Monday, April 6, 2009

The G20 is Changing the World

The G20 is Changing the World
United Daily News editorial (Taipei, Taiwan, ROC)
A Translation
April 6, 2009

The Group of Twenty (G20) London Summit, the focus of world attention as major stock markets rose and fell, has adjourned. The results of the summit were better than expected. They have already changed the face of a world suffering from economic recession. In the face of such change, Taipei must acknowledge the harsh realities, and change in response.

The cacophy surrounding the G20 summit cast a shadow over the prospects of the member nations. But this is the weakest the global economy has been since World War II. No one could afford to have the summit fail. Therefore it adjourned with smiles all around. Never mind that France and Germany walked out. Never mind that Mainland China and the United States failed to address the divisive issue of international reserve currencies. Never mind that the London Summit Communique set grand goals and made long-winded declarations. It nevertheless came up with three specific measures to save the global economy. These include tripling the International Monetary Fund (IMF) reserves, expanding IMF issued Special Drawing Rights (SDR), and providing trade financing. The communique remained deliberately ambiguous regarding increased fiscal stimulus programs, international financial regulation, and anti-protectionism measures.

The summit failed to persuade the United States to honor the G20's collective commitment to increase public expenditures. But President Obama successfully prevented the G20 from becoming a "Badmouth the United States" summit. France and Germany, which wanted to establish an explicit regulatory framework in international financial law, failed to achieve their goal. Mainland China, Russia, India, and Brazil, as emerging nations, wanted their voices heard. Although the IMF offered a pulpit, they were unable to make themselves heard. The G20 Summit Communique failed to satisfy participants, but it gave outsiders a field day, especially the new democracies of Eastern Europe. IMF funds have been increased to 750 billion USD. Therefore the IMF can act as an emergency fire brigade. It can provide financial assistance to governments in crisis. It can prevent financial crises in individual nations from becoming regional crises. It can provide insurance against global financial instability. Every nation benefitted. Once the communique was issued, every major stock market rose.

The G20's large-scale injection of resources into the IMF increased its ability to rescue ailing economies. Emerging economies have also injected resources into the fund. This will promote substantive reform of the IMF, including improved representation, changes in financing, and the establishment of SDRs. Long standing mismatches between IMF representation and the economic strength of member nations has led to imbalances in IMF member nation oversight. It has also allowed poor countries to become the economic tools of rich countries. This has led to even more uneven development, and current demands for reform.

More importantly, the issuance of SDRs is the exclusive prerogative of the IMF. The expansion of this prerogative will pave the way for a new international reserve currency. Next year is critical. The SDR basket composition is reviewed every five years. In addition to the US Dollar, the Euro, the Japanese Yen, and the British Pound, the rapidly rising Renminbi is the international currency that has caught everyones' attention. A prerequisite for the review of the SDR basket composition is the internationalization of the RMB. This is a major challenge for the Mainland Chinese economy. Beijing has been aggressively signing currency exchange agreements with other nations recently. Beijing is clearly proceeding methodically. Under these circumstances, Taiwan, which is highly dependent upon trade with Mainland China, will be affected. Secure business transactions, cross-Strait currency electronic clearing, and currency exchange mechanisms all require advance planning. The G20 summit has committed five trillion USD to implement the largest economic rescue package in human history. But because increases are already planned, this commitment will not provide any additional stimulus. What's new is demands that the IMF regularly reassess of the effectiveness of various governments' implementation. This will establish constraints. It will also demonstrate the degree of determination summit leaders have toward saving their economies. It will give the world economy what it needs most -- confidence. Once confidence has been ignited, additional fuel can be added to the flame, in the form of various nations' stimulus packages over the past half-year. The resulting recovery may proceed at a better-than-expected pace. Once the pace picks up, it will be time to think about exit strategies.

Of course, Mainland China's initiative at the G20 summit cannot be ignored. The G20 is a multilateral political forum. Based on their economic development, its members fall into three camps: the United States, Europe, and emerging countries. But just prior to the summit, Beijing introduced a controversial topic. It once again used the Sino-US leaders' dialogue to shape the G20. This has allowed Beijing, which was an opinion leader during past international forums, to display its newly-gained confidence. It means that Beijing will actively participate in and even take the lead on more and more international issues. This is a development that is free of ideology. Taipei must neither accept it in its entirety, nor reject in its entirety. It must understand how Mainland China is changing under Beijing, and learn how to respond.

2009.04.06 04:30 am




G20大手筆挹注IMF的資源,除了增強其救援實力,隨著新興經濟體資金的進駐,也將在實質層面上推進IMF的改革,包括代表權的分配、籌資方式的改變、 SDR的組成等。IMF的代表權與經濟規模長期不相稱,不只讓IMF對成員國的監督尺度失衡,還成為富國藉以干預窮國經濟體制的工具,導致發展更不平衡,如今已面臨改變壓力。




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