Originally published on the CGS blog on November 30, 2008.
While diplomats do not save praise for the G20 summit, economists are complaining. Journalists and reporters lamented over the fruitless discussion on the November 15th meeting of presidents and prime ministers in Washington, too. Interestingly, BBC, the New York Times, and the International Herald Tribune labeled the outcomes of the G20 summit as “a plain-vanilla stuff ,” a term coined by Simon Johnson, a former chief economist of the International Monetary Fund. He declared that the national leaders could have agreed on such tepid conclusions without holding a meeting. Diplomats left the American capital city more than satisfied, though.
While creating concrete concepts of the reform of Bretton Woods institutions and better regulation of the credit ratings agencies, conservative economists could have hardly appreciated the final communiqu??. They might have been blinded by soaring costs of the several-dish dinner in the White House, luxurious accommodation in the five star hotels and long escorts accompanying the most powerful people in the world. Practical economists, calling this summit Bretton Woods 2, expected nearly miraculous outcomes from the day-long meeting. Compared to three weeks long original Bretton Woods conference in July 1944, the contemporary world leadership could not, logically, manage to fix old the financial problems in a few hours on the weekend.
Economists anticipated coordinated tax and interest rate cuts and detailed plans of reconstruction of global financial architecture. Having read the communiqu?? from November 15, one of those ambitious frustrated economists said, “what’s new, except that this is the G-20 instead of the G-7?” Irritated at first sight by diplomatic lip service and vaguely formulated principles, he perhaps assumed that G20 presidents and prime ministers would come up with great new ideas about financial regulation. That is to say, heads of states do not figure out anything original since many discussions of pundits have already done so. Additionally, statesmen have various professions and not everybody has an economic or financial background. Angela Merkel has a degree in physics, Gordon Brown in history and Hu Jintao is a hydraulic engineer. Leaders of countries, as people with general overview, usually just direct trends of mainstream development. Therefore, the aim of this summit had to be modest; namely, to agree a work program for reform of the global financial system. And this was actually done. Statesmen worked out a relatively detailed plan for financial reform with short, medium, and long-term goals. Although presidents didn’t suggest a distinguished brand-new reconstruction schedule of the world finance market, it is important that principles, which are not, unfortunately, taken for granted, were confirmed and concrete plans set. The Washington summit could be perceived as pre-negotiations similar to proposals for the creation of new international financial institutions in the early 1940s led by the United States and Great Britain before the prominent Bretton Woods conference started.
Whatever disappointed economists argue, the G20 summit makes a difference. Instead of solving financial issues within small collegiums of rich influential nations, they desire to delegate decision-making about financial regulation to larger forums, such as the International Monetary Fund and World Bank, forums of 185 countries (out of 195 countries in the entire world), no matter how developed they are. In spite of the underrepresetation of poor countries at the summit, the third world was not neglected (maybe thanks to presence of Robert Zoellick, the president of the World Bank). The heads of the most powerful nations, which usually tend to decide within the G8, agreed on international cooperation with all countries and confirmed the Millennium Goals, promising cutting down poverty by 50% by 2015, and pledged to finish the Doha round of world trade talks by the end of the year. What is more, G20 members pointed out that the Bretton Woods Institutions must undergo comprehensive reforms reflecting changing economic weights in the world economy, which means giving a greater field to emerging and developing economies. As Brazilian president, Luiz Inacio Lula da Silva , put it “the G8 doesn’t have any more reason to exist…the emerging economies have to be taken into consideration in today’s globalized worldΓǪ Both the IMF and the World Bank should open themselves to bigger participation of developing economies.”
The Washington summit made progress also in specifying how the financial markets should be regulated. All G-20 members committed to undertake a Financial Sector Assessment Program (FSAP) report to make their regulatory systems transparent. Due to the Washington Summit, we can expect common regulation of credit ratings agencies, which are blamed for the global financial breakdown. G20 leaders also demand obligatory official registration of such agencies. Angela Merkel , German Chancellor, claimed: “I think we took important steps toward global economic order, toward global regulation of business and global market oversight… I am therefore extraordinarily satisfied with the conclusion of the meeting.”
Despite current American lame-duck government and difficult transition period, the decision-makers from the G20 succeeded in taking steps towards more secure financial market. Interestingly, although many positives could have been identified, the press was inclined to believe gloomy interpretations of conservative opinion makers and economists. This, together with the fact that the attention to the first high level summit of the G20 faded immediately after the heads of states actually met causes that the Washington summit disappears among many other “unimportant” conferences. However, this meeting was just a beginning. A group of decision-makers will gather together again by April 30, 2009. Since Barack Obama will be in the White House, the summit may set more ambitious aims, last longer and perhaps turn into the real Bretton Woods 2.
