Some initial thoughts on the emergency summit in Washington DC, held to respond to the financial crisis. First, some positives: it was the first time the G20 have met at heads of state level. Could this mark the start of the eclipse of the G8, as major developing countries take a seat at a larger table? It still leaves serious concerns about the exclusion of the others (for example South Africa is the sole representative from the whole African continent), but it’s undoubtedly an improvement on the G8.
Second it was the start of a process, not a one off. The summit set out an action plan to be taken forward by a number of institutions prior to a second summit before the end of April. That’s important because it means the Obama administration will become part of the process (Obama didn’t attend, but sent two emissaries to the event). It also means that some serious preparatory work can be conducted between summits.
The summit declaration is long and more detailed and substantial than I expected. It covers a long list of issues under headings such as ‘Strengthening Transparency and Accountability’ and ‘Enhancing Sound Regulation’ and sets out a detailed action plan to be completed by 31 March 2009. This includes many of the steps advocated in Oxfam’s pre-G20 paper, such as ‘mitigating against pro-cyclicality in regulatory policy’ (i.e. not imposing contractionary policies during a recession). Other good stuff includes:
Ensuring ‘all financial markets, products and participants are regulated or subject to oversight’. That should include the complex financial products that triggered the current crisis as well as hedge funds and others.
‘protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.’ I presume that means that tax havens will come under the microscope.
Expanding developing country representation in the IMF, World Bank, and Financial Stability Forum (which was set up in response to the last major crisis – the Asian crash of 1997/8, and will now be strengthened)
So what didn’t the summit do?
It failed to represent the more than two billion people who live in non-G20 countries.
It shied away from the need for a global regulator, stressing improved transparency and coordination of existing institutions.
It virtually ignored the UN (one reference to the 2002 Monterrey conference on Financing for Development and no mention of the successor conference in Doha later this month) and makes no reference to the UN task force on the crisis, chaired by Joseph Stiglitz.
It also failed to link the response to the financial crisis with the other big global governance issue of the moment, climate change and the Kyoto 2 negotiations. No discussions of low carbon recovery or a green new deal or anything similar found its way into the communique – a lost opportunity.
Instead, the G20 stressed the centrality of the IMF to any crisis response (‘The IMF, given its universal membership and core macro-financial expertise, should, in close coordination with the FSF and others, take a leading role’), But the Fund is seen as damaged goods by many developing countries and will have to go through some kind of Damascene conversion if it is to pursue the counter-cyclical approach advocated elsewhere in the G20 statement. For example the Fund is currently insisting on Pakistan jacking up interest rates to 15% in return for an emergency loan – nothing very counter-cyclical about that.
The language on aid is disappointing. In a recession, poor countries need more aid, not less, but the G20 merely ‘reaffirm the importance of the Millennium Development Goals, the development assistance commitments we have made, and urge both developed and emerging economies to undertake commitments consistent with their capacities and roles in the global economy’. i.e. warm words, but no pledge not to break aid promises.
Overall though, this was a substantial event, and the work plan from now until March is meaty. If further shocks hit, it could get even meatier – Alex Evans argues that bigger shocks are needed if the process is really to merit the title ‘Bretton Woods 2’. And of course within the inevitably general language of such a communique, there is plenty of wiggle room for countries to water down their commitments and generally backslide, unless the spotlight stays on them. Anyone interested in the way financial globalization can help or hinder development should be paying close attention.