The London Summit
The London Summit of the G-20 nations has concluded
with a note of optimism. Despite gloomy forecasts and open
differences of opinion between US-UK on one hand and France -
Germany on the other, the Summit was able to produce a consensus
document.
US President Barack Obama called it a “turning point” in the
pursuit of global economic recovery.” French President Nicolas
Sarkozy said the results of the Summit were “beyond what we
could have imagined.” German Chancellor Angela Markel described
the agreement as an “historic compromise.”
The credit for this “historic compromise” should go to the
affable US President for bridging the gap between the diverse
standpoints of the interlocutors. It was his tact and diplomacy,
his individual meetings with those who differed that produced
the consensus.
The “historic compromise” included agreements to treble
resources available to the IMF to $ 750 billion, to support a
new SDR allocation of $ 250 billion, to support at least $ 100
billion of additional lending by the MDBs, to ensure $ 250
billion of support for trade finance and to use the additional
resources from agreed IMF gold sales for concessional finance
for poor countries, to constitute an additional $ 1.1 trillion
program of support to restore credit, growth and jobs in the
world economy.
Recognizing major failures in the financial sector and in
financial regulation and supervision as a fundamental cause of
the crisis the G-20 leaders agreed to strengthen the domestic
regulatory systems and to create a new Financial Stability Board
(FSB) to provide early warning of macroeconomic and financial
risks and the actions to be taken.
They also decided to regulate hedge funds for the first time
and extend regulatory oversight and registration to Credit
Rating Agencies to ensure they meet the international code of
good practice, particularly to prevent unacceptable conflicts of
interest.
The G-20 also ledged to modernize and reform the
international financial institutions to give more weight to
developing nations. They also pledged to develop the Doha Round
of negotiations. There was also a pledge to reach agreement at
the UN Climate Change Conference in Copenhagen in December 2009.
Sri Lanka would welcome the Summit for it strengthened the
IMF, to which we could go for redress in a crisis. The new SDR
allocation of $ 250 billion would also come in handy for
developing countries such as ours as to stimulate their
economies.
For the IMF itself the G-20 agreement would give a new breath
of life as many nations were shying away, having lost confidence
in it. However, if the additional funding to the IMF is to
become a boon for the developing world, the leadership of the
IMF needs to be changed drastically.
The United States holds almost 17 percent of the votes in its
governing body and for important decisions an 85 percent
majority is necessary. In actual fact, this gives the US a veto
power in the IMF. The same is true of the World Bank too.
As the ILO has commented the larger issues of unemployment
and loss of jobs have not received the required attention of the
Summit. Nor has it been able to define the nature and tasks of
the proposed Financial Stability Board (FBS).
Though the G - 20 outcome is better than expected, it falls
far short of the expectations of billions of people in the Third
World. The question of a New World Economic Order is as distant
as it was earlier.
In fact, the entire African Continent was not represented
except for South Africa. As the United Nations panel of experts
headed by Nobel Laureate for Economics Joseph Stiglitz has noted
G-20 is not a sufficiently representative forum to re-fix the
global economy.
The developing world, no doubt would be pursuing their own
prescriptions and experiments to get out of the quagmire they
have fallen into as a result of the folly of the developed
world.
It was not so long ago that the Association of South East
Asian Nations decided to group with China, Japan and Korea to
form an Asian Monetary Fund. In Latin America the Bank of the
South was established to function as a regional monetary fund.
At best the Summit has only a limited but positive strategy
to generate economic resurgence in the developed countries; any
positive effect on the developing world is only indirect. Even
there it is to be seen whether the G-20 could get the ailing
banks out of the crisis and whether it could halt mass layouts
of workers and prevent industry closures.
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