TWN Info Service on Finance and Development (Feb11/05)
26 February 2011
Third World Network

G20 agrees on "indicators" - not "targets", but "guidelines"
Published in SUNS #7093 dated 22 February 2011

Geneva, 21 Feb (Chakravarthi Raghavan*) - Finance Ministers of the Group of 20, after a weekend meeting and considerable haggling over wording, have agreed on a plan on how to measure global imbalances.

In what is described as a two-step process, they have agreed on a set of indicators, and have further agreed to develop and agree at a future meeting in April on "indicative guidelines" against which each of these indicators will be assessed.

The compromise eight-paragraph text of their communique, in some fudged language, questionable grammar and syntax, and as in the past promises of what they will do in future, in effect has agreed on what is described as "not targets" but indicative "guidelines" that will allow the G20 at some future meetings to focus on "persistently large imbalances which require policy actions".

The compromise text of the convoluted sentence and the paragraph (para three of the communique) as a whole is such that each of the contending protagonists can claim victory, and continue to argue on what has been agreed till the cows come home.

Whether it will in fact result in agreement that can help avert a future world financial crisis, and bring about out of the current non-system, a functioning global monetary and financial system is something that only the future (over the next decade or so) can tell.

In their communique issued on Saturday in Paris, at the end of the meeting of Finance Ministers and Central Bank Governors on 18-19 February (posted on the French government website*, and copyrighted to the French "ministere de l'Economie, de l'industrie et de l'emploi"), the G20 finance ministers, in para three, say that they discussed progress made since the Seoul Summit and stressed the need "to reduce excessive imbalances and maintain current account imbalances at sustainable levels by strengthening multilateral cooperation."

In a crucial sentence or two that appears to have been the result of considerable haggling in a working group (co-chaired by Canada and India), the G20 says: "We agreed on a set of indicators that will allow us to focus, through an integrated two-step process, on those persistently large imbalances which require policy actions. To complete the work required for the first step, our aim is to agree, by our next meeting in April, on indicative guidelines against which each of these indicators will be assessed, recognizing the need to take into account national or regional circumstances, including large commodity producers. While not targets, these indicative guidelines will be used to assess the following indicators: (i) public debt and fiscal deficits; and private savings rate and private debt, (ii) and the external imbalance composed of the trade balance and net investment income flows and transfers, taking due consideration of exchange rate, fiscal, monetary and other policies."

The major wrangle apparently was over mentioning "exchange rates" as an indicator of imbalance - with France and Germany persuading China to agree on the compromise (that each no doubt will interpret over the coming weeks and months to mean whatever they want it to mean).

In another paragraph (para 5), the communique says the G20 ministers discussed the consequences of potential excessive commodity price volatility, and have asked their deputies to work with international organizations and to report back to the finance ministers on the "underlying drivers and the challenges posed by these trends for both consumers and producers and consider possible action".

To the poor (and many of the middle classes in the developing world) facing ever rising food prices and finding it difficult to balance their household budgets, there is the reassurance (in the communique) that the G20 is "keeping in mind the impact of (commodity price) volatility on food security" and has "reiterated" the need for long-term investment in the agriculture sector in developing countries.

In a final para, the G20 makes an oblique reference to the turmoil sweeping the Arab world, but apparently at the instance of Saudi Arabia and one or two others, says nothing about the political issues or voice any views on the people's demand for "democracy", regime change and end to autocratic rulers and dictators.

The G20 merely says: "We stand read to support Egypt and Tunisia, with responses at the appropriate time well coordinated with international institutions and the regional development banks to accompany reforms designed to the benefit of the whole population and stabilization of their economies".

[* Mr. Chakravarthi Raghavan, Editor Emeritus of the SUNS, contributed this commentary. The full text of the communique issued by the G20 Finance Ministers can be found]