The
all-pervasive economic gloom—rising unemployment, foreclosures and corporate bankruptcies, capped by a forecast of
fall in growth in world economy by 0.8 percentage points to 2.2% by the
IMF—made everyone expect something dramatic to come out of the recent economic
summit of G-20 countries held on 15th November in Washington, DC. Indeed, many
have gone to the extent of calling it ‘Bretton Woods-II’, hoping it would—like
the original meeting held in New Hampshire under the shadow of World War II
that created the IMF and World Bank, fixed exchange rate system, and a body to
oversee world trade—come up with some such dramatic tools.
But such a
comparison sounds silly, though the current summit is equally of paramount
importance for a variety of reasons: first, the whole world is in a great hurry
to somehow contain the financial crisis that the US has created, which has
exploded into a systemic crisis, said to be the worst since the recession of
the 1930s, affecting the emerging economies adversely, that too, for no fault
of theirs, all because the world economy is now so strongly interrelated and
interdependent that what happens somewhere deep inside the financial system of
one country is enough to wreak havoc in another country that lies far off from
it. Second and the obvious fallout of the first expectation is: financial
regulation. The flaws of the existing system have become evident, calling for
the establishment of a new financial architecture that can avert recurrences of
such crises. Third is the disturbing phenomenon of global macroeconomics that
is highly skewed: high savings of Asian and oil-exporting gulf-countries and
Western spending.
And the
comparison, if any, of the current G-20 summit with Bretton Woods meet in 1944
just ends there, for the original was a meeting that lasted for three weeks
backed by two years’ of hard technical preparations involving the likes of Lord
John Maynard Keynes and Harry Dexter White, backed by politicians like Franklin
D Roosevelt and Winston Churchill. Also, at that time, unlike today, the US,
being the only economic superpower in a position to rescue the world economy
from its depths, could maneuver its way, of course with the active support of
Britain, and the rest of the few Western countries that mattered in global
economy fell in line in fixing the woes of the war-torn economy. But today,
there is no single country which can dictate terms to global economy just as
the US did in the 1940s. The very fact that G-20 countries—a mix of developed
and developing countries along with European Union—assembled at the summit,
rather than limiting it to the G-7 club of rich countries to reset the rules of
global finance, is in itself a clear acknowledgment of the fact that today
there are many countries which matter in setting the global economy in order.
But it is too much to expect instant solutions, that too for a problem of such
magnitude, from a gathering of such a large group of Presidents and Prime
Ministers, which hardly had time for preparing for the summit and from a
meeting that lasted for a short span of 5-6 hours presided by a lame-duck
President of the US. No wonder that it could not deliver a satisfying solution
to fix the global financial crisis.
Nonetheless, it
has generated a good debate. Importantly, it has enabled the assembled
countries to realize that the crisis has assumed global scale and therefore it
calls for well-coordinated monetary and fiscal responses of global scale. It is
also realized that in view of the unabated weakness of real economy, despite
the injection of so much liquidity by central banks, there is a need for
well-coordinated fiscal stimulus from all in a big way. There is also a
realization about the need for providing financial resources to developing
countries through the IMF and World Bank, which means, augmenting the resources
of these two institutions. But the big question here is: How to fund them? The
so called rich nations, such as the US and other Western countries who
themselves are in a big fix today, are not in a position to fund them, nor are
they eager to let countries like China and oil-exporting countries to fund
them, for it would weaken their hold on these organizations.
Another
important message of the summit is the need for improving the existing
standards of regulatory framework of countries meant for overseeing financial
markets and aligning them internationally. It is felt that there is a great
need for better multilateral surveillance of both macroeconomic and financial
developments. Members have actively discussed about creating a sort of “collage
of supervisors” to oversee the biggest financial firms which are currently
accused of playing havoc in the market through their ‘regulatory arbitrage’
games. But for it to happen, global politicians must be willing to give up
their craze for sovereignty in favor of a global regulator, which is a far cry
today.
There is also a
message for avoiding ‘protectionism’ by the so-called developed countries, for
it means contraction of exports of developing countries, which will ultimately
slow down the growth in economy, pushing millions of people from these
countries back into poverty. This would also reduce the growth impulses in the
world economy, which is today more interconnected. Hence, it is demanded in
chorus that WTO’s Doha Development Agenda must be concluded at the earliest, or
at least that is what the leaders from the developing world have pressed for,
of course backed by sound economic argument. But unfortunately, in such
political jamborees, common sense often takes a backseat.
However, having
acquired the rightful place in the world forums that sit for fixing the
economic problems, China, Brazil and India must now press for doing what must
be done urgently—creating effective regulations to oversee global financial
markets, and speeding up the talks under the Doha round.
(December, 2008)
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