The Group of 20 Summit worked at two levels, the political and the economic. Three, if you include the street rabble.
The disconnect between the first two levels was bigger than normal. The first level was politics-plus – geopolitical. The world watched to see if this was going to be China’s coming-out party. The second level was economics-minus. The real tangible act was to resurrect the International Monetary Fund (IMF).
Beijing aspires to be a molder of the world economy. But according to Dan Rosen of the consultancy Rhodium Group, China’s first concern was to avoid criticism for its role in the present crisis. Chinese recycled capital fed US over-consumption, which led to the meltdown. The leaked G-20 draft communiqué indicated Beijing had succeeded.
China’s second, more tangible interest was to change the structure of the IMF. A Chinese head of an international financial institution (IFI) is now very likely. The trade-off is likely to be a hefty contribution to such IFIs.
The multi-polar world is arriving fast and as China is set to be the beneficiary, it is cautious about rocking the boat. Rosen points out, even the talk of replacing the dollar “was not approved” by the all-powerful standing committee of the Chinese Politburo.
Senior IMF officials have been circling the world, arguing that their organisation needed capital. The initial goal was to raise $ 250 billion, but now there is talk of a trillion being ladled out to IFIs.
India has said it doesn’t need its money, but called for IFIs to replace foreign private capital flows. One of Prime Minister Manmohan Singh’s biggest concerns is that the West is going to borrow heavily, soaking up global capital like a sponge.
However, the real game will be to make India more attractive to IFIs. The situation may not be quite that grim, as investors have actually been warming up to emerging economies.