[DEBATE] : G20 - Fanfare & failure,,JAYATI GHOSH

[Riaz K Tayob]

Fanfare & failure

JAYATI GHOSH

The G-20 summit has not come anywhere near pulling out the world economy 
from the unprecedented mess it is in now.

THE much-hyped G-20 summit was supposed to save the world economy from 
imminent collapse and provide much-needed relief to developing countries 
hit by an economic tsunami that was not of their own making. Even before 
the summit was held, it was already being hailed as the first sign of a 
changing global order, since at long last some large and economically 
significant developing countries such as China, India, Brazil, South 
Africa and Argentina were admitted to the "high table" of the 
self-appointed rulers of the world.

Though the G-20 is somewhat larger than the G-8 and accounts for the 
majority of the world's population, it is still an illegitimate 
grouping, in that it completely bypasses the United Nations. Even so, 
there were those who believed that, given the urgency created by the 
global economy apparently in near collapse, it could be the harbinger of 
a new "Bretton Woods" agreement that would reshape the international 
financial architecture, much in the way that the famous conference held 
at Bretton Woods in 1944 managed to do.
VAGUE STATEMENTS

Of course, we should have all known that this was not likely. This is 
because of not only the lack of adequate preparation for the summit and 
of legitimacy and representation from all nations, but also because 
there is still too much disagreement on most issues among the members of 
G-20. Even so, the summit's communique, released with so much fanfare, 
is deeply disappointing, particularly for developing countries.

In fact, there were precious few signs of the major players in the 
global economy acting together to revive it. Instead, there was 
deafening silence on the fiscal front, with no clear commitment to 
coordinated fiscal stimulus. The communique just had some vague 
statements. This reflected the successful resistance of Germany and 
France to the United States' attempts to ensure a collective plan for 
fiscal expansion.

Since there was no commitment to fiscal expansion, there was 
correspondingly no commitment to direct more resources towards new 
technologies and changing patterns of demand to ensure more sustainable 
and equitable use of the world's resources. Nor was there any evidence 
of a binding commitment to specific measures to clean up the toxic 
assets of the world's banking systems.

Instead, the communique simply stated that the leaders of these 
countries "are committed to take all necessary actions to restore the 
normal flow of credit through the financial system and ensure the 
soundness of systemically important institutions" without making it 
clear what such measures would be.

Yet, without such measures, the chances of early global recovery are 
extremely bleak. So exports of developing countries will continue to 
fall, international capital markets will remain skittish and tend to 
punish emerging markets out of sheer nervousness and uncertainty, the 
credit crunch will continue to constrain investment and therefore limit 
recovery, and many countries will find themselves desperately short of 
resources for meeting essential needs and development projects.
FUNNY ANNOUNCEMENTS

Despite these evident failures, two great "successes" of the summit were 
widely trumpeted in the international media: first, the declarations 
about tax havens, banking secrecy and financial regulation; and second, 
the announcement of a supposedly new $1.1 trillion "programme of support 
to restore credit, growth and jobs in the world economy" including $850 
billion, which is supposed to be specifically directed towards 
developing countries.

But the promise of cracking down on tax havens is little more than a 
damp squib. To begin with, the approach chosen has been to agree to 
exchange information on companies and individuals suspected of evading 
taxes only "on request" rather than automatically, thereby reducing the 
efficacy of such a measure.

Second, the issue of misuse of tax concessions by companies – by far the 
biggest issue in tax avoidance – received no attention at all. In fact, 
there was absolutely no attempt to ensure financial reporting or 
exchange of information on beneficial ownership in all tax 
jurisdictions, which would have helped governments crack down on 
corporate tax abuse.

The funniest of them all was the loud announcement of the intention to 
"name and shame" and then blacklist countries that do not cooperate. 
When the list was released the following day, it was laughable.

