G-20 Statement & My Interpretation - Part 2

In a previous post, I went over the first half of the G-20 statement with my impressions of what it means.  Here is the second half.

Strengthening our global financial institutions

17. Emerging markets and developing countries, which have been the engine of recent world growth, are also now facing challenges which are adding to the current downturn in the global economy. It is imperative for global confidence and economic recovery that capital continues to flow to them. This will require a substantial strengthening of the international financial institutions, particularly the IMF. We have therefore agreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalization, infrastructure, trade finance, balance of payments support, debt rollover, and social support. To this end:

It is in the interest of the developed countries like the U.S. that the developing countries continue to grow.  That means that they have to have access to capital, and we are committed to making sure that they have it.  Many of these countries are really hurting now, but they were a big positive factor in world growth before the crisis hit.  Getting them moving again will help everyone.

• we have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary; and we support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.

These are very significant commitments, yes they are serious about helping out the emerging markets.

18. It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries’ balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexico’s decision to seek an FCL arrangement.

Honestly I am not that familiar with the intricacies of the FCL.  However, when a crisis hits, capital tends to flow away from developing markets in a flight to safety, and the IMF is attempting to offset this.

19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.

More global liquidity would be a good thing.  I don’t think they are referring to unreasonable searches and seizures here though.

20. In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy. So alongside the significant increase in resources agreed today we are determined to reform and modernize the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalization, and that emerging and developing economies, including the poorest, must have greater voice and representation. This must be accompanied by action to increase the credibility and accountability of the institutions through better strategic oversight and decision making. To this end:

Emerging market countries will have more say in how the IMF s run. My guess that the emerging market that ends up with the biggest increase in influence there is China.

• we commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011;

China we need you to give more to the IMF and you will have a bigger say.  To a lesser extent this is true for Saudi Arabia as well.

• we agree that, alongside this, consideration should be given to greater involvement of the Fund’s Governors in providing strategic direction to the IMF and increasing its accountability;
• we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated time scale, to be agreed by the 2010 Spring Meetings;
• we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.

Accountability and transparency is good, even at the World Bank and the IMF.  Having competent people running them is important, rather than appointing a bunch of political hacks.

21. In addition to reforming our international financial institutions for the new challenges of globalization we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.

Resisting protectionism and promoting global trade and investment

22. World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras. To this end:

World trade is a good thing, and restricting it is bad.  The recent rapid decline in world trade is very troubling.

• we reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010;

No repeat of the Smoot Hawley Tarriffs.

• we will minimize any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries;

No saying, we need to make loans here at home, sorry poor countries no loans for you.  No “buy domestic” rules for fiscal stimulus packages.

• we will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis;

Since we know we can not be trusted on our own to stand up to the domestic political pressures that will call for protectionist steps, we want the WTO to call us out on it if we do start to go down the protectionist route

• we will take, at the same time, whatever steps we can to promote and facilitate trade and investment; and

We will actively work to promote trade.  Everyone does this for exports, the rub will be if imports are also facilitated.

• we will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.

MDB’s are the multinational development banks, the smaller regional versions of the World Bank/IMF.  This puts an actual number, and a fairly aggressive one on the support for these institutions.  This is a very worthwhile move.

23. We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.

Let’s get the stalled world trade talks back on track.  Serious differences remain though between developed and developing economies, most notably in the area of agricultural subsidies.

24. We will give renewed focus and political attention to this critical issue in the coming period and will use our continuing work and all international meetings that are relevant to drive progress.

Let’s keep on meeting

Ensuring a fair and sustainable recovery for all

25. We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognize that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognize our collective responsibility to mitigate the social impact of the crisis to minimize long-lasting damage to global potential. To this end:

If you think we are hurting, poor countries are really taking it on the chin, and we caused the problems not them, we should help them out.

• we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;

A historic commitment that so far has mostly gone unfulfilled, particularly from the U.S.  You think it  will be easier to increase aid now that the world is in recession than it was when the world was growing?  Nice boilerplate though.

• the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets;

A nice start, about one Citibank bail out for the whole world combined.

• we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank’s Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund;

It will be interesting to see how many of these bilateral contributions actually come through

• we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;

A small but useful step

• we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.

We want the IMF, World Bank and UN to write a bunch of reports that no one will read.

26. We recognize the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labor market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labor market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organizations, to assess the actions taken and those required for the future.

Some nice boilerplate about making sure that labor markets are open to both sexes, the meaning of these statements are most likely open to significant amounts of interpretation and will not be all that binding.

27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.

This is an endorsement of Obama’s efforts to use fiscal stimulus to create green jobs and actually do something about greenhouse gases.  Most of the other developed economies are ahead of us in this regard, so not very controversial, it might have been a year ago, but not now.

28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.

Global warming should be addressed but we will take that up at the “Kyoto II” meeting in Copenhagen later this year.  “Common but differentiated responsibilities” means that there is a lot of disagreement about which countries have to do what and they wanted to paper over the differences for now.

Delivering our commitments

29. We have committed ourselves to work together with urgency and determination to translate these words into action. We agreed to meet again before the end of this year to review progress on our commitments.

We mean what we say (would you really expect them to say that they don’t plan on turning these words into action).  We will see how much of the above actually happens.  In any case, it was fun getting together folks, let’s do it again sometime soon.

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