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The G20 Summit

24 April, 2009, Jayati Ghosh

The much-hyped G20 Summit was supposed to save the world economy from imminent collapse, and provided much-needed relief to developing countries hit by an economic tsunami that was not of their own making. Even before the summit was held, it was already being hailed as the first sign of a changing global order, since at long last some large and economically significant developing countries like China, India, Brazil, South Africa and Argentina were admitted to the ''high table'' of the self-appointed rulers of the world. 

Though the G-20 is somewhat larger than the G-8, and now accounts for the majority of the world’s population, it is still an illegitimate grouping, in that it completely bypasses the United Nations. Even so, there were those who believed that, given the urgency created by the global economy apparently in near collapse, it could be the harbinger of a new ''Bretton Woods'' agreement that would reshape the international financial architecture, much in the way that the famous conference held at Bretton Woods in 1944 managed to do. 

Of course, we should have all known that this was not likely, not only because lack of adequate preparation before the Summit as well as lack of legitimacy and representation from all nations, but simply because there is still too much disagreement about most issues among the members of G-20. Even so, the resulting communiqué released with so much fanfare is deeply disappointing, and particularly so for developing countries. 

In fact, there were precious few signs that the major players in the global economy would act together to revive it. Instead, in the communiqué there was deafening silence on the fiscal front, with no clear commitment to co-ordinated fiscal stimulus, just some vague statements. This reflected the successful resistance of Germany and France to attempts by the US to ensure a collective plan for fiscal expansion. 

Since there was no commitment to fiscal expansion, there was correspondingly no commitment to direct more resources towards new technologies and changing patterns of demand to ensure more sustainable and equitable use of the world’s resources in the eventual recovery. 

Nor was there any evidence of a binding commitment to specific measures to clean up the toxic assets of the world’s banking systems. Instead, the communiqué simply stated that the leaders of these countries ''are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions'' without making it clear what such measures would be. 

Yet without such necessary measures, the chances of early global recovery are extremely bleak. So exports of developing countries will continue to fall, international capital markets will remain skittish and prone to punish emerging markets out of sheer nervousness and uncertainty, the credit crunch will continue to constrain investment and therefore limit recovery, and many countries will find themselves desperately short of resources for meeting essential needs and development projects. 

Despite these evident failures, two great ''successes'' of the summit were widely trumpeted in the international media: first, the declarations about tax havens, banking secrecy and financial regulation; and second, the announcement of a supposedly new $1.1 trillion ''programme of support to restore credit, growth and jobs in the world economy'' including $850 billion which is supposed to be specifically directed towards developing countries. 

But the promise of cracking down on tax havens is little more than a damp squib. To begin with, the approach chosen has been to agree to exchange information on companies and individuals suspected of evading taxes only ''on request'' rather than automatically, thereby reducing the efficacy of such a measure. Second, the issue of misuse of tax concessions by companies – by far the biggest issue in tax avoidance - received no attention at all. In fact there was absolutely no attempt to ensure financial reporting or requiring exchange of information on beneficial ownership in all tax jurisdictions, which would have allowed for cracking down on corporate tax abuse. 

The funniest of all was the loud announcement of the intention to ''name and shame'' and then blacklist countries that do not co-operate. When the list was released the following day it was laughable, consisting only of four territories: Uruguay, the Philippines, the Malaysian Federal Territory of Labuan, and Costa Rica. Since none of them is well known as a tax haven, and the more established tax havens in Europe (such as Lichthenstein, Luxemburg, and so on) were excluded by virtue of belonging to the OECD, little appears to have been achieved on this front. 

The only apparently concrete commitment was apparently to poor countries that have been thrown into crisis by the global turmoil, through pledges of $850 billion in new funds. This sounds like a reasonable amount, but how much of it is for real? And how unconditional will such money flows be? 

Not much, it turns out. For a start, the proposed new allocation of SDRs ($250 billion) is to be a general allocation, based on existing quotas. So the bulk of it will go to ... the G20 countries! The rich world alone will get approximately 60 per cent of the new SDR creation. Helping poor countries get more would require a special issue of new SDRs – something that was proposed in the IMF in 1997 but vetoed by the US, and held in abeyance ever since. 

Much of the rest of the money will be conditional lending from the IMF, which has recently distinguished itself only by its utter failure to prevent or deal with financial crises in emerging markets because of its aggressively procyclical conditionalities. It is amazing that the multiple failures of the IMF are being thus rewarded. This is after all the organisation that failed to predict the collapse of the US sub-prime market, announced that the medium term financial outlook for Iceland was exceptionally healthy just months before the country was declare effectively bankrupt, and has succeeded in making things much worse in most of the countries where it has forced its austerity measures in return for paltry loans. 

So the single greatest beneficiary of this G20 meeting must be the IMF, which would otherwise have been on life-support as a global player. Indeed, the most disappointing – even most alarming – aspect of the G20 communique is the declared intent to prop up and strengthen the IMF without doing anything about its completely undemocratic structure of decision-making or its unacceptable loan conditions. 

What makes this especially troubling is that the IMF continues to impose these disastrous procyclical conditions on countries that are forced to borrow from it at present: Ukraine, Pakistan and Latvia, for example, have all been told to cut government spending and raise interest rates and user charges for government services in the middle of the downswing, in return for IMF loans. Unfortunately, since the IMF has been given this unconditional gift from the G20 leaders (including those from developing countries who should really know better) there is nothing to stop it from continuing to behave in this ridiculous and unjust way, which is also based on extreme double standards for rich and poor countries. 

What is particularly unfortunate is the way the G20 completely ignored the recommendations of the Stiglitz Commission on international financial reform set up by the more democratic international body, the UN General Assembly. That Commission, which came up with its preliminary report just before the G20 Summit, made a number of useful short term and medium term recommendations. For example, it recommended an immediate new special allocation of SDRs, along with a new credit facility for development funds, strengthening regional initiatives and providing 1 per cent of all stimulus packages as ODA. These would actually have made much more positive difference to developing countries than the self-aggrandising posturing of G20. 

Even the G20’s commitment to avoid protectionism sounds ominous for developing countries, and not only because it is likely to be honoured only in the breach. It was stated with the goal of ''reaching an ambitious and balanced conclusion'' to the WTO trade negotiations - which can only mean forcing more trade liberalisation that has already led to agrarian crisis and deindustrialisation in much of the South. 

The basic problem, though, is that the G20 has not produced anything like the response needed to pull the world economy out of this unprecedented mess. Clearly, the idea is to put back the broken pieces somehow, to produce more of the same pattern of growth as before. That is neither desirable nor sustainable, and will rapidly run into crisis once more, at tremendous human cost. What a pity that the would-be leaders of the world have shown so little generosity or imagination.



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