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A conversation with NSC’s Froman on the results of the G20 London Summit
By Kaufmann | April 3, 2009 No Comments »
Last night at the London G20 Summit it was rather hectic for everybody, even for bloggers away from official functions…
First, UK’s PM Gordon Brown gave his charismatic presentation to the press corps, with large statements and numbers, declaring the Washington Consensus dead. At that time the final communiqué of the Summit was being released. With these, I provided an account of the Summit agreements and my initial feedback to them (in the last blog entry yesterday)…
Then President Obama gave a standing-room only press briefing to a riveted audience, and there was also interest in the briefings by Sarkozy (France), Merkel (Germany), and others, such as of Singh (India). Late in the evening U.S. White House Mike Froman from the National Security Council’s (NSC) came to have an interactive briefing session with us bloggers. He is very bright, and admitted upfront that for him this was the first ever such interaction with bloggers.
I was interested in his perspective on the outcome of the Summit, particularly on what I had written as key challenges that were still pending. But upfront I commended the work done by his team and all others in the G20 to achieve what they had (mentioning that I had characterized the overall outcome as a breakthrough). After quickly going through such credits (which he appreciated) I wanted his reaction on the pending challenges that I had identified on the macro-economic imbalances and fiscal stimuli, on the banking sector clean-up, and the approach to regulatory reform, and on trade protectionism.
In his response, Mike Froman told me that actually these issues are addressed in the Summit agreement and the Communiqué (and some in the details in the Explanatory Note to the Communiqué).
On my protectionism concern he claimed that actually there will be a mechanism to deal with it retroactively, and pointed to paragraph 44 of the explanatory note, and noted that the Summit leaders had reached a strong commitment against protectionism (Froman characterized the meeting discussions they had had on this as “we are all sinners and this is a ‘revival’ meeting”).
On the macro imbalances he referred to the enormity of the existing US$5 trillion cumulative global stimuli from last year into existing future years (as per the Communiqué, and he stressed that it is an IMF figure), plus the Summit resolution for an additional US $1trillion of additional funds mostly for the IMF, with some for the World Bank and the regional development banks.
Furthermore, he said that the leaders (particularly from some European countries like Germany and France) are on board in terms of preparedness to enact additional fiscal stimulus packages if the IMF determines that the current effort is insufficient.
On banking clean-up and financial sector regulation he mentioned that there is plenty of detail to be found in the Communiqué and in the Explanatory Note, and stressed the commitment by all in the G-20 to institute much more regulation than before.
Throughout our session, Froman was very engaged, interactive and eloquent. And he provided useful information and insights to all. Among others, he also addressed the tax haven issue, brought up by Richard Murphy, a leading UK expert on tax havens (I will blog about this issue separately).
As far as I can tell, however, in terms of these concerns that I outlined in yesterday’s initial reaction, the serious challenges are still pending.
On macro-imbalances, the US$ 5 trillion figure was useful for Communiqué PR purposes, but does not survive full scrutiny as a credible aggregate fiscal stimuli addition figure. Similarly, the US$1 trillion figure is for now less than meets the eye. With the help of a good summary in a pie chart breakdown of this figure in the Financial Times today one can figure out that a generous estimate of actual new commitments would amount to less than half that amount (and much of it in the form of the IMF SDR allocation, a way of allowing countries to have a bit of monetary easing). The large remainder needed to get to the US$1 trillion figure are in fact prior existing resources or prior commitments, or merely a cumulative objective (as in trade finance) to which pledges and sources of funds are still being awaited, let alone readiness to disburse such funds.
Finally on the macro issue, it does not suffice to arrive at the ‘appropriate’ global aggregate level of the fiscal expansion. The composition is as important. The main contributors to the fiscal expansion ought to be the ‘financial surplus’ countries (France, Germany, China), not the traditional ‘financial deficit’ ones such as the US and the UK. The global macro-economic structural imbalances also need to be addressed, and in this context I did not see progress yesterday.
On protectionism, I don’t find a lot of specifics in the Communiqué or in the Explanatory Note, either about rolling back the 45 protectionist measures instituted by 17 out of the G20 countries since their past December Summit resolution to the contrary, or about concrete commitment to finalize the long delayed Doha round. Yet hopefully there will be progress in the right direction between now and the September New York G20 Summit.
On banking cleanup and regulatory framework, I agree that there was progress and agreements on the regulatory front. The devil will be in some of the details, although with Tim Geithner’s unveiling of the US regulatory plan last week, there has been progress and convergence. There will still be questions of balance between how much of the additional regulations focus on oversight, disclosure and transparency, verus red tape or control by fiat.
These may reflect different philosophies between the (new, emerging…) Anglo-Saxon and the European regulatory models, and will still need to be worked out. And on banking clean-up, as per yesterday’s assessment, particularly on the toxic assets, there is precious little from the Summit as far as I can see.
None of this debate on these ongoing challenges ought to detract from the mighty and broader significance of the concrete achievement in this Summit, which I characterized yesterday as a breakthrough. And not only the support for major resources and action among IFIs is highly significant, but an important new process is in motion.
Constructively moving forward from yesterday’s achievement, however, this type of debate on what are the priority pending challenges is much needed – to chart out what is the focus of work ahead, and where to monitor progress on, building on this Summit for the next one in September.
Topics: G-20, Regulation & Security, financial crisis | | Read and Submit Comments