The group of 20 nations that produce most of the world’s output is at risk of losing its cohesiveness as the lingering effects of the financial meltdown force its members to take varying amounts of pain.
Without institutions to herd the coalition in any particular direction the fear that forged a common response in 2008 is giving way to finger-pointing as G20 economies recover at different speeds. Three of these — South Africa, Brazil and India — are in the fast lane and it makes sense for them to air their common concern at the G20: the West, particularly Europe, must get its act together. South Africa and Brazil, being resource rich, have a lot riding on demand from the EU and the US for everything from metals to food. India, on the other hand, needs cash to buy energy and security in the global marketplace. A European debt crisis spinning out of control is in nobody’s interest, and frontline emerging economies need a loud voice to drive home the point.
The fifth India, Brazil, South Africa summit in Pretoria this week also underscored two issues flagged by Prime Minister Man-mohan Singh pretty early on. One, the spectre of protectionism casts a darker shadow over India where the West has been actively exporting white-collar jobs for well over a decade. High-decibel counter-accusations of currency manipulation by the US and China tend to drown out the more measured, yet valid, fear of the world economy retreating behind high tariff walls. And two, turmoil in capital markets makes meeting development goals difficult for countries like India that have enormous social security needs. Violent reversals of capital flow, as the world has seen over the last three years, can upset the sheltered pools developing countries have created to fund their food, health and education obligations.
To stay relevant, the G20 needs to devise an early warning system for the next crash. It has a set of indicators on the table, but these are unlikely to find universal acceptance. Two of the four indicators measure imbalances within countries — the public deficit and debt, plus the level of private savings. There is little debate over them. The other two indicators of economic health measure external imbalances — the current account balance or trade balance, or foreign currency reserves or real exchange rates. These have proved more contentious. Even lesser issues like fixing Eur-ope’s banking mess and expanding the role of the International Monetary Fund seem to be beyond the group’s ability to forge a consensus. Time is running out for the G20, a coalition hastily cobbled together to take the world out of a crisis, unless it can come up with a mechanism to avert the one unfolding.