Debapriya Bhattacharya
Today the leaders of the world's major economies (popularly known as the G20) as well as chief executives of a number of regional bodies and global economic institutions will converge in London for the "Summit on Financial Markets and the World Economy."
They will be coming together at a defining moment of modern economic history to devise strategies and measures for recovery and reforms of the global economy. As we do our informed speculation about the possible outcomes of this event, one cannot but wonder about the binding legitimacy and representative credibility of a platform that will deal with a crisis which is systemic in nature.
The London Summit will build on the guidelines of the Washington conclave of G20 held in November 2008. It will take stock of the progress made in the areas of strengthening transparency and accountability, enhancing sound regulations, enforcing prudential oversights, improving risk management and promoting integrity in the financial markets.
The participants will also reflect on actions taken during the last five months to catalyse international co-operation and to reform global financial institutions. The political significance of the London Summit has been greatly enhanced, as it will, inter alia, provide the first global platform to the US President Obama since his election.
The major task of the summit will be to devise ways and means to stem the downward slide of the global economy, if not to prop it up. But it is by now clear that no ambitious global stimulus package will be forthcoming from the meeting. The previously promoted "New Deal" amounting $2 trillion (£1.4 trillion) or a public spending package equivalent to 2% of global GDP has been quietly dropped. It will be now left to the autonomous national fiscal policies and discretionary monetary measures to do the trick. Inability to come up with an integrated international recovery package may very well deprive the world economy of the synergy it so desperately needs.
We understand that a lack of a consensus on a "global package" has a lot to do with the varying diagnostics of the problem. While the US has indicated its preference for the traditional Anglo-Saxon fiscal policy-led remedies, continental Europe has emphasised global frameworks and institutions for regulations and policy co-ordination.
Indeed, this basic difference in diagnosis and prescriptions may influence the evolving perspectives on multi-lateral trade rules, exchange rate management, governance of international financial institutions, and taxation systems.
But the question remains, even if the leaders of the G20 agreed on a set of a far-reaching package for global economic recovery and institutional reforms, how appropriate and adequate they would be, given the limited nature of the platform.
I had an opportunity last month to exchange views with Lord Malloch-Brown, minister of state in the Foreign and Commonwealth office of the British government on my concern about the "missing voice" at the London Summit. Malloch-Brown was on a trip to Geneva to discuss the process and outcomes of the London meeting and the British ambassador invited a small group to a dinner to meet him.
I appreciated the efforts taken by the British government in undertaking a broad-based preparatory consultations for the meeting and recognised the hazards of ensuring adequate representation while keeping the number of participants manageable. Yet I maintained that the Least Developed Countries (LDCs) should have been represented at the London meeting.
Representation and participation
The recent resurgence of the G20 has come about as a default option of the G7(+1). We may recall that the G20 was created as a response to financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance.
Thus, the exclusive group of top seven economic powers comprising US, Japan, Germany, France, UK, Italy and Canada (and sometimes Russia) was expanded to include a set of advanced developing countries.
Prior to the recent summits, the normal practice for the G20 has been that of annual meetings at the level of finance ministers and governors of the central banks. In the face of the global liquidity problem, the importance of the G20 has been greatly enhanced as a number of them enjoy large foreign exchange reserves or current account surpluses.
The heads of state and/or governments of the following 20 countries have received invitations to the London Summit: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Republic of Korea, Russia, Saudi Arabia, South Africa, Spain, Turkey, and the US.
As we can observe, with the addition of the host country UK, G20 has already become G21. In other words, the number 20 is not sacrosanct; it rather reflects the changing economic realities of the world as the group is supposed to bring together "systemically important industrialised and developing economies."
Understandably, invitation to such a high profile gathering will be most sought after. Spain is a case in point, Spain asserted that it was the eight largest economy of the world and finally it, along with the Netherlands, participated in the Washington summit, under the aegis of the then chair of the European Union, French President Sarkozy.
As mentioned earlier, one of the tasks of the London meeting will be norm and standard setting for global economic governance. In view of this, invitations have been extended to key international institutions including the UN, the World Bank, the IMF, the WTO, and the Financial Stability Forum. It is well known that a number of these institutions lack a policy-making and management structure which is either de jure or de facto participatory and inclusiveness in nature.
One cannot but observe a moral hazard when a top-down process is reinforced since this very nature of norm and standard setting remains largely responsible for the current global crisis. Inclusion of the representation of the "affected agents" could have partly neutralised this apprehension.
To explain the legitimacy of the G20 platform, it is often mentioned that these countries represent 90 percent of global GNP, 80 percent of world trade, and two-thirds of the world's population. These numbers not only indicate the overwhelming nature of the representatives of the platform, but also point to a "residual."
