Only one thing was really new about this weekend’s G-20 Summit: the participation of leaders from ten emerging market countries, not just for coffee breaks, but from beginning to end.
The long communiqué issued at the end of the meeting showed little evidence of any input from the emerging market leaders, however. It was obviously drafted by the finance ministers and would put crying babies to sleep. There are some indications that the G-7 countries are starting to listen to the emerging market countries, but the communiqué is not one of them.
Nevertheless, it would be wrong to expect the emerging market countries to have more of an impact at this meeting for three reasons.
First, the G-20 Summit is a new medium and participation involves a big mental leap for most of the emerging market leaders. It is akin to a baseball player moving up to the major leagues from a minor league team, or a person who has been a bank customer for many years suddenly becoming a member of the Board of Directors. Moreover, the emerging market leaders appear to have fewer interests in common than do the advanced country leaders, and they have not had much time to get their act together.
Second, most of what can be done by national governments to stop the slide toward a deep recession has already been done or is imminent. Clearly actions by the advanced countries were the most urgent, and these countries have not waited for a green light from the G-20 Summit to get started. A key objective of the meeting was to show consumers and investors that the world’s major economic powers are rowing together in the same direction, and this was largely accomplished.
Third, much of the work that needs to be done to fix the system to avoid future crises requires more study and consensus building. In fact, what the communiqué reflects best is the large amount of work that has already been done over the past three years and more in the International Monetary Fund, the Financial Stability Forum, the Basel Committee on Banking Supervision, and other bodies to pinpoint problems and identify possible solutions. What has been lacking until now has been the political will to overcome inertia and vested interests. Now the main obstacle may be uncertainty about how far the Obama Administration will want to go and be able to go.
The communiqué is also clear about the three main tasks in the months ahead: reducing global payment imbalances between surplus and deficit countries, strengthening the regulation and supervision of banks, nonbank financial firms, and financial markets, and improving the governance of the system by giving new powers such as Brazil, China, and India a greater sense of ownership in institutions such as the IMF and World Bank.
Hopefully, it is now widely understood that a second Bretton Woods conference is not likely to be the smartest way to get the job done. Substantial but not radical changes in existing institutions have the potential of achieving satisfactory results more quickly.
President-elect Obama’s decision to remain in Chicago certainly disappointed many if not all of the leaders who traveled to Washington for the meeting, but being politically astute they cannot be too surprised. Governing is very different from campaigning. It is in the interest of all to have Barack Obama prepare “with deliberate haste” for the heavy responsibilities he will assume on January 20.
In the aftermath of the G-20 Summit, the most intriguing question is how the G-8 Summit due to be held in Italy on July 8-10 will be affected. It is hard to believe that another G-8 Summit with an “outreach session” including the leaders from five emerging market countries (Brazil, China, India, Mexico, and South Africa) will be viable. At the same time, Europe and Asia seem to be over-represented in the current G-20 group, and Argentina’s inclusion is an embarrassment. Stay tuned. It will be fascinating to see how big the table will be after the dust has settled.