The multi-polar moment

The G20 pact on, and the commitment to, coordinated action on stimulus packages and against protectionism have served to boost sentiment globally

The G-20 summit in London has gone better than might have been expected. The United States and the main countries of continental Europe were able to settle (or paper over) their differences with regard to what needed to be done, there was no walk-out by France’s President Sarkozy, and the Europeans agreed to the need for more stimulus for the global economy while the US agreed to tighter international monitoring of the financial sector. What has emerged is a set of promising decisions that can now be built upon with follow-up action. Even more important, the agreement on, and the commitment to, coordinated action on stimulus packages and against protectionism have served to boost sentiment around the world, and encouraged the conviction that the mistakes of the Great Depression are not about to be repeated.

The most tangible decision is the fresh capital being made available to the International Monetary Fund, which has emerged as the biggest gainer from the global economic crisis. Till the other day, no one wanted money from the IMF because the world was awash in liquidity, and the Fund had been busy retrenching staff and wondering whether it had a role. Now it is back in business, and Mexico has got ready to draw a tranche even though it is not really in foreign exchange trouble. The other hard commitment in London relates to providing trade credit, which had frozen in the last quarter of 2008.

For the rest, the G-20 summit has offered positive statements rather than binding commitments. The protectionist measures taken after the Washington summit of the G-20 late last year have not been rolled back. The promise of giving the emerging market economies a greater say in organisations like the IMF has been repeated, but the earliest when this might happen is after the quota review in two or three years. Also, it is not clear how exactly the $5 trillion worth of stimulus packages stacks up. As for tighter financial regulation, there is the promise of new mechanisms (like a financial stability board) and proper IMF surveillance of the economies of the wealthy countries as well, but final judgment on how much meat there is in all this must remain suspended for the time being. Meanwhile, the headlines have focused on the decision to impose economic sanctions on tax havens—possibly a fall-out of the US anger with Swiss bank facilitation of bank fraud and Germany’s similar experience with Liechstenstein. Whatever the provocation, a corrective was overdue as global capital had engineered things so as to become virtually tax-free in any jurisdiction. Still, the details have to be worked out, and action on the ground could take months if not years.

Summits leave behind them a cloud of hyperbole and assertions about more having been achieved than is actually the case; this is probably true of the G-20 meeting in London. Still, something important has been achieved by agreeing on stimulus packages, coordinated action, and addressing the issues confronting the financial sector. India was a participant in the summit, and Manmohan Singh must have been in his element; his pre-summit dinner speech reflected many of the decisions taken the next day, and his press conference after the summit suggested an air of general satisfaction, including about the tone and substance of the bilateral meeting with President Obama at a time when there are concerns about the directions in which America’s Af-Pak policy is headed. On a broader plane, it is clear that the G-20 has more or less displaced the G-8 as the main international forum for such discussions, representing as it does some 85 per cent of world GDP and reflecting the world’s income diversity.