Ironically, this residual, i.e. the other one-third constitutes of the poorest people (countries) of the present world, majority of them living at less than $2 per day. These include the Least Developed Countries (LDCs), which account for less than one percent of global trade and less than half a percent of foreign direct investment.
It is not that the organisers of the London Summit have been totally oblivious of this dimension. To ensure balanced regional representation, chair of the New Partnership for Africa's Development (NEPAD), i.e. Ethiopia, the chair of Asean, i.e. Thailand, and the presidents of the European Commission and European Council (Czech Republic) have been invited to the London meeting. At one point, an invitation to the African Union Commission (AUC) was also being considered.
The rightful inclusion of Africa in the London Summit reflects the new focus of the international development community, which may be traced back to the Gleneagles meeting (2001) that considered the Blair-Brown Report on Africa. One may point to the fact that the LDCs are mostly (35 of them) located in Africa and they have been subsumed in the African representatives. However, the continent of Africa is quite diverse and there is a need to give voice to this structurally handicapped group of marginalised economies. For all practical purposes the "unloved" Asian LDCs are not being able to join a collective voice.
The voice of Bangladesh
Global economic reviews indicate that LDCs are the "innocent victims" of this "economic tsunami." Most of the LDCs, if not already hit, are to be significantly affected by the second and third waves of this systemic crisis. But who could have represented the LDCs at the London Summit? The answer is obvious -- Bangladesh, the current co-ordinator of the LDCs in the UN system.
I am unaware whether Bangladesh at all made a case for its participation at the London Summit as the global spokesperson of the LDCs. But it remains a missed opportunity Bangladesh with its development experience and democratic credentials could have added value to the content and endowed the meeting with a broader legitimacy.
After our earlier cited exchanges, I went to listen to Malloch-Brown at ILO where Juan Somavia, the ILO chief made the perceptive comment: "If you are not at the table, then you may be in the menu." This reminded me of the celebrated poem "A Tale of a Cock" of the radical poet Sukanto Bhattacharya. However, I was partly reassured when Malloch-Brown dwelt in his speech with the issue of representation of the London Summit and mentioned that the task is now to pull up the participation at the UN-level to give the outcomes representative credibility and binding legitimacy.
Dr. Debapriya Bhattacharya is a Distinguished Fellow at the Centre for Policy Dialogue.
Today the leaders of the world's major economies (popularly known as the G20) as well as chief executives of a number of regional bodies and global economic institutions will converge in London for the "Summit on Financial Markets and the World Economy."
They will be coming together at a defining moment of modern economic history to devise strategies and measures for recovery and reforms of the global economy. As we do our informed speculation about the possible outcomes of this event, one cannot but wonder about the binding legitimacy and representative credibility of a platform that will deal with a crisis which is systemic in nature.
The London Summit will build on the guidelines of the Washington conclave of G20 held in November 2008. It will take stock of the progress made in the areas of strengthening transparency and accountability, enhancing sound regulations, enforcing prudential oversights, improving risk management and promoting integrity in the financial markets.
The participants will also reflect on actions taken during the last five months to catalyse international co-operation and to reform global financial institutions. The political significance of the London Summit has been greatly enhanced, as it will, inter alia, provide the first global platform to the US President Obama since his election.
The major task of the summit will be to devise ways and means to stem the downward slide of the global economy, if not to prop it up. But it is by now clear that no ambitious global stimulus package will be forthcoming from the meeting. The previously promoted "New Deal" amounting $2 trillion (£1.4 trillion) or a public spending package equivalent to 2% of global GDP has been quietly dropped. It will be now left to the autonomous national fiscal policies and discretionary monetary measures to do the trick. Inability to come up with an integrated international recovery package may very well deprive the world economy of the synergy it so desperately needs.
We understand that a lack of a consensus on a "global package" has a lot to do with the varying diagnostics of the problem. While the US has indicated its preference for the traditional Anglo-Saxon fiscal policy-led remedies, continental Europe has emphasised global frameworks and institutions for regulations and policy co-ordination.
Indeed, this basic difference in diagnosis and prescriptions may influence the evolving perspectives on multi-lateral trade rules, exchange rate management, governance of international financial institutions, and taxation systems.
But the question remains, even if the leaders of the G20 agreed on a set of a far-reaching package for global economic recovery and institutional reforms, how appropriate and adequate they would be, given the limited nature of the platform.
I had an opportunity last month to exchange views with Lord Malloch-Brown, minister of state in the Foreign and Commonwealth office of the British government on my concern about the "missing voice" at the London Summit. Malloch-Brown was on a trip to Geneva to discuss the process and outcomes of the London meeting and the British ambassador invited a small group to a dinner to meet him.
