Pakistan will be able to take advantage of the opportunities offered to get the country’s economy going.
