The fizz in the meetings of the Group of Twenty nations (G-20) seems to be fast evaporating. That, at any rate, is what is apparent from the outcome of the recent Cannes summit. The group, created in 1999 in the aftermath of the Asian financial crisis, witnessed an enhancement in its stature in 2008 in the wake of the global economic downturn. It now seems to have entered a blind alley on the ways to get the world economy back on track. The leaders’ declaration contains the familiar list of imperatives, but what it lacks is a set of concrete decisions in areas that are waiting to be fixed, failing which the global economy would be staring down the barrel once again.
The immediate cause for concern is that G-20, as a collective, was unable to provide any way out for the troubled European economies. The group showed little appetite for crafting a bailout package for these economies and, as a result, debt-ridden Italy was forced to agree to the International Monetary Fund (IMF) monitoring its austerity programme. The BRIC (Brazil, India, Russia and China) countries made a vain attempt to launch a discussion on this issue through some sympathetic statements about providing financial support to Europe. India reportedly said it could consider joining an IMF effort if Europe’s own rescue efforts fail. Not surprisingly, almost all constituencies from within the continent have dubbed the Cannes summit a failure.
This perception will be strengthened by the fact that G-20 did little to push the agenda of the Seoul Development Consensus for Shared Growth, which was the highlight of the group’s Seoul summit. One very important aspect of the Seoul Development Consensus was that it was intended to be a game-changer as far as G-20 was concerned. In Seoul, for the first time, G-20 agreed on a multi-year action plan on development that presented concrete actions over the medium term with respect to some of piquant problems facing the global community.
The outcome of the Cannes summit castes the group back to the crisis mode, with leaders focusing once again on issues that are of immediate significance. One key outcome of the summit is the Cannes action plan for growth and jobs whose focus, at least in operational terms, is on short-term vulnerabilities and the restoration of financial stability, even if some of its dimensions have a medium-term perspective. Under this plan, several countries have expressed their commitment to implement specific measures that would reduce the vulnerabilities of their economies. For instance, India has made three commitments: (i) to strengthen revenue mobilization through tax reforms, including a unified goods and services tax and overhauling the personal and corporate tax code; (ii) improve infrastructure investment; (iii) phasing out wasteful and distorting subsidies in the medium term, while providing targeted support for the poor.
The steps that G-20 leaders have suggested for putting the international financial system on an even keel fail to break new ground. As the global economy tethers at the brink of another crisis, what should be of considerable concern is that the regulatory dimensions of global finance largely remain in the works. The biggest source of worry is that the implementation of the Basel norms for reducing the downside risks of the banking sector has been tardy. But the G-20 leaders do not seem to have been unduly concerned about it. However, one of the moves in the right direction is the endorsement of the framework for the Systemically Important Financial Institutions developed by the Financial Stability Board (FSB), the agency established to coordinate, at the international level, the work of national financial authorities and international standard-setting bodies. FSB has proposed a comprehensive policy framework, comprising a new international standard for resolution regimes, more intensive and effective supervision, and requirements for cross-border cooperation and recovery and resolution planning, among others. Further, FSB has proposed additional loss-absorbing capacity for those banks determined as global systemically important financial institutions (G-Sifi) from 2016. The first step towards bringing G-Sifis under surveillance is their identification by FSB and the Basel Committee on Banking Supervision, an initial set of 29 globally systemically important banks.
The financial sector has always been the focus of G-20, given that this area has engaged the group since it became a reality in the late 1990s. But after it became a major forum for the engagement of the leaders from the most influential countries, G-20 has been looked upon to provide critical political support to move the processes in several global forums, whose outcomes are significant for the long term sustainability of the global economy. Two of these forums looking for support from G-20 are the World Trade Organization and the United Nations Framework Convention on Climate Change, for they find themselves in a political logjam. Strong endorsement by the leaders of the group was, therefore, required to help move the negotiations in these two forums towards a consensual solution, one which is supportive of the long-term sustainability of the global economy. The Cannes declaration disappoints yet again: it fails to deliver what was expected of it.
Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi
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