Abstract: The G20 made significant progress yesterday. Yet the developing world’s needs for real resources, representation and recognition, fared poorly. The G20 is far superior to the G8 and should be welcomed. But it is still an unstable coalition to garner the support needed to build a renewed global economy. Diverse interests must give way to the need for more growth-driven sustainable and shared outcomes. The G-20 has begun to show enlightened leadership. More is needed.
The euphoria surrounding the G20 Summit’s final communiqué and the response from global markets highlights the good news: a $1.1 trillion package; increased global financial regulation; commitments to avoid protectionism and conclude the Doha Trade Round; and a reaffirmation of the commitment to help developing countries attain their Millennium Development Goals (MDGs) by 2015.
But what is the payoff for developing countries? Is there much that is tangible? Or is it mostly smoke and mirrors?
There are some positive developments. First, the very presence of countries like China, India, Brazil, South Africa, Turkey, Indonesia, Mexico, etc. in a summit to address reforms and actions for this largely unprecedented global crisis signals a change in the distribution of global economic power. It especially recognizes the rise of Asia and of the oil-producers. Second, some additional access to resources for developing countries is clearly included. And thirdly, there are the usual promises on trade, MDGs, representation, all of which need stressing but have yet to be made credible.
The euphoria surrounding the G20 Summit’s final communiqué and the response from global markets highlights the good news: a $1.1 trillion package; increased global financial regulation; commitments to avoid protectionism and conclude the Doha Trade Round; and a reaffirmation of the commitment to help developing countries attain their Millennium Development Goals (MDGs) by 2015.
But what is the payoff for developing countries? Is there much that is tangible? Or is it mostly smoke and mirrors?
There are some positive developments. First, the very presence of countries like China, India, Brazil, South Africa, Turkey, Indonesia, Mexico, etc. in a summit to address reforms and actions for this largely unprecedented global crisis signals a change in the distribution of global economic power. It especially recognizes the rise of Asia and of the oil-producers. Second, some additional access to resources for developing countries is clearly included. And thirdly, there are the usual promises on trade, MDGs, representation, all of which need stressing but have yet to be made credible.
The disappointments for developing countries are three fold:
1. Resources: The $1.1 trillion, which includes some earlier announced commitments, is largely assigned to the IMF, with some $100 million to the Multi-lateral Development Banks (MDBs) such as the World Bank, to support their ongoing initiatives including the very important ones on trade financing. However, of the IMF’s overall increase of $750 billion, $250 billion of SDRs are reserved for the developed countries, the largest part of the other $500 billion is expected to be availed of by Eastern Europe and a few emerging economies such as Turkey, and with countries like Mexico availing themselves of the Flexible Credit Line. The poorest countries which house the “bottom billion”, especially in Africa and parts of South Asia, the Caribbean and the South Pacific, are not given any special attention.. The effects of the global crisis have begun to hit such countries, and exports, remittances, commodity prices are down, while social strife and poverty are up. The lack of specifics for such countries and challenges is deeply disturbing. Clearly, the presence of developing countries did not imply enough voice.
2. Representation: The doubling of SDRs was a golden opportunity to begin to deal frontally with the representation issue now (see my Blog of March 31st), using a new distribution of voting power reflecting today’s global economic weights. This would have been a marvelous test for the larger restructuring that has been on the drawing board for years, and would have been immediate. Promises to move on representation were dutifully made, but no actions are clearly foreshadowed. Clearly, the developing world received lip service but no real recognition, with the exceptions of China and India, whose special roles in the global economy are now formally accepted. Beyond that, there are just new promises.
3. Recognition: The developing world has largely been at the receiving end of the impact of the global crisis. For some, like China and India, this has meant declining growth, but growth nevertheless. For many African countries, current projections suggest a halving of average growth from 6% to about 3% percent, but this is likely to decline during the year. No real recognition is given by the developed countries of the “financial tsunami” shock to the poorest countries, which have also suffered from Great Depression-like external shocks in past decades. It is indeed in the self-interest of developed countries to support developing countries massively, since such resources would all be spent in stimulating the global economy, and not risk being “saved” for other motives as by consumers in the developed world. The social and poverty dimensions of the crisis will need to be part of support to developing countries on the growth front, through especially significantly increased resources delivered with speed and supporting country-driven reforms. The largely routine IMF and MLT development banks’ programs, appended by poorly financed new initiatives will not do the trick. The global order needs to be restructured. This can begin to be done if the G20 goes beyond politically-driven selective group interests. Only even more enlightened leadership will provide the foundation for more growth-driven sustainable and shared outcomes across the entire world, including for the poorest people in the world.
