I have to admit I was less than enthusiastic about 19 world leaders landing in Washington, DC on November 15 to discuss the global economic meltdown, which is, basically, a show of what capitalism does best: trickle down from its American epicenter to emerging economies.
The U.S. was barely crawling out of a prolonged presidential campaign. President-elect Barack Obama -- whose administration will decide where the world economy will go next -- wasn't going to attend it, and he hadn't picked a treasury secretary to do the job either. With a Detroit bankruptcy looming large and over 10 million already out of job in America, who's thinking about fixing global business right now?
After briefly being touted as the second Bretton Woods --- the historic 1944 world economic meet that transformed international finance and gave birth to the International Monetary Fund and the World Bank -- the D.C. summit was expected to provide no more than a photo-op for an outgoing president, at best a chance to demand a new financial world order that could use some serious oversight.
To give a taste of how expectations from the summit were nowhere near "earthshaking", here are a few gems:
Political commentator Chris Weigant at The Huffington Post:
...[N]obody expects it to come up with anything even close to the same magnitude of what happened in Bretton Woods. Nobody sane, that is. So please, media types, don't call it what it's not. Let's have some truth in advertising here. Call it "Desperate Bush Lame-Duck Photo-Op With World Leaders Who Would Really Rather Be Talking To Obama," if you have to slap a label on it. Because that's a lot closer to what it's going to be.
As committees to save the world go, Saturday's Washington confab of the Group of 20 world leaders may be the most poorly timed in history. In their wisdom, the politicians have decided to meet to solve the world's financial troubles smack in the middle of a U.S. Presidential transition.
All of which makes the meeting a wonderful forum for other national leaders to grab the limelight of statesmanship, real or imagined.
So, was there a point to it?
If anything, this summit indicates how intricately woven world economies are today. The days of G7/G8 may be waning. Given how quickly a financial breakdown in the U.S. can affect economies worldwide, emerging economies will have to be part of any global economic and financial solution. China announced a $586 billion stimulus package for its slowing economy, and Japan and the Eurozone are in recession.
India is still growing, but at a slower clip amidst fears of a further slowdown as the rupee falls and markets crash. The central bank (Reserve Bank of India) is already cutting rates and pumping more money into the system. The country even followed up with its own economic summit soon after Washington, DC.
We are too intertwined globally to think exclusively locally.
What came of it?
That depends on what your expectations from such a summit are and where you come from. In spite of the common pain of a crisis, countries have their own thoughts about what works best, so negotiations will always be tough. You can read the complete summit Declaration here. It's a delicate balance between world cooperation and sovereignty, between more regulation and free markets.
For one, the G20 -- originally a group of finance chiefs of various countries -- have agreed to meet again in April next year to take stock of the progress made. That's a start.
What stood out to me as most significant in terms of global thinking on how the finance world should work, were:
a) Emerging economies will have a greater role and say in how the world does business (from Summit Declaration):
Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership.
b) While the need for stronger, more effective regulation is clear, the G20 summit made sure to uphold the principals of capitalist principals:(from Summit Declaration)
We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.
Of course, there are skeptics, and that's not a bad thing. It will keep think-tanks and the rest of us on our feet.
India's finance minister said the Group of 20 nations will be the top economic forum for the future but he is concerned that no mechanism exists to oversee an economic action plan agreed by world leaders last weekend.
Chidambaram said he was concerned there was no accord on some kind of global oversight of the plan's implementation because some countries might lag behind.
"I would have liked a global oversight mechanism -- not a global regulator, just a global oversight mechanism -- to ensure national regulators and national authorities are implementing the action plan between now and March 31," he said.
David Gaffen's blog post at WSJ, well, trashes the summit, pretty much:
And the G-20 this weekend pledged to…well, we’re not really sure. The G-20, which is really the G-7 plus a number of other less influential nations, pledged this weekend to push for more market transparency, stronger regulation, use fiscal stimulus, continue their “vigorous efforts and take whatever further actions are necessary to stabilize the financial system,” and basically keep telling everyone to be careful out there.
If it sounds like a whole lot of nothing, that’s because it is. “This was a poor effort where the team turned up but did little else except chat,” writes Paul Mortimer-Lee, economist at BNP Paribas. “The answers given were vague and waffly and aside from a promise to try harder next time, little was achieved.”
The message from this G-20 summit is clear: We must take immediate steps that will prevent the next boom from getting out of hand. But even if these are reasonable objectives, we are now far from worrying about a reckless boom. Slamming the brakes on financial institutions--through precipitate tightening of regulation--is a bad idea when the world economy is tumbling into deep recession.
Overall, however, the result was useful. The G20 countries all promised to undergo a rigorous financial health-check by the IMF (something which several, including America, have long sought to avoid). But this was not a grand manifesto. Instead it was a realistic document that acknowledged the tension between a globalising capital market and national regulation. There were no great new ideas about financial regulation. Instead, the G20’s to-do list included many of the sensible reforms—on everything from bank capital to credit-rating agencies—that have become conventional wisdom or are already under way.
Lee Kachroo (at Lee's Dhaba) feels India shouldn't have attended the summit at all
Lee Kachroo also did some number crunching at the India Political Blog
Daniel Drezner's Blog (link via The Daily Dish)
Time Magazine's China Blog
'What G20 Leaders Must Do To Stabilise Our Economy' (Link via The Economist)
Tan Kin Lian's Blog
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