The first is in world leaders’ acceptance of the reality that the global economy today is one that can only be managed successfully – with stable markets offering continuing opportunity for human development and growth – if it is managed jointly.
The second is the crafting a coherent set of strategies to address the challenge of the crisis. Doing ‘what it takes’ in the way of fiscal expansion and monetary policy stimulus may not satisfy everyone but the political energy and will that has surrounded these commitments, and the substantial range of programs that have already been put in place around the world, will be more secure for what has been done in London. By the end of the year the concerted fiscal expansion should amount to US$ 5 trillion, lift world output by 4 per cent and lead re-structuring towards a more sustainable pattern of production. The dramatic lift in IMF funding, from US$250 billion to US$750 billion with extra provision for developing economies, the new SDR allocation of US$250 billion, an additional US$250 billion for trade financing, and an extra US$100 billion for the multilateral development banks, will boost confidence in access to liquidity for vulnerable economies and provide all up an additional US$1.1 trillion to restore the world economy. Commitment to reform the governance of the IMF and the other international financial institutions will better reflect the changes that have taken place in the world economy – including the increased stature and responsibilities of China and the emerging economies. The commitment to strengthening financial supervision and regulation includes domestic action as well as international action through the establishment of a new Financial Stability Board to improve international capital market regulation, including targeting tax havens and extending oversight over credit rating agencies. And there was re-affirmation of the standstill on trade and investment protectionism.
Third, G20 leaders agreed to meet again before the end of the year. Re-convening early is an important statement about both the priority attached to the process and the seriousness of purpose on its substance. Success in engineering a rapid and sustained recovery depends crucially on entrenching the G20 as the theatre for global economic action, building an infrastructure that will help to make its work effective and continuation of a process that must shift the emphasis over time from stabilisation to sustainability and growth.
This course represents a major step forward in reform of global economic governance and the creation of a new world economic order. It is a triumph of initiative and vision over established power and institutional atavism. But it is only the first step. There is a constituency beyond the G20 yet to be engaged. In Asia, that means bringing along and mobilising the region beyond the Asian G20 participants. In Europe that challenge is even more formidable.
The Asian participants in the G20 emerged as an important and constructive force. China stepped forward on all fronts, with the promise of a significant elevation of its role in the funding and governance of the IMF. Japan made a substantial contribution to the expansion of IMF liquidity. Indonesia pursued an effective agenda on easing the bottleneck in trade credit. Korea was a staunch advocate of the standstill on trade barriers. India pushed the expansion of credit to the developing world. And Australia played a key role in framing the entire strategy and in the diplomacy that won support for it.
Now the real job of implementing the London agreements and the G20 process itself begins. That is a task that must begin at home, in our region, to deliver on the expectation that East Asia can be at the leading edge of global recovery(see our previous posts on this here, here and here). And the Asian G6 now have a new role and responsibility in making sure the whole region’s weight is brought to bear on making that happen.
Dr Hadi Soesastro senior economist at the Centre for Strategic and International Studies, Jakarta and Peter Drysdale is Emeritus Professor and Head of the East Asia Forum and the East Asia Bureau of Economic Research in the Crawford School at the Australian National University.
Hadi and Peter – Excellent article! You capture the exciting spirit of the times, and inform on the various roles played by the East Asia players. You may want to say more about the Australian role; I had the good fortune to share a luncheon with PM Rudd in DC last week, where his wit and intellect were in full bloom.
Cheers,
Richard Feinberg
Undoutedly the London G20 is a manefistation of the current world reality and an important historic step in shaping a new world economic order. It also contributed to addressing the current quasi depressional financial and economic crisis. No one should deny ththem and enough credit should be given to those who contributed to the process.
It, however, maybe a little premature or too early to assess its achievements in dealing with the current crisis. As I read from the media and commentators, it seemed that apart from a real increase of funds to the IMF and other similar organisations, few additional and new committment were made, either fiscal or monetary and all appeared to be recycling what had already been anounced before. As to the agreement to meet again before the end of the year, different interpretations could be made, depending on how one wishs to see it, similar like half empty versus half full perspectives. The article provides one interpretation. One could also interpret that as it reflected the failure or its unfinished business (while it should have done it) of the G20 meeitn and it has to reconvene and rescue from its failure. undoutedly, there can be other interpretations too.
I would like also to add that while the increase in funds to IMF should be welcomed, whether the IMF can play an effective and constructive role in dealing with real or potential world financial or economic problems is a open question. One should not forget during the second half of the 1990’s when the Asian financial crisis occurred, I remember that many people including many eminent economists critised IMF’s policy precriptions to some if all those Asian economies that received its “help”. Although its “help” provided some international credit/currency to those countries, its policy requirements for those countries were deemed detrimental rather than helpful to those economies. Have they learnt those lessons and are now growing more capable to get things right? That is everyone’s wait to see.