Opinion Sur
With this affirmation Lula da Silva defined the outcome of the G-20 Summit. The Pittsburg summit marked the end of the hegemony of industrialized powers, and ushered emerging nations into the debate about crucial global social economic issues. “The old system of international economic cooperation (the G-8) is over. The new system, as of today, has begun,” declared British Prime Minister Gordon Brown. This openness to emerging economies is not an act of “political generosity”; it is the product of an objective need, associated with the peremptory urge to cope in a coordinated manner with a global crisis that is approaching a weak and fragile recovery which, hence, more than ever calls for the joint cooperation of twenty countries that in the aggregate account for 90% of the global GDP, 80% of international trade, and one third of the world population. There is consensus that the exit from the crisis is not likely to be structured on the basis of individual strategies; the advance of globalization calls for coordinated “exit strategies” and a huge cooperation effort to implement it.To understand, assess and appraise the actual significance of this shift towards a new institutional architecture in the decision-making process in relation to the global economy, it is necessary to reflect upon the genesis of this “extraordinary victory”, as Lula defined it. And to analyze it, we must first take a look at what went on in the world since the last G-20 summit. When the G-20 met in London in April this year, the US economy, and a large portion of the global economy were in a free fall, and no one could guarantee that we would not end up falling over the precipice, that is, “depression”. Seven months had passed since the fall of Lehman Brothers and the bailout via nationalization of major British banks. The Fed and the Eurozone Central Banks were pumping huge amounts of cash into the financial system, out of panic that a financial debacle would occur at the epicenter of the capitalistic system. In this desperate struggle to keep the banks alive, a large monetary expansion was generated, which grew even larger with the economic stimulus programs, business capitalization, and sectoral incentive programs, all of them designed to strengthen private demand, which was plummeting due to the destruction of households’ wealth as a result of plunging home prices and stock-holding values. Yet, contrarily to the exit strategy applied during the Great Depression, Ben Bernanke, an expert in the subject, knew that to avoid falling over the precipice the priority was to keep the financial system on its feet. In this economic context, characterized by a world effort to bolster primarily the global banking system, the London G-20 Declaration reflected a broad consensus around the urgent need to coordinate monetary policies and instruments with a view to reinforcing that goal by calling for, rather ingenuously, a universal financial regulation and a special role of international organizations in monitoring compliance, particularly by strengthening the IMF’s role.
Looking back at the situation six months after the G-20’s London summit, apart from the timid capitalization of the IMF and the substantial reduction in the political conditionalities for the granting of loans to assist with balance of payment problems, no major progress was accomplished in terms of the harmonization of Central Banks’ policies. Countries continued resorting to individual financial bailout strategies, from extreme nationalization positions, such as those of England and Iceland, to intermediate positions, such as USA’s, to other less interventionist ones, such as those of France and Germany. The London Declaration was hardly successful in raising new global awareness about policy harmonization, at least at Central Banks´ level. Neither did it accomplish much in terms of the coordinated design of global financial system regulations, or in relation to the development of an international architecture that is capable of implementing them.
Despite these difficulties encountered in the implementation of its recommendations, in historical perspective, the G-20’s London summit laid the foundation for the express acknowledgement, the universal awareness that the global economy far transcends the eight industrialized nations, and that the crisis has made it clear that new players have taken the stage: emerging economies.
Five months later, the G-20 meets again in Pittsburg. In the five months lapsed since the London summit, the crisis progressed along its implacable destruction path: 16 million unemployed in the US, and 54 million in the OECD countries; 1 billion poor people worldwide, 200 million of whom are the product of the crisis, the UN announced. USA’s fiscal deficit grew 9.4% and, for the first time, it will almost hit 2 trillion dollars by year end. US households have seen 3 trillion dollars of their accumulated wealth evaporate; and on top of that, such wealth had not been generated by the production system but by the speculative bubble, and hence, it is hardly recoverable. But as opposed to what happened in London, there is renewed hope that recovery will occur before the end of the year; V-shaped for the most optimistic-weary ones, L-shaped for the pessimists and W-shaped for visionaries such as Roubini and Krugman.
The Pittsburg Declaration, a laborious consensus-building effort involving twenty countries, reflects that, as Lula put it, “the world is quickly heading towards a new world economic order”. Firstly, by revitalizing its own status as an “international economic cooperation forum”, a role that before had been played by the G-8. Secondly, by giving greater voice and power to emerging countries. And thirdly, by acknowledging that the crisis was mainly caused by the outrageous imbalance between countries that consumed more than what they produced by becoming indebted, and countries that ─by consuming less and exporting more─ generated excess savings which, in turn, financed the other countries’ borrowing. In this respect, the twenty countries unanimously agreed on “ensuring more balanced growth” and noted that “all G-20 members agree that it is necessary to address the weaknesses and imbalances both within their respective economies and between their economies”. In addition, “G-20 members with sustained, significant external surpluses pledged to strengthen domestic sources of growth”. The consensus about the need to build a new balance was preceded by discrepancies among exporting, savings-generating countries such as Germany and China, and heavily indebted, over-consumerist countries such as the United States. But even in relation to such a thorny issue, which happens to be so crucial for attaining a sustainable way out of the crisis, consensus was reached and countries pledged to continue working on it in the coming G20 meetings. Fourthly, by encouraging clean energy production, phasing out oil and other fossil fuel subsidies.
In an effort to avoid the recurrence of the conditions that triggered the crisis in the financial system, the G-20 further undertook to endorse the adoption of tougher regulations in relation to harmonizing the leverage ratio levels required from banks, ensuring the transparent handling of hedge funds and investment funds, as well as limiting the amounts of the bonuses paid to financial institution executives.
The G-20 leaders committed to a shift of “at least 5%” of the voting power in the International Monetary Fund (IMF), and 3% in the World Bank to emerging countries so that the new distribution of quotas may “reflect the relative economic weights of its members”. In addition, the document expressly calls on the IMF to monitor and supervise the G-20 member countries’ economic policies.
With more or less optimism, all Presidents acknowledged that recovery is near, but it will be fragile and fraught with vicissitudes, even relapses. China’s President Hu Jintao warned that “economic rebound is not solid yet”. Therefore, in one of the most relevant consensuses of the Summit, the G-20 leaders agreed to avoid any “premature” withdrawal of government stimulus plans, to prevent a relapse. With new responsibilities, the G-20 will now meet twice a year. The 2010 summits will be held in Canada and South Korea, while the first 2011 one will take place in France.
Let us hope that so much suffering accumulated since the crisis began 18 months ago and the illusion of a short-term exit may reinforce the capacity to implement the G20’s Pittsburgh recommendations, as opposed to what happened in London. It would be very encouraging to verify that any crisis entails opportunities: an international architecture that is consistent with the level of economic globalization achieved, where emerging economies have been acknowledged as players of a new international economic order.
