Rich man, poor man
WHILE economies around the world continue to be in turmoil, the leaders of rich industrial nations and "emerging economies" met in Toronto on June 25-27.
There were actually two separate summits. The rich man's club, better known as G 8, met on June 25-26. The other, known as G 20, which is a forum of G8 plus 11 "major economies" and the European Union, met on June 26-27.
Originally, this forum of 20 members was formed in 1999, at the level of finance minister and central bank governor, to tackle the Asian financial crisis (1997).
It was not until December 2008 that the leaders of G20 were invited to Washington by President George Bush for a summit meeting to discuss ways to deal with the devastating recession that had spread worldwide at that time. It met for the second time in London in April 2009 and again in Pittsburg in September 2009. Canada hosted the fourth summit in Toronto.
The Pittsburg summit had set up the International Economic Council, which was mandated "to reform and sustain the global economic and financial system." It was with this mandate that the Toronto summit focused on recovery from the global economic and financial crisis and reviewed the implementation of commitments made at the London and Pittsburg summits.
The composition of G20 is rather unusual. It encompasses all the five continents and accounts for over 85% of world GDP. 80% of world trade is controlled by them. 65% of the world's population lives in these countries. Interestingly, not all the eleven "emerging market economies" chosen to participate have attained the same level of development. They were invited because they have positive economic growth and have large markets, some with large trade surpluses.
At both the G8 and the G20 meetings leaders were pitched in an engaging debate over how to tackle the recession. All the members acknowledged that their economies were slowly peeping out of recession and showing signs of growth that remained largely uneven and fragile.
The developed countries, burdened with massive debts and deficits, had opposing views on government spending. The European leaders said that they had to withdraw the economic incentives to balance their accounts. They had to reduce their debts and budget deficits by curtailing government spending and raising taxes.
The Americans stressed that "strengthening the recovery is the key," and any exit of government spending at that stage would jeopardise the recovery and could result in double-dip recession. Government spending was vital to create demand and employment, they argued. The Chinese agreed with the Americans.
Both the views were accommodated in the Final Declaration of G20 Summit -- saying "these [fiscal tools] will be differentiated and tailored to national circumstances." They, however, agreed to halve their budget deficits by 2013 but did not mention anything about their massive debts.
The Declaration emphasised the need to develop a framework for strong, sustainable and balanced growth. It identified four pillars for reforming the financial sector -- strong regulatory framework, effective supervision of financial markets, resolving problems of "systemically important financial institutions," and transparent international assessment of financial institutions. Clearly, the banks and financial institutions in the developed world are going to come under strict surveillance.
The G8 Declaration dealt with security issues. The leaders were "profoundly concerned" with Iran's nuclear program. They "deplored the attack" on a South Korean warship by North Korea and "condemned" the killing of sailors, and expressed "gravest concern" over North Korea's nuclear and missile tests.
On Palestine, the leaders said that the blockade of Gaza by Israel was "not sustainable and must be changed," but refrained from suggesting what that "change" would be. The Declaration, however, emphasised that "Israel's security concerns must be safeguarded."
G20 summits have become a biannual event. They will meet again in November this year in South Korea. G8 will meet again in France around the middle of 2011.
Though G8 claims that it works in "partnership with the international community," there are some questions. Through its "outreach" sessions it consults representative countries from different groups and continents.
This year, Canadian Prime Minister Stephen Harper invited Algeria, Egypt, Ethiopia (Chair of NEPAD), Malawi (Chair of African Union), Nigeria, and Senegal from Africa. Colombia, Haiti, Jamaica were invited from South America and the Caribbean. Evidently, there are no criteria for inviting the "outreach" countries.
If the Millennium Development Goals (MDGs) have to be achieved by 2015, to which the G8 is committed, then representatives of Least Developed Countries (LDCs) and G77 could have been invited to make the discussions more inclusive.
It is undeniable that the LDCs are continuously struggling for basic needs such as food and energy. These two large groupings are well recognised by the United Nations, where they make substantial contributions.
The formation of the G8 and G20 has effectively sidelined the United Nations. At a time when the United Nations ought to have been playing a crucial role in addressing the economic problems facing the world, G20 huddled together to find solutions that are neither legal nor obligatory in nature. Whatever actions are taken by the rich nations will affect the LDCs profoundly. But if the UN took the same measures they would at least have the sanction of legality.
The recession has changed all economic theories. The leaders on both sides of the Atlantic seem to have made a pig's breakfast of two major economic theories. Keynesian economics advocates that governments should intervene during economic downturn, while the (Milton) Friedman model strongly opposes government interference in financial markets.
Past G8 summits had made tall commitments, but could not deliver. At the Gleneagle Summit (2005) the G8 promised to raise $50 billion for Africa. Only $20 billion have so far been disbursed. The summit at L'Aquila, Italy (2009) committed $22 billion for food security, out of which $ 6.5 billion have so far been raised.
One hopes that the rich man's club will deliver on its promises. Whatever theory they follow, they should ensure a stable economic system that will helps the poor countries to move on the path of development.