G-20 has to succeed
THE G-20 was created last year after the global economic system went into a tailspin. Initially, there was some doubt about its possible effectiveness. The latest summit in Pittsburg, USA however appears to have set aside such anxiety and has demonstrated its emergence as an important international ball player as far as tackling economic and financial issues is concerned.
This was possible due to their ability to coordinate and cooperate. It is true that the variety of its membership (includes 19 nations and the European Union, represented this time in the summit by its president -- Sweden) makes reaching agreement (on issues like the setting of exchange rates) more complex. However on the flip side, one may note that it also allows a more wide-ranging approach to the solution of financial questions as they account for 90 per cent of the global economy.
The Group met in Washington last October, ignoring the fact that President George W. Bush would be out of office within months and built a plan, calling it "The Washington Action Plan." By the London meeting at the beginning of this year, hundreds of billions of dollars had been spent and the leaders met to coordinate how their ambitious plan was performing. In London they agreed to give more money to the IMF and pledged more cooperation. Some analysts at that time noted that they had no choice given the fact that there was every possibility that the evolving financial scenario could have led to Asia decoupling itself from US and European economic matrix.
Several positives have emerged from the Pittsburg meeting. They include the following --that developing nations will assume at least five per cent of voting rights at the International Monetary Fund, that international accounting authorities will come up with a global standard by June 2011 to ease variations among major economies, that governments should eliminate tax havens by March 2010 or face consequences and that the Group will initiate a system of peer review where economists in each member nation can advise on policies in the others. The meeting in Pittsburg appears to have also agreed that it is too soon to take away the stimulus that is keeping developed economies afloat (needed for sustainable and balanced growth). There was also common realization that the members of the Group will have to coordinate their exit strategies when that time arrives.
I believe that the emergence of the G-20 has been a natural corollary of the G-7-established more than three decades ago. During this period the G-7 consisting of the United States, Britain, Canada, France, Germany, Italy and Japan were the leaders. During the Clinton years, Russia was gradually added, not because of the size of its economy, but to help integrate it with the West after the dissolution of the Soviet Union. The primary purpose of this smaller Group was to discuss security issues. A bigger Group has now surfaced because of the economic and financial meltdown.
Some have suggested that it might have been preferable to have had a slightly smaller group consisting of the G-7 countries, Brazil, India, Russia, China, South Korea, Mexico and South Africa. That would have made it G-14. They argue that leaving out Australia, Argentina, Indonesia, Saudi Arabia, and Turkey would have still left the smaller Group representing more than 75% of world GDP and with a more manageable number of countries.
I do not agree with such an assumption. I think that the presence of energy-rich Saudi Arabia, natural resources-endowed Australia, Indonesia and Argentina and moderate Turkey has added to the scope and quality of the Group.
In fact I believe that there is every reason for another country to be added to the list of G-20. Time has come for the LDC group of countries to be represented more meaningfully not only in international financial institutions but also in policy related groups. Those within the G-20 should seriously consider including a representative from the (more than 50-member) LDC group of countries. That would assist in taking into consideration the needs and priorities of the countries while planning steps for future guidance of the global economy through trade facilitation measures and for knocking down barriers in areas like agriculture and business services. This would be recognition of the existing economic reality. The country to represent LDC interests could be selected through an election from within these countries. Such a representative could serve within the G-20 for a non-renewable term of four years.
Formation of the G-20 has been a step in the right direction but this Group still has a long way to go. There are tensions just underneath the surface that have to be ironed out.
Japan, the second largest economy, will not quite like the special importance being given to its rival China. It may be recalled that there is a historical friction between these two countries that has led to China scuttling Japan's goal of being a permanent member of the United Nations Security Council.
There is also the need to find an economic balance in terms of strategy between the 'high savers' (symbolized by China and Germany) and the 'high spenders' (symbolized by the USA). China has in recent months tried to stimulate her economy with subsidies but one will have to wait and see whether this will focus only on the domestic industry or will also include spending on foreign manufactured goods and services. Imposition of punitive tariff by USA on Chinese tires might not help. The same will apply in the case of a cautious Germany with its new leadership configuration.
The last item that is creating ripples in the G-20 pond is the idea of having a new reserve currency, being actively promoted by China. Others within the G-20 have not given this issue special attention. The International Monetary Fund has also been very careful in this regard. Nevertheless, this question is very much on the burner. In the meantime, China has not hesitated to enter into currency-swap fiscal agreements (with Argentina) with her national currency being the basis for transaction.
Canada will be hosting the G-20 and the G-8 summits together in June next year. After that it will be South Korea's turn. The months ahead will hopefully bring in the requisite solutions. Pittsburg has set difficult targets but they have to be met. Otherwise, it will affect the credibility of the G-20.
Muhammad Zamir is a former Secretary and Ambassador and can be reached at [email protected]
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