I appreciated the efforts taken by the British government in undertaking a broad-based preparatory consultations for the meeting and recognised the hazards of ensuring adequate representation while keeping the number of participants manageable. Yet I maintained that the Least Developed Countries (LDCs) should have been represented at the London meeting.
Representation and participation
The recent resurgence of the G20 has come about as a default option of the G7(+1). We may recall that the G20 was created as a response to financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance.
Thus, the exclusive group of top seven economic powers comprising US, Japan, Germany, France, UK, Italy and Canada (and sometimes Russia) was expanded to include a set of advanced developing countries.
Prior to the recent summits, the normal practice for the G20 has been that of annual meetings at the level of finance ministers and governors of the central banks. In the face of the global liquidity problem, the importance of the G20 has been greatly enhanced as a number of them enjoy large foreign exchange reserves or current account surpluses.
The heads of state and/or governments of the following 20 countries have received invitations to the London Summit: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Republic of Korea, Russia, Saudi Arabia, South Africa, Spain, Turkey, and the US.
As we can observe, with the addition of the host country UK, G20 has already become G21. In other words, the number 20 is not sacrosanct; it rather reflects the changing economic realities of the world as the group is supposed to bring together "systemically important industrialised and developing economies."
Understandably, invitation to such a high profile gathering will be most sought after. Spain is a case in point, Spain asserted that it was the eight largest economy of the world and finally it, along with the Netherlands, participated in the Washington summit, under the aegis of the then chair of the European Union, French President Sarkozy.
As mentioned earlier, one of the tasks of the London meeting will be norm and standard setting for global economic governance. In view of this, invitations have been extended to key international institutions including the UN, the World Bank, the IMF, the WTO, and the Financial Stability Forum. It is well known that a number of these institutions lack a policy-making and management structure which is either de jure or de facto participatory and inclusiveness in nature.
One cannot but observe a moral hazard when a top-down process is reinforced since this very nature of norm and standard setting remains largely responsible for the current global crisis. Inclusion of the representation of the "affected agents" could have partly neutralised this apprehension.
To explain the legitimacy of the G20 platform, it is often mentioned that these countries represent 90 percent of global GNP, 80 percent of world trade, and two-thirds of the world's population. These numbers not only indicate the overwhelming nature of the representatives of the platform, but also point to a "residual."
Ironically, this residual, i.e. the other one-third constitutes of the poorest people (countries) of the present world, majority of them living at less than $2 per day. These include the Least Developed Countries (LDCs), which account for less than one percent of global trade and less than half a percent of foreign direct investment.
It is not that the organisers of the London Summit have been totally oblivious of this dimension. To ensure balanced regional representation, chair of the New Partnership for Africa's Development (NEPAD), i.e. Ethiopia, the chair of Asean, i.e. Thailand, and the presidents of the European Commission and European Council (Czech Republic) have been invited to the London meeting. At one point, an invitation to the African Union Commission (AUC) was also being considered.
The rightful inclusion of Africa in the London Summit reflects the new focus of the international development community, which may be traced back to the Gleneagles meeting (2001) that considered the Blair-Brown Report on Africa. One may point to the fact that the LDCs are mostly (35 of them) located in Africa and they have been subsumed in the African representatives. However, the continent of Africa is quite diverse and there is a need to give voice to this structurally handicapped group of marginalised economies. For all practical purposes the "unloved" Asian LDCs are not being able to join a collective voice.
The voice of Bangladesh
Global economic reviews indicate that LDCs are the "innocent victims" of this "economic tsunami." Most of the LDCs, if not already hit, are to be significantly affected by the second and third waves of this systemic crisis. But who could have represented the LDCs at the London Summit? The answer is obvious -- Bangladesh, the current co-ordinator of the LDCs in the UN system.
I am unaware whether Bangladesh at all made a case for its participation at the London Summit as the global spokesperson of the LDCs. But it remains a missed opportunity Bangladesh with its development experience and democratic credentials could have added value to the content and endowed the meeting with a broader legitimacy.
After our earlier cited exchanges, I went to listen to Malloch-Brown at ILO where Juan Somavia, the ILO chief made the perceptive comment: "If you are not at the table, then you may be in the menu." This reminded me of the celebrated poem "A Tale of a Cock" of the radical poet Sukanto Bhattacharya. However, I was partly reassured when Malloch-Brown dwelt in his speech with the issue of representation of the London Summit and mentioned that the task is now to pull up the participation at the UN-level to give the outcomes representative credibility and binding legitimacy.
Dr. Debapriya Bhattacharya is a Distinguished Fellow at the Centre for Policy Dialogue.
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