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Resuscitate the G20 — or wind it up

With 15 days left for the conclusion of the Seoul Summit on November 12, it is with deep disappointment that I make two observations about the Group of 20 (G20).

india Updated: Oct 27, 2010 23:11 IST

With 15 days left for the conclusion of the Seoul Summit on November 12, it is with deep disappointment that I make two observations about the Group of 20 (G20).


One, as a geopolitical-economy institution of great power and potential in international finance and global trade, the G20 has failed to transform itself from a crisis manager to a stabilising influencer. It has outlived its fiscal and catastrophic utility and is now probably breathing its last on the death bed of relevancy. In a line, the singular G20 negotiations are giving way to 171 C2C (country-to-country) deals under which nations are talking to and fighting with one another on individual platforms — the US with China (currency and treasury investments), China with Japan (holding back rare earth metals exports over a maritime dispute), Japan with India (infrastructure


investments and strategic nuclear deals), India with Germany (trade and investment) and so on.


Since the worst of the global economic crisis seems to be behind us (or so the leaders claim) — and full marks to the G20 for having facilitated this through fiscal and monetary sops between November 2008 and April 2010 — the world’s economic agenda has reverted to established institutions such as World Trade Organisation (trade and commerce), Basel (banking regulations), International Monetary Fund (currently undergoing


reconstruction surgery of reform by G20) and Financial Stability Board. Here, the age-old and crumbling relationships are being questioned,


particularly the established monopoly power of the US in the West and the powerful but frightful emerging clout of China in the East.


The trillion-dollar currency wars, for instance, that broke out right under the noses of the G20 finance ministers and central bank governors who met at Gyeongju in South Korea last week are but one example of the effective breakdown of G20 negotiations. Publicly — and probably to give legitimacy


to their worldwide junkets — this agglomeration that holds more than four-fifths of the world’s output and trade is doing all it can to prevent another crisis.


“We will move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies,” the October 23 communique said, referring to the ongoing trillion-dollar currency wars. But take a walk outside these meetings and depending upon the prism you choose, what you see is either an unconscious crumbling of the informal G20 infrastructure or its conscious and pragmatic destruction at the alter of nationalism.


Two, this conglomeration of the world’s 20 largest economies that got reincarnated in the November 15, 2008 Washington Summit — two months after the fall of Lehman Brothers — has, after taking tax sops from households, forgotten the reason why it was created: to handhold consumers out of the greatest economic crisis to have hit planet earth since the Great Depression.


Unfortunately, the political strength of the G20 seems to be bowing before the drivers of global finance who are resisting and even publicly opposing any reform of institutions that seem to be “too big to fail”. The regulatory oversight that the G20 was supposed to provide leadership for is just some jargon-filled words, tucked away in an invisible corner of serial-communiqués. This is ironic: backed by democracies (17 out of 19 countries are democracies, China and Saudi Arabia are the deviants, while EU is a collective), the G20 is not being able to make good the promises it made. It stands weak-kneed before a handful of titans of global finance on Wall Street.


So, no action against the shameless executives who while filling their pockets with hundreds of millions of taxpayers’ dollars led them to economic disaster — wilfully. Having done that, no reforms to ensure that consumers are protected and that in future such disasters do not recur. Financial innovation — or the creation of complex products that are created to deceive rather than to serve consumers (the primary role of finance) — will continue. Politically, we will hear hyper-moral words that will be drowned in hyper-ineffective actions. Loud political statements of intent: Yes. Effective and protective action to serve consumers: No.


The stable economic road to recovery that the G20 was expected to build is soon going to be potholed with distortions of all kinds, as one country after another resorts to economic frictions such as raising trade barriers, competitive currency devaluations and abnormally-low interest rates to support businesses. Individual country actions outside the G20 negotiations are resorting to bad long-term economic decisions to serve petty short-term politics.


In all this, emerging nations have become bystanders, though India’s role as a thought leader (but not an action driver), is a saving grace. Two weeks from now, Prime Minister Manmohan Singh must use that leadership and re-inject intellectual capital into the G20 by rejecting all diversionary and frictional tactics, the latest of which is US Treasury Secretary Timothy Geithner’s proposal to limit trade surpluses or deficits to 4 per cent, a plan that India, Russia and Germany rejected.


The G20 needs to be resuscitated. And now that the macroeconomics is more or less in place, it’s time for our leaders to do two things. One, create a working policy design for preventive action against future crises through stringent regulations. And two, focus sharply on consumers and businesses, not merely investors and bankers. Else, wind up the G20.