Sunday, November 16, 2008
--G20 summit did not lead to radical reforms, only incremental repairs --governnace of global institution will change to reflect the changing weights of countries' economy JUDGED by the hubristic promises that preceded it, the G20 meeting was bound to disappoint. The leaders of the world’s 20 biggest rich and emerging economies, who had gathered in Washington, DC, on Saturday November 15th, did not remake global finance as some of them had promised. Nor, as others had hoped, did they come up with a detailed set of co-ordinated fiscal measures to counter the deepening global downturn (although they did talk of using fiscal measures “to rapid effect”). Nonetheless, the five-page communiqué contained more than just diplomatic blather. As well as promising a “broader policy response” to the current crisis, the G20’s leaders laid out a detailed plan for financial reform. They promised to “strive” for a deal on the stalled Doha round of trade talks by the end of the year and, more importantly, made a collective pledge not to raise any barriers to trade and investment over the coming year. Add in the promises made around the gathering’s fringes, particularly Japan’s pledge to bolster the IMF’s kitty by lending it $100 billion, and the weekend yielded enough to justify the traffic jams in Washington DC–and to mark an important shift in global economic governance. The most significant fact about the G20 meeting was the guest list. This was the first time that the leaders of all these rich and emerging economies—which between them represent almost 90% of global GDP—had gathered for an economic summit. The meeting’s origins lay in political bluster: both France’s president, Nicolas Sarkozy, and Britain’s prime-minister, Gordon Brown, had called for a Bretton Woods II-style gathering to show up America and strut their stuff on the international stage. George Bush insisted on a G20 gathering, in part to dilute the European onslaught. Whatever the tactical reasons, the success of this weekend’s gathering has permanently changed the machinery of international economic co-operation. The centre of global economic summitry has shifted from the G7 (the rich countries’ club) to a broader group. A follow-up meeting has been scheduled for April 30th 2009. Even in areas that primarily affect them alone, such as the regulation of the most sophisticated financial instruments, rich countries will no longer set the agenda on their own. Just what path the G20 will take is not yet clear. All sides interpreted this communiqué from the summit a little differently. Mr Sarkozy talked about the “historic” shift in America’s attitude to financial regulation. The Bush administration focused on the summiteers’ commitment to pro-growth policies and open markets. Leaders from emerging economies, not surprisingly, concentrated on their new global role. In some areas the leaders clearly papered over their differences. The communiqué, for instance, nodded to Europeans’ desire for more regulation by promising to ensure that “all financial markets, products and participants are regulated or subject to oversight”. But it quickly tempered that point with phrases more to the Bush administration’s liking: promising to make sure that “that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services”. 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 banks’ capital to credit-rating agencies—that have become conventional wisdom or are already under way. From the creation of colleges of financial supervisors to oversee the biggest cross-border financial institutions to the development of a single global accounting standard, the G20 leaders laid out incremental repairs, not radical reform, to the rules of global finance. They did, however, make clear that the governance of global financial institutions must change. The leaders promised to broaden the membership of the Financial Stability Forum, the group of financial regulators and central bankers, charged with the technicalities of financial supervision. They promised to reform “comprehensively” the Bretton Woods institutions (the IMF and World Bank) so that they “more adequately” reflected the changing weights of countries in the world economy. The leaders’ next meeting is to focus on such governance issues. It is easy to be cynical. Talk about reforming power within the IMF has gone on for years, with little result. But with emerging economies now firmly at the top table of international finance, such an overhaul has become much more likely. This weekend’s meeting did not create a new Bretton Woods. But it marks a decisive shift in the old order.