By Kaufmann | April 2, 2009 1 Comment »
The G-20* has officially finalized its work in the London Summit and just issued its final communiqué here. Based on a quick review of that communique and the press briefing that has just ended with UK’s PM Gordon Brown, here is my quick account of the commitments made and my initial reactions [IN BRACKETED CAPS] for now. First I list in brief the six components as just outlined by Gordon Brown (plus feedback in CAPS). At the end of this entry I provide a quick overall assessment…
1 Reform of the global banking system.
–Bringing the ‘shadow banking system’ under the same regulatory mantle that applies to traditional banks.
[WELCOMED, YET DEVIL WILL BE IN DETAILS]. In particular this means the intent to regulate hedge funds. [WELCOMED, YET IN GENERAL THERE SHOULD BE A REGULATORY BIAS TOWARDS TRANSPARENCY, OVERSIGHT AND DISCLOSURE STANDARDS RATHER THAN TOWARDS EXCESSIVE CONTROL BY FIAT].
–Dismantling of tax havens through agreement on information sharing across jurisdictions as well as ‘name and shame’ sanction that immediately publishes a list of non-compliant jurisdictions.
[A WELCOMED START, BUT ONLY A START: a) OECD FOCUS IS FOR NARROW SET OF COUNTRIES (THOUGH GORDON BROWN SUGGESTED THAT OVER TIME THE CONTEXT MAY BROADEN); b) THE WAY OF ARRIVING AT THE 'NAME AND SHAME' LIST NEEDS FURTHER REVIEW, AND, MOST IMPORTANTLY, c) THE AGREEMENT IS NOT FOR AUTOMATIC SHARING OF INFORMATION BUT ONLY UPON REQUEST].
– New Financial Stability Board with much broader representation [OK], which together with the IMF will provide an early warning system [OK].
– New rules on banking compensation, encouragig corporate responsibility. [DEVIL WILL BE IN DETAILS, GOVERNMENT SHOULD NOT DIRECTLY REGULATE COMPENSATION BY FIAT, BUT RATHER OVERSEE PROPER LONGER TERM INCENTIVE SCHEMES, ENCOURAGE INDEPENDENCE OF BOARD OF DIRECTORS, TRANSPARENCY REGULATION, ETC].
2 Clean up of the banks.
[PRECIOUS LITTLE DETAIL ON THIS (ADDRESSING TOXICITY, ETC?), IN PART BECAUSE EACH COUNTRY IS PURSUING ITS OWN PATH. NEEDS FURTHER REVIEW AND WORK]
3 Global Recovery and growth. The G20 has announced and implemented the largest expansionary package, which by the end of next year will amount to US $5 trillions, saving or creating millions of jobs. Dramatic interest rate cuts have already taken place. Further measures will be taken as needed. [BOTTOM LINE: NO ADDITIONALITY IN FISCAL STIMULI NOW]
The G20 also agreed on an additional infusion of a US$ 1 trillion through additional resources for trade facilitation and the IMF. [IT IS A SIZEABLE AND ROUND AMOUNT. BUT MACRO GLOBAL IMBALANCES DISCUSSED IN PREVIOUS BLOG ENTRIES ARE NOT BEING ADDRESSED]
4 Reform of the IMF and World Bank/MDBs. IMF will be subject to its own internal governance reforms (quota and voice), and be provided a significant infusion of resources, allowing it to disburse about US$750bn. The IMF will be expected to do better surveillance, and the IMF, the World Bank/MDBs together will be expected to be more accountable and effective, and the heads of the institutions will be appointed by merit and not by nationality.
[WELCOMED SUPPORT FOR MULTILATERALISM (NOT JUST THE IMF, BUT INCLUDING ALSO THE WORLD BANK/MDBs) AND RESOURCES FOR EMERGING ECONOMIES. BUT PROBLEM THAT THE IMF FACED IN FAILING TO PERFORM ITS PROPER SURVEILLANCE PRIOR TO THE CURRENT CRISIS IS UNLIKELY TO CHANGE (DUE TO WHO GOVERNS THE IMF, AND ITS INSTITUTIONAL CULTURE)--SO A MAJOR REVAMP MAY BE REQUIRED FOR THE IMF TO TAKE UP SUCH A TASK].
5 Kickstarting Trade. G20 Agreed to US$ 250bn. in trade financing, including a 40-50bn for World Bank facility for developing countries. Commitment made (AGAIN…) not to erect further protectionist measures.
[WELCOMED MEASURES, WITH SIGNIFICANT 'BUTS'. ALTHOUGH DETAILS IN THE FIGURES NEED REVIEW TO ENSURE ACTUAL ADDITIONALITY IN RESOURCES, AND ALSO TO ENSURE MONITORING OF ACTUAL ACCESS AND USE OF SUCH RESOURCES WILL BE KEY.
MOST IMPORTANT, THESE COMMITMENT TO RESOURCES WILL NOT HAVE A LARGE IMPACT IF TRADE PROTECTIONIST MEASURES REMAIN IN PLACE OR INCREASE. KEEP IN MIND THAT SINCE THE PREVIOUS G20 SUMMIT LAST DECEMBER IN WASHINGTON, DC, A NON-TRIVIAL NUMBER OF PROTECTIONIST MEASURES WERE PUT IN PLACE BY MANY COUNTRIES, IN SPITE OF COMMITMENTS TO THE CONTRARY.
