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What about the poor?
THE G-20 leaders met in London on April 2 to discuss plans to tackle the current global economic crisis. The G-20 is a group of the world's most powerful countries that together represent 85% of the world's economy.
The G-20 includes both major industrial powers -- G-8 -- and thirteen other emerging economic powers, such as China, India and Brazil (the 20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK, USA and EU.)
G-20 is an informal grouping that was originally set up at a meeting of IMF in September 1999 in the wake of the Asian financial crisis in 1997. It was made clear by the 1997 crisis that emerging market economic powers needed to be included in discussions about the global financial system.
The G-20 has been given new impetus by the current economic meltdown, with the first meeting of heads of governments taking place in Washington during the Bush administration (President Obama had been just elected and did not attend the meeting).
The key pledges of the G-20 are:
- The injection of an additional $1 trillion into the global economy through measures including $500 billion increase in the funding available to cash-strapped IMF, an increase in the availability of money for developing countries through IMF's Special Drawing Rights to $250 billion, and a total of $250 billion set aside for trade assistance.
- Radical reform of the banking system.
- No non-cooperative tax havens to be allowed in any country. Those countries which do not comply with the rules will be blacklisted.
- Managing of toxic assets nationally.
- Tough new measures to regulate national financial institutions through establishment of international college of supervisors (financial stability body). Hedge funds are to come under regulatory control.
- The revamping of IMF and World Bank to ensure that nations such as China are given greater influence, and senior positions of IMF and World Bank will be open to candidates from the developing world.
- A continuing commitment to provide funds, such as the Millennium Development Goals.
Though the pledged funds amounting to $1 trillion look substantial, only $69 billion ($50 billion for SDR and $19 billion for trade assistance) has been kept for about 96 poorer countries together with 49 Least Developed Countries (LDC) including Bangladesh. Many are disappointed that the amount allocated is too meagre for these struggling countries. Much more funds should have been allocated for poorer countries as foreign aid to them could be slashed by 20% due to global recession.
The underlying reasons for the falling value of the dollar and the pound were not discussed. No concrete measures were adopted to curb the fluctuations in exchange rates, which have hit many poorer countries. Furthermore, China's proposal for a new international currency was also not discussed. Another matter that was not discussed was the impact of protectionist measures on the global economy, some of which G-20 have been adopted since November last year.
Financial experts say that it is very difficult to know how far the international financial system can be regulated. The current financial system is based on some cooperation and lots of competition. New rules may not be enforceable because they may be suitable to one area but not to another.
In future, governments will have to control or be able to influence financial markets through ownership of the banking system. Last year, governments were forced to stave off the collapse of many giant corporate bodies, including reputed banks in the US and Europe, by pumping public money into them.
The German government moved on April 9 to nationalise the stricken Hypo Real Estate bank, the first nationalisation since World War II. The diminishing role of national governments in the financial system has been reversed.
The greed and unethical activities of corporate leaders and negligence of regulatory bodies are some of the causes of this current economic crisis. The decision making process and the value framework supporting it were flawed. Social responsibility, ethical thinking, transparency and accountability must be the hallmark of the corporate leaders in future.
The G-20 decisions show that the world is itself in transition. The world has changed since 1945, when Big-2 (US and UK) used to decide the fate of the free world. By the end of 20th century, Big -2 became G-7, only to be replaced by G-20 by the 21st century. For example, China, and South Korea, apart from Japan, are now expected to provide a significant part of the funding to recapitalise the two global financial institutions.
Barrister Harun ur Rashid is a former Bangladesh Ambassador to the UN, Geneva.
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