A crisis cajoles the status quo and questions the established order. The initiative by US President George W. Bush to convene a G-20 Conference even in the final months of his presidency must be seen in this light — even as Barack Obama’s decision to stay away robs the conference of legitimacy and credibility.
There are many reasons why materialism scores over any other arrangement. This is not to overlook the uniqueness of problems encountered by individual member States that necessitate altered responses based on domestic compulsions. However, everyone shares the common objective of minimising the spillover effects of the financial crisis to the real economy, restart the growth momentum, seek the multiplier gains of a more liberal trading regime, prevent unemployment and retain focus on the global challenge of poverty eradication. Having said this, it is important to consider what not to expect:
First, an acceptance by the US that any multilateral surveillance system will equally and fully apply to all in a non-discriminatory way. It is not an accident that the mandatory Article IV consultations of the International Monetary Fund (IMF) failed to detect the incipient signs of a major financial crisis in the US. Was this mechanism designed merely to detect, monitor and advise developing countries? Having experienced the intrusive nature of its scrutiny on domestic policies, my impression is that the IMF failed to discharge its obligation in respect of the major developed countries. Is there a likelihood that this crisis will lead to a fundamental mindset change in the US? Perhaps not.
Second, the Bretton Woods institutions increasingly became instruments to shape ideology and policymaking in the developing world. Notwithstanding incremental changes in quotas, is it an accident that Belgium, the Netherlands and Italy have a voice greater than Brazil, India and China? Or that in the selection of the heads of these institutions the close compact that the World Bank will be headed by an American and the IMF by a European, regardless of expertise or domain knowledge, is not up for basic review? As the balance of economic power has changed significantly, is there willingness to accept the consequential changes in the governance structure of these institutions? Perhaps not.
Third, following the Asian crisis in the 1990s, the IMF-World Bank undertook the initiative for a Financial Sector Assessment Programme (FSAP) to comprehensively evaluate the financial systems of all member-countries. The objective was both crisis prevention and mitigation. It entailed the identification and resolution of financial sector vulnerabilities through a comprehensive analysis of financial soundness on well-designed quantitative indicators. India initially subscribed to the programme and is now undertaking this task internally. Is it any accident that the US voluntarily decided not to subscribe to the FSAP? This programme if implemented with rigour could have detected the multiple bubbles that were being created in the system. Will the US now subscribe to objective multilateral surveillance through instruments like the FSAP? Perhaps not.
From India’s short-term point of view, any multilateral umbrella enabling us to access petrodollars, secure a significant line of credit from multilaterals outside their lending programme for a new stimulus package will greatly help. Mitigating the short-term capital shortage is our priority concern.
The challenge for a successful G-20 goes beyond an extended public relations exercise. It needs a basic mindset change and an awareness that incremental changes are now inadequate. The new financial architecture needs a new ethos for creating institutions which are truly universal and that notwithstanding unequal power equations can act objectively and in a non-discriminatory way in the conduct of their policies and programmes. Will the forthcoming Washington exercise succeed in achieving this? Perhaps not.
NK Singh is a Rajya Sabha MP and former Member, Planning Commission