AND CURRENTLY THERE IS NO AGREEMENT ON DISMANTLE PREVIOUSLY ERECTED TRADE PROTECTION MEASURES. FURTHER, CRUCIAL AGREEMENT ON DOHA STILL LOOMS FAR IN THE HORIZON].
6 Commitment to Development and to mitigate effects of the crisis on the poorer countries. Restated previous commitment to meeting the Millennium Development Goals and to achieving respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa.
[WELCOMED RESTATING OF COMMITMENT, BUT IN PRACTICE RICH COUNTRIES ARE SLIPPING ON EXISTING COMMITMENTS, AND THIS MAY MEAN HUGE REDUCTIONS IN AID TO DEVELOPMENT AT A TIME OF MOST CRITICAL NEED].
Further, the G-20 committed today to provide $50 billion to support social protection, boost trade and safeguard development in low income countries. This includes making available resources for social protection for the poorest countries (including for food security and voluntary bilateral contributions to the World Bank’s Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund).
And also there is a committment to provide additional resources from agreed sales of IMF gold will be used to partly provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years.
[THESE ARE ALL WELCOMED, BUT AT LEAST AS IMPORTANT IS FOR BILATERAL DONORS TO HONOR THEIR PREVIOUSLY MADE ODA COMMMITMENTS TO DEVELOPING COUNTRIES. OTHERWISE THERE WILL BE A NET LOSS OF ODA RESOURCES TO DEVELOPMENT].
In concluding there is a terse mention of addressing pending climate issues in future fora (Copenhaguen in December), and it states that the G-20 states that it is committed to meet again to review progress in the fall of this year.
[OVERALL REACTION FROM THIS BLOGGER -- INITIAL:
FROM A LONGER TERM PERSPECTIVE, THERE IS A BREAKTHROUGH: THE G-20 HAS BEEN INSTITUTIONALIZED, AN IMPORTANT PROCESS HAS BEEN SET IN MOTION, EFFECTIVELY DISPLACING THE NARROW AND ELITIST G-8. MORE INCLUSIVENESS, VOICE AND PARTICIPATION TO EMERGING ECONOMIES IS NOW TAKING PLACE. FURTHER, THIS COMMUNIQUE REFLECTS CONCRETE WORK AND SOME ACTUAL ACCOMPLISHMENTS (IN A SHORT TIME FRAME), CONTRASTING THE TYPICAL PLATITUDES CONTAINED IN MOST SUCH STATEMENTS.
THE PLEDGES TO INSTITUTIONAL REFORMS AND SUPPORT OF THE IFIs ARE ALSO SIGNIFICANT, AS IS INCREASING CONVERGENCE ON THE NEED OF SERIOUS FINANCIAL REGULATORY REFORMS. THE DEVIL WILL BE IN THE DETAILS, OF COURSE, INCLUDING ON HOW TO BETTER REPRESENT CONSITUENCIES AND GOOD GOVERNANCE LESSONS FROM OUTSIDE THE G-20.
THIS WILL BE NEEDED WHEN THERE IS READINESS TO OFFICIALLY RECOGNIZE THE MAJOR FAILURES IN GOVERNANCE, CAPTURE AND CORRUPTION LEADING TO THE FINANCIAL CRISIS (SO FAR THERE IS MOSTLY SILENCE ON THIS ISSUE). ADDRESSING THE TAX HAVEN PROBLEM CONSTITUTES A DECENT START, BUT NEEDS FURTHER WORK, AND IT ALSO REQUIRES A BROADENING TO OTHER GOVERNANCE AND CORRUPTION ASPECTS (INCLUDING RECOVERY OF STOLEN ASSETS BY CORRUPT PUBLIC OFFICIALS).
FROM A SHORT-TERM PERSPECTIVE, THE ASSESMENT IS SOMEWHAT MORE MIXED. THE AGREEMENTS REACHED IN THIS G20 COMMUNIQUE REGARDING THE VARIOUS FUNDING INITIATIVES ARE HIGHLY WELCOMED, INCLUDING FOR THE IMF AND THE WORLD BANK.
BUT THE AGREEMENTS REACHED TODAY LARGELY BEG THREE IMPORTANT PENDING ISSUES WHICH WILL REQUIRE MORE FOCUS IN THE MONTHS AHEAD:
1) THE ADDITIONAL FISCAL EXPANSION NEEDED IN RICH COUNTRIES (SUCH AS GERMANY AND FRANCE),
2) THE CLEAN UP OF THE BANKING SYSTEMS, AND,
3) PROTECTIONISM: IF THESE OVERARCHING ISSUES ARE NOT CONCRETELY ADDRESSED, MANY OF THE LAUDABLE OBJECTIVES SET IN MOTION (INCLUDING COMMMITMENT TO A FAIRER WORLD, DEVELOPMENT AND MITIGATING THE EFFECT OF THE CRISIS ON THE POOR) MAY NOT BE EFFECTIVELY ATTAINED].
[Also read here for a follow-up]
* The official members of the G-20 are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United States, and, as its 20th member, the European Union. The Netherlands and Spain also joined the Summit, and the following international organizations were present as observers: NEPAD, ASEAN, UN, World Bank, IMF, and FSF. The expanded list of invitees to this Summit explains why it was officially called the ‘London Summit’, without explicit reference to the ‘G-20′.