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Monday 28 September 2009
The G-20’s coming out party
Now it’s official, and in black and white. The Group of 20 (G-20) will be the world’s economic steering committee, replacing the old all-rich club the G-7.
It takes over the mantle from G-7 and reflects the new realities better
By VIKRAM KHANNA 28 September 2009
Now it’s official, and in black and white. The Group of 20 (G-20) will be the world’s economic steering committee, replacing the old all-rich club the G-7.
‘Today, we designated the G-20 to be the premier forum for our international economic cooperation,’ said the G-20 leaders’ statement issued at the close of the Pittsburgh summit over the weekend.
British Prime Minister Gordon Brown underlined the break from the past.
‘The old system of international economic cooperation is over,’ he declared. ‘The new system, as of today, has begun.’
Under the ‘new system’, the people sitting around the table represent a total of 42 countries (19 individual G-20 members, including several emerging-market nations, plus the European Union, which has 27 members, four of which are individually represented in the G-20). Unlike the G-7, the G-20 membership covers all continents, accounts for more than 85 per cent of global gross domestic product (GDP) and over two-thirds of the world’s population.
To be sure, the passing of the baton from the G-7 to the G-20 was more the result of realism than a sudden conversion to inclusiveness. When the G-20 was launched in 1999, after the Asian crisis, it was recognised that the global economy had changed. It has since changed even more. Today, it makes no sense to talk about, for instance, exchange rate misalignments without China being at the table. Or of climate change without China, India, Brazil and Indonesia. Or of global imbalances and trade without the world’s big current-account surplus countries in Asia and the Middle East. Finance, too, is global now: Which explains why Singapore, a major financial centre, was also represented at Pittsburgh. Even the European Union gets represented at the G-20, as it should; it wasn’t at the G-7.
And then of course there was the global economic crisis of 2008: Made in America but global in its impact, and requiring a global response. The G-7 is not dead, but it is simply not big enough to deal with the big issues of today.
So far, the G-20 has had a decent showing. In its early years, it championed initiatives to combat money laundering and financing terrorism. But its finest hour came during the London summit in April this year, during the depths of the great recession, when it agreed to triple the resources of the International Monetary Fund (IMF) to US$750 billion to help combat the crisis, provide vital support for trade financing at a time when trade had collapsed and increase lending by multilateral development banks.
The concerted fiscal expansion that has taken place over the last six months also got some of its impetus from the collective resolve of the G-20.
Even cynics who usually deride high-level meetings of national leaders as photo-ops full of empty talk were positively surprised at how substantive the London summit turned out to be.
As for whether the same can be said of the just-concluded Pittsburgh meeting, the jury is still out.
The G-20 leaders committed themselves to some actions that would strengthen the global financial system. They agreed to set tougher capital and risk-management standards for banks, and to align executive compensation systems more closely with long-term performance.
They also resolved to start a process to help unwind global imbalances and to increase the voting power of developing countries at the IMF.
But whether this will be enough, or even achievable, is moot: Higher capital standards will help, but they do not address the issue of what to do about institutions that are deemed too big to fail, which lay at the heart of the crisis. Executive compensation reforms will be - are already being - fiercely resisted by the financial industry. There already has been a process at the IMF to deal with global imbalances, but it has got nowhere; countries are loath to change their economic models, especially when they are recovering. And the shift of voting power to developing countries - by ‘at least 5 per cent’ according to the G-20 statement - is too small to be meaningful.
Besides, there is no enforcement mechanism for any of the G-20’s commitments. As with the decisions of the G-7, these are, at best, statements of intent.
But at least they are statements made by a grouping that can more credibly claim the mantle of the world’s economic steering committee.
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The G-20’s coming out party
It takes over the mantle from G-7 and reflects the new realities better
By VIKRAM KHANNA
28 September 2009
Now it’s official, and in black and white. The Group of 20 (G-20) will be the world’s economic steering committee, replacing the old all-rich club the G-7.
‘Today, we designated the G-20 to be the premier forum for our international economic cooperation,’ said the G-20 leaders’ statement issued at the close of the Pittsburgh summit over the weekend.
British Prime Minister Gordon Brown underlined the break from the past.
‘The old system of international economic cooperation is over,’ he declared. ‘The new system, as of today, has begun.’
Under the ‘new system’, the people sitting around the table represent a total of 42 countries (19 individual G-20 members, including several emerging-market nations, plus the European Union, which has 27 members, four of which are individually represented in the G-20). Unlike the G-7, the G-20 membership covers all continents, accounts for more than 85 per cent of global gross domestic product (GDP) and over two-thirds of the world’s population.
To be sure, the passing of the baton from the G-7 to the G-20 was more the result of realism than a sudden conversion to inclusiveness. When the G-20 was launched in 1999, after the Asian crisis, it was recognised that the global economy had changed. It has since changed even more. Today, it makes no sense to talk about, for instance, exchange rate misalignments without China being at the table. Or of climate change without China, India, Brazil and Indonesia. Or of global imbalances and trade without the world’s big current-account surplus countries in Asia and the Middle East. Finance, too, is global now: Which explains why Singapore, a major financial centre, was also represented at Pittsburgh. Even the European Union gets represented at the G-20, as it should; it wasn’t at the G-7.
And then of course there was the global economic crisis of 2008: Made in America but global in its impact, and requiring a global response. The G-7 is not dead, but it is simply not big enough to deal with the big issues of today.
So far, the G-20 has had a decent showing. In its early years, it championed initiatives to combat money laundering and financing terrorism. But its finest hour came during the London summit in April this year, during the depths of the great recession, when it agreed to triple the resources of the International Monetary Fund (IMF) to US$750 billion to help combat the crisis, provide vital support for trade financing at a time when trade had collapsed and increase lending by multilateral development banks.
The concerted fiscal expansion that has taken place over the last six months also got some of its impetus from the collective resolve of the G-20.
Even cynics who usually deride high-level meetings of national leaders as photo-ops full of empty talk were positively surprised at how substantive the London summit turned out to be.
As for whether the same can be said of the just-concluded Pittsburgh meeting, the jury is still out.
The G-20 leaders committed themselves to some actions that would strengthen the global financial system. They agreed to set tougher capital and risk-management standards for banks, and to align executive compensation systems more closely with long-term performance.
They also resolved to start a process to help unwind global imbalances and to increase the voting power of developing countries at the IMF.
But whether this will be enough, or even achievable, is moot: Higher capital standards will help, but they do not address the issue of what to do about institutions that are deemed too big to fail, which lay at the heart of the crisis. Executive compensation reforms will be - are already being - fiercely resisted by the financial industry. There already has been a process at the IMF to deal with global imbalances, but it has got nowhere; countries are loath to change their economic models, especially when they are recovering. And the shift of voting power to developing countries - by ‘at least 5 per cent’ according to the G-20 statement - is too small to be meaningful.
Besides, there is no enforcement mechanism for any of the G-20’s commitments. As with the decisions of the G-7, these are, at best, statements of intent.
But at least they are statements made by a grouping that can more credibly claim the mantle of the world’s economic steering committee.
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