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Tuesday 22 Aug 2017 | 21:40 | SYDNEY
Tuesday 22 Aug 2017 | 21:40 | SYDNEY

What the G-20 will do

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COMMENTS

31 March 2009 16:55

On Thursday this week, the world’s leaders will meet in London for the second gathering of the G-20, following their November 2008 meeting in Washington.

The economic backdrop to the meeting is grim:

  • Global growth has gone into reverse and joblessness is rising.  In the latest of a series of downward revisions to its forecasts, the IMF has warned that 2009 will see the world economy shrink for the first time in 60 years, with output falling by between 0.5% and 1%, and with the world’s rich economies shrinking by between 3% and 3.5%. The OECD thinks that the unemployment rate in its 30 member countries could approach 10% by 2010 compared with 5.6% in 2007, an increase in the number of unemployed of about 25 million in the rich economies alone, which would be by far the largest and most rapid increase in OECD unemployment in the post-war period. According to the ILO, a lower bound for the increase in global unemployed this year will be 38 million.
  • The trade and financial flows that previously knitted the world economy together are unwinding rapidly. The WTO reckons that world trade will shrink by 9% in volume terms this year, its biggest contraction since the Second World War. UNCTAD estimates that global FDI flows will fall again this year after declining by more than 20% in 2008 while the IIF projects net private capital flows to emerging markets in 2009 to be 82% below their 2007 levels.
  • Protectionism is on the increase. According to recent World Bank research, since the beginning of the financial crisis, governments have proposed and/or implemented roughly 78 trade measures. Of these, 66 involved trade restrictions and 47 trade-restricting measures eventually took effect. Depressingly, since G-20 leaders signed a pledge back in November last year to avoid new protectionist measures, 17 of the G-20 have implemented measures whose effect is to restrict trade at the expense of other countries.

So what can the G-20 do to improve this dismal international economic environment? According to cynics, not very much. Some sceptics have even suggested that it would have been more appropriate for the meeting to have occurred one day earlier, on April Fool’s Day.

While we should not expect anything too dramatic from the London Summit the G-20 should certainly be able to do better than become the belated punchline of an April Fool’s joke. 

There are two ways to get a handle on what’s likely to come out of Thursday’s meeting.

The first is to read the communiqué issued by G-20 finance ministers and central bankers earlier this month and treat it as guide post for this week’s meeting. The earlier meeting canvassed fiscal and monetary stimulus, bank restructuring and recapitalisation, more resources for, and reform of, the IMF and other international financial institutions, and the expansion of membership of the Financial Stability Forum.

The second approach is to take a look at the draft communiqués for the London Summit that have been reported in the world’s press over the past week or so. These are broadly consistent with the G-20 Finance meeting, with commitments to: restore growth via the application of fiscal and monetary stimulus; to deal with toxic assets; to reform and beef up the IMF; to make some move towards international financial reform; and to hold the line against protectionism — both of the trade and financial varieties.

While on the surface these sound like reasonably ambitious commitments, the G-20 should be able to deliver something along these lines quite comfortably, given the progress already made in member economies. What is unlikely is that they will do any better than this. That said, the very fact that the G-20 leaders meetings now have a big chance to become part of the international economic architecture should itself be accounted a significant achievement. The old G7/G8 framework has long since been discredited and this new model is very overdue.

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