By Jayati Ghosh
The G-20 summit has not come anywhere near pulling out the world economy from the unprecedented mess it is in now.
THE much-hyped G-20 summit was supposed to save the world economy from imminent collapse and provide 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 such as 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 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.
VAGUE STATEMENTS
Of course, we should have all known that this was not likely. This is because of not only the lack of adequate preparation for the summit and of legitimacy and representation from all nations, but also because there is still too much disagreement on most issues among the members of G-20. Even so, the summit’s communique, released with so much fanfare, is deeply disappointing, particularly for developing countries.
In fact, there were precious few signs of the major players in the global economy acting together to revive it. Instead, there was deafening silence on the fiscal front, with no clear commitment to coordinated fiscal stimulus. The communique just had some vague statements. This reflected the successful resistance of Germany and France to the United States’ attempts 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. 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 communique 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 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 tend 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.
FUNNY ANNOUNCEMENTS
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 exchange of information on beneficial ownership in all tax jurisdictions, which would have helped governments crack down on corporate tax abuse.
The funniest of them all was the loud announcement of the intention to “name and shame” and then blacklist countries that do not cooperate. When the list was released the following day, it was laughable.
It consisted of only 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 Lichtenstein and Luxembourg) were excluded by virtue of their membership in the Organisation for Economic Co-operation and Development, little appears to have been achieved on this front.
The only apparently concrete commitment was apparently the one made to poor countries that have been thrown into crisis by the global turmoil, by way of 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 special drawing rights ($250 billion) is to be a general allocation, based on existing quotas. So the bulk of it will go to the G-20 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 International Monetary Fund (IMF) in 1997 but vetoed by the U.S. and held in abeyance ever since.
REWARD FOR IMF
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 pro-cyclical conditionalities. It is amazing that the IMF is being rewarded for multiple failures. This is after all the organisation that failed to predict the collapse of the U.S. sub-prime market, announced that the medium-term financial outlook for Iceland was exceptionally healthy just months before the country was declared 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 G-20 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 G-20 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 pro-cyclical 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 G-20 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.
STIGLITZ REPORT IGNORED
What is particularly unfortunate is the G-20 completely ignoring the recommendations of the Stiglitz Commission on international financial reform set up by the more democratic international body, the United Nations General Assembly. That commission, which came up with its preliminary report just before the G-20 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 Official Development Assistance. These would actually have made a much more positive difference to developing countries than the self-aggrandising posturing of G-20.
Even the G-20’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 World Trade Organisation 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 G-20 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 a tremendous human cost. It is a pity that the would-be leaders of the world have shown so little generosity or imagination.
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