April 4, 2009 10:42:39 pm
The G-20 London Summit has been a success in some ways. It concluded with a statement that has sensible policies. One of the biggest achievements appears to be greater resources for the IMF and multilateral-lending banks and IMF reforms. The change in the quota system,the appointments of heads and senior leadership of international organisations through open,transparent and merit-based selection processes are good news. It is also welcome that the leaders agreed to fight against protectionism which was the undoing of the world economy in the Great Depression. The decision that international funds would also be used to keep trade finance going puts money behind the strong words.
The summit unfortunately failed in making European nations like France and Germany commit greater resources to a fiscal stimulus. The communiqué does not mention fiscal stimulus in the handling of the crisis. This may put excessive burden on countries such as the US which do it,while others will be free-riders. This was known to be an area of contention between the US and some European countries. At the same time,issues such as exchange rate regimes too were not adequately addressed. Chinas buying reserves to prevent appreciation of the yuan and the impact it had on liquidity in financial markets have been areas of conflict between the US and China. More flexible exchange rate regimes are going to be an important element in preventing such conditions from emerging again. Obviously,no agreement must have been reached as this important issue found no place in the communiqué. Similarly,the G-20 could not come up with another crucial element of the crisis: a coordinated package to take toxic assets out of banks. At present,when one country bails out its banks,since these banks are international banks,there are other countries which stand to gain. There is clearly a case for a coordinated effort.
The intentions of the leaders about international coordination in financial sector supervision are welcome. So,would India now allow international experts to assess its financial system? If the statement of intent of the leaders is translated into action over the coming months,the summit would have been a huge success. What remains to be seen is how much of the statement contains what each country wants other countries to do,and how much it has things that each country itself will be able to implement when the leader returns home from the G-20 Summit.
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