High Stakes, Modest Outlook for G20
Analysis by Abid Aslam
WASHINGTON, 30 Mar
Talks on the global economic crisis, to be held Thursday, could prove a timely reminder of the perils of hype.
Gordon Brown, the British prime minister and host of the Apr. 2 Group of 20 (G20) leaders' summit in London, had promised the session would produce a "global New Deal" to pull the world out of its economic tailspin.
Potentially significant agreements to grease the gears of global trade and to expand the International Monetary Fund (IMF) likely will be announced. For the most part, however, leaders likely will gloss over fundamental and persistent differences, leaving these to their finance and central bank chiefs to sort out. Instead, Brown et al will seek to present a united front in a political exercise aimed at assuring markets and consumers.
Indeed, government spokespersons are busy letting some of the air out of the public-relations balloon in an apparent bid to align public expectations with the summit's prospects, aptly invoked by that well-worn bureaucratic term of art, "incremental change".
"We're not going to see the world economy turned around on Apr. 3," says Mark Malloch-Brown, a minister in the British foreign office. "Maybe it'll be seen as the beginning of the end of the crisis and the moment where leaders were able to galvanise a new direction and a new authority."
Not that the stakes have diminished since the leaders met here last November. Millions of jobs have been lost and millions more sit on the chopping block. More than a hundred million people have been pushed below the international poverty line of two dollars a day and tens of millions more stand on the cliff's edge.
"There is not much time for world leaders to get their act together," says Katinka Barysch, deputy director of the Centre for European Reform (CER), a London-based think tank. "The G20 heads of state and government must now focus on two things: how best to work together to prevent an even deeper global recession and how to avoid future crises of such magnitude."
Mike Froman, U.S. deputy national security adviser for international economic affairs, outlines the summit's priorities thus: "Putting in place significant stimulus to get growth going again; secondly, fixing each of our financial systems to get lending flowing; third, avoiding protectionism; and fourth, taking steps to minimise the spread of the crisis to emerging markets and developing countries."
On each of these issues, deep divisions remain.
The United States and Britain continue to cajole Europe and Japan to increase domestic stimulus spending in order to boost global demand for goods and services. Their governments have ploughed far smaller portions of national income into stimulating the economy than have Washington, London, and Beijing but they have bridled at the pressure to do more. Germany, France, and others counter that they would rather see sums already spent take effect before throwing future generations further into debt.
U.S. and British officials say they remain convinced that far more needs to be spent to reverse the recession but they have decided to back off. Spokespersons for President Barack Obama now stress that, as a bloc, the G20 has committed a sizeable 1.8 percent of gross domestic product to stimulus spending. David Milliband, the British foreign secretary, says Britain and the United States will not push other G20 members to announce specific spending pledges on Thursday.
This accommodation owes much to diplomatic imperatives. It also comes amid doubts about London's and Washington's ability to sustain more deficit spending: The Bank of England has warned Brown that his budget already is too high and Beijing has begun to assail Washington's creditworthiness as government borrowing skyrockets.
On other key issues, too, the G20 appears hobbled.
Europeans stress the need to overhaul business regulation across the globe to prevent the chicanery that sparked this crisis and the systemic failures that allowed it to spread so widely and stealthily. Embarrassed by the conduct of bailout recipients and singed by public anger over corporate opulence, their U.S. counterparts have chimed in about the need to improve coordination between countries and impose greater accountability on players. The Europeans, however, seek farther-reaching changes in the nature and rules of the global financial game.
G20 leaders have declared a unanimous commitment to keep trade open and to quash protectionism. A deal to provide financing critical for international commerce likely will be announced in London and could provide key relief to export-dependent advanced and developing economies. Yet, according to the World Bank, 17 of the 20 have thrown tariffs and other barriers in the path of foreign goods and services since the crisis began.
G20 members - Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States, and the European Union (EU) - account for 80-plus percent of the world's economy and about two-thirds of its population.
The heads of the United Nations, World Bank, and IMF also will be on hand Thursday to plead for the world's fragile economies and poor people and, by extension, their own institutions. The IMF could double its money, and not a moment too soon: Lending has surged in the past six months, as have calls for the fund to increase surveillance of member economies.
Brazil, China, India, and other up-and-coming players have said they will support this expansion so long as they and poorer counties are given more influence over the IMF. If this happens, the fund could emerge from the crisis not only with a new lease on life but with some measure of the political legitimacy many of its shareholders have long said it lacks - and which it needs to succeed in its expanded role as global financial watchdog.
Here, too, significant change remains to be seen. Lip service notwithstanding, Western powers "have appeared less willing to redress their own over-representation in international financial institutions," says Barysch of the Centre for European Reform.
China also has questioned the stability and sustainability of the U.S. dollar as the world's dominant reserve currency, saying it would favour a basket of currencies based on IMF special drawing rights.
On this as on the issue of burnishing the IMF's multilateral credentials, Western officials say, significant movement is not imminent.
"I think it is within the IMF, it is within the international financial institutions, that these questions have to be discussed," Benita Ferrero-Waldner, the European Union (EU) commissioner for external relations, told the Reuters news agency Sunday after talks with senior Chinese officials in Beijing.
Nevertheless, G20 leaders are expected to endorse IMF expansion as many favour using the institution to pump money into the global economy rather than increasing domestic spending and with it, national debt. Some members also have a visceral stake, as they may need to turn to the fund to stave off insolvency.