by Salil Sarkar
Article published on the 2009-03-31 Latest update 2009-03-31 20:32 TU
The current recession is worldwide, the worst since 1940s and G20 leaders are in London to discuss how to get out of the mess.
The 20 countries together account for around 85 per cent of the world economy. And the existence of the group of 20 major economies denotes a change in the economic balance of power in the world.
Brazil, Russia, India and China (the Bric group as it is dubbed) are still nowhere in terms of aggregate wealth compared to the world’s rich countries. But they’re “emerging”, says conventional wisdom.
Tentative answers should have been agreed and drafted by G20 finance ministers and other top economic officials who met near London mid-March this year.
But after a day or two of talks on how to combat a global economic contraction, the top finance officials came up with a statement promising “whatever action is necessary”, to revive consumer demand and revive global markets!
They issued general statements on committing more money to help developing countries and the emerging markets of Eastern Europe, where the downturn has been provoking street protests. They also pledged to step up efforts to revive bank lending and regulate hedge funds.
Rhetoric aside, what is clear for now is that no precise response to the crisis has been defined. Besides, G20 financial wizards, notably in the rich countries, disagree on what to do.
The US speaks of spending trillions to stimulate the economies, the eurozone states want more regulation of financial activities worldwide.
So far, the US government expects to spend (deficits included) up to 2 trillion USD to overcome the crisis.
China, in straits less dire, has already adopted a stimulus plan worth 500 billion euros, about 590 billion USD.
Another controversial move comes from the rich countries that want to increase financing “very substantially” to the IMF. This, it is hoped, would aid smaller economies.
China and other “emerging” countries do not agree. They say they must more power inside the IMF. Since that would translate into less clout for the US and its European allies, it is a no go for the time being.
The International Monetary Fund (IMF) currently enjoys financing worth 250 billion US dollars. The US wants to up it to 750 billion, but eurozone states want a figure closer to 500 billion USD.
So far, the IMF has pledged support for Ukraine to the tune of a little over 16 billion USD. It has approved 15.7 billion USD for Hungary.
Latvia, Belarus, Iceland, Pakistan and Serbia have also been granted financing, and Turkey and Romania may also request help from the fund soon.
The World Bank, the sister organisation of the IMF, warns of a 700 billion dollar shortfall in developing countries as the IMF asks for donations.
Both generally apply neo-liberal, stoutly pro-market formulas which have systematically led to prolonged stagnation in various parts of the world, notably in Latin America and Africa. Their approaches made the 1997 Asian crisis actually worse.
Thus relying on the IMF to help poorer countries out of the crisis looks like a pipedream.
More ambitious proposals for longer-term reform come from the UN commission headed by Nobel-laureate economist Joseph Stiglitz.
This commission is proposing a Global Economic Council, possibly equivalent to the UN Security Council, but focussing on the world economy. Its proposals are essentially a bigger global reserve system and other institutional arrangements, including steady aid to poor countries, which would not be subject to the veto of rich countries as with the IMF and World Bank.
As it appears, the most important reforms will take place not at the international G20 level, but at national and regional levels.
Real reform is not on the cards. As the US backs stimulus to haul its banks, finance and industry out of chaos, the eurozone rejects criticism that it is not doing enough.
Experts at the European Central Bank say fiscal stimulus in the zone is nearly as strong as in the US. As for west European banks and financial firms, they do not need billions of dollars in bailouts.
Barring Britain, major west European economy and finance officials say most important in bringing the crisis to bay is regulating finance and curbing financial adventures by a handful.
Protectionism is another bogeyman. No obstacles to free trade, say west European leaders, even though some of them are putting up barriers to protect their home markets and jobs.
British Prime Minister Gordon Brown is calling for global standards of financial regulation. He believes the EU can lead the world out of recession by forging a new partnership with the US President Barack Obama.