It consisted of only four territories: Uruguay, the Philippines, the 
Malaysian Federal Territory of Labuan, and Costa Rica. Since none of 
them is well known as a tax haven, and the more established tax havens 
in Europe (such as Lichtenstein and Luxembourg) were excluded by virtue 
of their membership in the Organisation for Economic Co-operation and 
Development, little appears to have been achieved on this front.

The only apparently concrete commitment was apparently the one made to 
poor countries that have been thrown into crisis by the global turmoil, 
by way of pledges of $850 billion in new funds. This sounds like a 
reasonable amount, but how much of it is for real? And how unconditional 
will such money flows be?

Not much, it turns out. For a start, the proposed new allocation of 
special drawing rights ($250 billion) is to be a general allocation, 
based on existing quotas. So the bulk of it will go to the G-20 countries.

The rich world alone will get approximately 60 per cent of the new SDR 
creation. Helping poor countries get more would require a special issue 
of new SDRs – something that was proposed in the International Monetary 
Fund (IMF) in 1997 but vetoed by the U.S. and held in abeyance ever since.
REWARD FOR IMF

Much of the rest of the money will be conditional lending from the IMF, 
which has recently distinguished itself only by its utter failure to 
prevent or deal with financial crises in emerging markets because of its 
aggressively pro-cyclical conditionalities. It is amazing that the IMF 
is being rewarded for multiple failures. This is after all the 
organisation that failed to predict the collapse of the U.S. sub-prime 
market, announced that the medium-term financial outlook for Iceland was 
exceptionally healthy just months before the country was declared 
effectively bankrupt, and has succeeded in making things much worse in 
most of the countries where it has forced its austerity measures in 
return for paltry loans.

So the single greatest beneficiary of this G-20 meeting must be the IMF, 
which would otherwise have been on life support as a global player. 
Indeed, the most disappointing – even most alarming – aspect of the G-20 
communique is the declared intent to prop up and strengthen the IMF 
without doing anything about its completely undemocratic structure of 
decision-making or its unacceptable loan conditions.

What makes this especially troubling is that the IMF continues to impose 
these disastrous pro-cyclical conditions on countries that are forced to 
borrow from it at present: Ukraine, Pakistan and Latvia, for example, 
have all been told to cut government spending and raise interest rates 
and user charges for government services in the middle of the downswing 
in return for IMF loans.

Unfortunately, since the IMF has been given this unconditional gift from 
the G-20 leaders (including those from developing countries who should 
really know better) there is nothing to stop it from continuing to 
behave in this ridiculous and unjust way, which is also based on extreme 
double standards for rich and poor countries.
STIGLITZ REPORT IGNORED

What is particularly unfortunate is the G-20 completely ignoring the 
recommendations of the Stiglitz Commission on international financial 
reform set up by the more democratic international body, the United 
Nations General Assembly. That commission, which came up with its 
preliminary report just before the G-20 summit, made a number of useful 
short-term and medium-term recommendations.

For example, it recommended an immediate new special allocation of SDRs, 
along with a new credit facility for development funds, strengthening 
regional initiatives and providing 1 per cent of all stimulus packages 
as Official Development Assistance. These would actually have made a 
much more positive difference to developing countries than the 
self-aggrandising posturing of G-20.

Even the G-20's commitment to avoid protectionism sounds ominous for 
developing countries, and not only because it is likely to be honoured 
only in the breach. It was stated with the goal of "reaching an 
ambitious and balanced conclusion" to the World Trade Organisation trade 
negotiations – which can only mean forcing more trade liberalisation 
that has already led to agrarian crisis and deindustrialisation in much 
of the south.

The basic problem, though, is that the G-20 has not produced anything 
like the response needed to pull the world economy out of this 
unprecedented mess. Clearly, the idea is to put back the broken pieces 
somehow, to produce more of the same pattern of growth as before. That 
is neither desirable nor sustainable, and will rapidly run into crisis 
once more, at a tremendous human cost. It is a pity that the would-be 
leaders of the world have shown so little generosity or imagination.

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