Crisis Talks to Confront Dueling Demands*

PUBLISHED ON November 15, 2008 AT 4:49 PM                               |    Print This

Leaders of the world’s 20 biggest economies will confront dueling demands for action when they gather here Saturday in the highest-level acknowledgement so far that the global economy is in crisis.

The most spectacular and damaging financial crisis in more than half a century has spurred a flurry of measures and proposals to stabilise markets, resuscitate stricken economies, tighten financial regulation, and rebalance official finances as governments try to borrow, spend, or hoard their way out of trouble.

The talks also have been dubbed “Bretton Woods II”…
BY ABID ASLAM
Inter Press Service/Truthout
INTERNATIONAL
Posted by Bulatlat

(Washington) - Leaders of the world’s 20 biggest economies will confront dueling demands for action when they gather here Saturday in the highest-level acknowledgement so far that the global economy is in crisis.

The most spectacular and damaging financial crisis in more than half a century has spurred a flurry of measures and proposals to stabilise markets, resuscitate stricken economies, tighten financial regulation, and rebalance official finances as governments try to borrow, spend, or hoard their way out of trouble.

The talks also have been dubbed “Bretton Woods II,” an evocation of the 1944 conference that resulted in the creation of the International Monetary Fund (IMF), World Bank, and General Agreement on Tariffs and Trade.

Finance ministers are to meet Friday before Saturday’s unprecedented summit of leaders from the Group of 20 (G20) rich and emerging economies. Together, they account for some 80 percent of the global economy.

President George W. Bush agreed to the talks under pressure from French President Nicolas Sarkozy, currently also the EU president. Sarkozy has pushed for urgent international action amid intensified stress at home, as has British Prime Minister Gordon Brown.

Bush, seeking to leave an international legacy of more than war and financial collapse, agreed, but moved to reduce European influence and to distance the proceedings from parallel efforts under United Nations auspices. First, he opened the talks to the entire G20, not just to the Group of Eight (G8) advanced industrial nations. Second, he moved them from New York to Washington.

Bush described the summit as the first in a series dedicated to securing the future of “democratic capitalism.”

Beyond broad agreement, reached last week, that stimulus spending is needed to avert a global recession, there appears little concord on goals and methods.

Europeans want universal banking regulations and broad changes in financial governance. The Bush administration stands opposed and Barack Obama, who is to replace Bush on Jan. 20, 2009, is considered likely to back increased stimulus spending and tougher national regulations but unlikely to agree to set up a global regulator.

Obama, in keeping with protocol, will not take part in the summit but has named surrogates who will attend. European countries have proposed another session in February.

The U.S. president-elect has yet to designate a treasury secretary. Of the presumptive candidates, only one - former Federal Reserve chairman Paul Volcker - is considered sympathetic to calls for greater international regulation, said Benn Steil, director of international economics at the Council on Foreign Relations, a think tank.

Sarkozy and Brown also have proposed setting up an early-warning system to catch imbalances in financial markets and expanding the IMF’s role as global financial watchdog and lender of last resort to countries whose finances are at risk of evaporating.

Russian Finance Minister Alexei Kudrin on Monday countered those calls with demands that the IMF be shrunk to make way for new international financial institutions. Other Kremlin officials have said the IMF should jettison political conditions when lending to poor countries.

This chimes with calls from international charities and many non-G20 developing countries - of which there are some 100 - for a relaxation of what many regard as a Western, free-market monopoly on acceptable economic policymaking.

The United States and European countries - the IMF’s major shareholders - wrought the current crisis by bucking the agency’s prescriptions for sound financial management yet the fund has stood by and endorsed massive deficit spending and state takeovers of failing financial institutions, said Kumi Naidoo, chairman of the Global Call to Action Against Poverty, an umbrella pressure group.

The IMF routinely denies its poorer shareholders such options, Naidoo said. Instead, it offers them temporary budget relief in exchange for punishing austerity and increased exposure to unstable short-term foreign investment

“Now it will be very difficult for the World Bank and IMF to retain legitimacy if they don’t move towards a more compassionate capitalism,” he said.

The IMF recently announced a no-strings-attached emergency loan programme but said this would be available only to countries receiving a clean bill of health; those whose economic policies fall short of IMF requirements would receive traditional, conditional balance-of-payments financing.

A number of poor countries acknowledge they will need a safety net for the high wire act of getting through the tough times ahead but they harbour misgivings over the fund’s performance in past crises. They blame it for precipitating the “lost decade” of the 1980s, when Africa suffered roaring poverty, and for fanning the flames of the Asian financial crisis of the late 1990s and its Russian and Latin American aftershocks.

Brown has called on China to use its 1.8-trillion-dollar reserves - the world’s largest - to buttress the IMF’s finances. Beijing retorted that it would focus on its own economy, having announcing last weekend a 586-billion-dollar, two-year package of domestic stimulus spending on construction, social programmes, and tax cuts.

Beijing also is demanding a larger vote at the IMF, where the world’s most populous country and second largest economy (in purchasing-power parity terms) has no greater say than that of minuscule Belgium. Many developing countries share Beijing’s view that they merit a greater say in what the IMF does and how it does it. Most are impatient with progress to date in updating the agency’s mid-20th Century shareholding and voting arrangements.

Brazilian President Luiz Inacio Lula da Silva, who also is acting president of the G20, echoed those concerns earlier this week, saying: “This situation means that we also think about change in multilateral institutions which have lost much of their representativeness in the last years.”
Nor is the G20 - admittedly more inclusive than the G8 - sufficiently representative to come up with solutions on behalf of the rest of the world. “Our way out has to be global,” Lula told a news conference.

Established in 1999, the G20 consists of the G8 - Britain, Canada, France, Germany, Italy, Japan, Russia, and the United States - plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea and Turkey, with the last slot taken by the European Union (EU) as a bloc.

* Originally posted at Truthout, November 13, 2008