Global Trends by Martin Khor
Monday 30 March 2009
Week of decision for world economy
Group of 20 meets in a summit meeting in
This will be a crucial
week for the fate of the global economy, as political leaders meet in
It will be the second meeting of the so-called “Group of 20”. The first was hosted by former United States President George W. Bush last November, and it launched what was to be a series of Summits to reform the world financial system.
While the inaugural
meeting was a political launching of principles, the
The G20 has however
been attacked for being an exclusive club of rich and big countries
that lack legitimacy because it is unelected and most countries are
not represented. Thousands of protestors have already taken to the
But still, expectations
run high. The
It is ironic that Soros, who more than a decade ago had become the most famous or infamous investor and hedge-fund operator that manipulated markets to make billions of dollars of profits, is now one of the world’s fiercest critic of “market fundamentalism” and advocate of change.
Soros has called for an overhaul of the global system, even as he continues to profit from it. The Times reported that he earned another billion of dollars last year by betting on the shape of the recession.
Prospects for the
meeting’s success have been lowered in recent days because of disagreements
Most European leaders
want to push for stronger global financial regulations to prevent future
crises. However this is being resisted by the
A pact on “fiscal
stimulus” is being resisted by German and French leaders who fear it
may lead to inflation, a new “bubble” and another crisis in future.
The Prime Minister of the
There is the suspicion
that the US and
That the US and
Europe are not prepared for basic changes is shown by the fact that
both want to use the
The IMF had lost credibility and business because of the wrong policies tied to its crisis loans, especially during the Asian crisis. It governance and voting system is undemocratic as it marginalizes the developing countries.
But more than ten countries have had to take new loans from the IMF in recent months as their economies plunged into crisis.
The Western countries
want to double or treble the funds available to the IMF so that it can
lend to more countries in trouble, and this revitalization of the IMF
is likely to be the main outcome of the
A recent study by the Third World Network has however shown that in the new loans given to Eastern European countries and developing countries like Pakistan, the IMF is still tying its loans to tight monetary and fiscal policies, opposite to the reflationary policies that the US and Western Europe are undertaking.
Boosting the power of the IMF before reforming it is a step backwards and not forwards.
The developing countries, which are becoming the main victims of a crisis they did not create, face a gap in external financing of US$270-700 billion this year, according to a World Bank estimate.
The United Nations Secretary General Ban Ki-Moon last week called for new funding of one trillion dollars (to be used in two years) to assist developing countries to counter the crisis.
These massive funds need to be made available, and they should not be tied to the recession-inducing IMF-type conditions, otherwise many developing countries will fall into a new debt trap, with decades of economic stagnation and social strife.
However, the G20 meeting is unlikely to make the right decisions that the developing world requires. Thus, the double standards are likely to continue – on one hand, the developed countries will challenge one another to use Keynesian policies to boost their sagging economies, and on the other hand the IMF will be the recipient of hundreds of billions of new funds, which it will use to get crisis-laden developing countries to take on tight monetary and fiscal policies.
The G20 has also come under severe criticism for being mainly a club of the rich, which is self-selecting and which has no legitimacy as it leaves out most countries.
At the United Nations
The report proposes wide ranging reforms to the world financial system and measures to counter the recession in ways that aim to benefit developing countries and the poor.
The UN is also planning
to hold its own
If the G20 fails to come up with results this week, the action (at least where developing countries are concerned) may well shift to the more inclusive UN process.