G20 ministers’ meeting

ALTHOUGH the global financial meltdown had extremely negative effects globally, a positive aspect which emerged from this negative impact was that the policymakers of the leading economies of the world are attempting to agree on some measures to avoid such situations in the future.

Although it is difficult to expect full agreement on any such measures due to domestic consideration in their respective countries, the very fact that they have agreed to agree on some measures at least is encouraging.

A meeting which took place in late February among the finance ministers and central bankers of the Group of 20 leading economies saw them agreeing on a set of indicators to identify dangerous global financial imbalances in what is intended to be a step towards the G20’s putting the world economy on a sounder footing.

The G20 comprises the finance ministers and governors of central banks of 19 countries which include some of the developed and developing countries, which are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, UK and USA. The EU makes up the twentieth member.

This grouping has replaced the G7/8 which was known as the “rich man’s club” as the informal steering committee of the world economy.

The ministers have agreed to authorise the International Monetary Fund to monitor “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.”

By April, the Ministers have agreed to develop “indicative guidelines” against which to measure each indicator in order to identify “persistently large imbalances” requiring policy action.

The intentions of the grouping are commendable as they want to take steps to rebalance the economy – making it less reliant on some important countries and equally heavy saving and lending by some others, but with many countries in the grouping bogged down by domestic issues with political implications, how far they can stick to what they agree, critics note, is questionable.

One major issue for disagreement has been what to do about currency exchange rates and macro economic imbalances together with uneven economic recovery with the slow growth in developed economies while some of the emerging economies risk overheating.

Nevertheless, analysts say that the G-20’s recent decisions were notable for their acknowledgement that countries’ national financial and macroeconomic policies can have significant global costs and therefore merit international coordination that goes beyond pledges to pursue appropriate policies.

Jeffry Frieden, an expert on the politics of international financial and monetary relations, has said that little had come of past IMF surveillance initiatives. One sign of whether the G-20’s expressed interest in internationally cooperative efforts to monitor macroeconomic policies was likely – or not – to be translated into action would come from the nature of the future guidelines linked to the indicators, he said.

If the guidelines “are so vague as to be meaningless,” with references, for example, to “appropriate macroeconomic policies,” then little can be expected. On the other hand, if the criteria are “measurable, observable, identifiable, and transparent,” and consequently concrete enough to point to policy faults in specific countries, they could prove more useful.

Current account balances would have been one such observable criterion, and as such, Frieden found it unfortunate that they were not included in the G-20’s list of indicators. But this was symptomatic of an underlying tension, he noted: Many useful indicators for identifying stresses in the international financial system are also very sensitive politically, and monitoring them is thus unlikely to obtain political consensus. Current account balances and foreign exchange valuation might ordinarily have been useful indicators, but China would not have agreed to their inclusion.

It is reported that the Ministers also referred to the current spike in commodity prices and the need to refrain from trade protectionism. Brazil’s Finance Minister had specifically mentioned this aspect when he had said that an “international currency war” could result in trade protectionism.

Pointing to the threat to food security, they reiterated the need for long-term investment in the agricultural sector in developing countries. They also “recognised” the importance of a prompt conclusion of the Doha negotiations.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)