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What to make of the G20 meeting?

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COMMENTS

7 April 2009 15:47

Peter McCawley is a Visiting Fellow at the Indonesia Project, ANU, and former Dean of the ADB Institute, Tokyo.

The dust has settled a little following the G20 leaders meeting in London last week, and lots of editorials have been written. What does one make of it?  Not a lot, unfortunately.

The main announcements in The Global Plan for Recovery and Reform issued by the leaders consist of two main types – those that refer to quantity (of money), and those that talk about other things such as new forms of global financial regulation, controls over tax havens, and so on.  The latter set of announcements are doubtless useful, but they are likely to take years to put in place. They are not likely to be especially helpful in tackling immediate economic problems.

What about the money? The headlines referred to big figures. The Global Plan talked of 'an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy.' This, we were told, constitutes 'a global plan for recovery on an unprecedented scale.'

Close examination, however, suggests that there is less to this than meets the eye. Much less, actually. Chris Giles, writing in the Financial Times, looked at the figures closely. His key conclusion was that, of the $1,100 billion, '…the new commitments appear to be below $100 bn and most of those were in train without the G20 summit.'

How is this possible? The answer is that, first, to the extent that firm promises can be identified, a good deal of it refers to money already committed before the G20 meeting by, for instance, Japan and the EU countries. Second, a significant part of the rest is money (better called 'money') that the IMF will create by issuing SDRs (Special Drawing Rights), a quasi-currency that the IMF manages. But nobody has ever seen an SDR. You can't buy a cup of coffee or build a bridge with an SDR. Rather, as Giles points out, 'The policy of creating new SDRs…is the equivalent of quantitative easing on a global scale.'

So was the G20 meeting a flop? No, not if you had realistic expectations. It is doubtless useful for the leaders to meet and to urge each other to hold firm to good economic policies. But the flesh is weak. Whether they will implement the fine principles set out at the G20 meeting once they return home remains to be seen. And, in the meantime, it might be useful to suggest to our leaders that, just as Coca-Cola is expected to adhere to 'truth in advertising' principles, so international communiques might be expected to meet those principles as well.

Photo (of London G20 protests) by flickr user JonasPhoto, used under a Creative Commons license.

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