The summit of discontent

The G20 Summit didn’t satisfy many, but it has delivered useful results

Glamour was juxtaposed uneasily with some acrimony as the leaders of the Group of 20 nations gathered in London last week for their much-anticipated summit.  The star of the summit was very much US President Barack Obama: on his maiden visit abroad, Mr Obama adopted an attentive tone and had constructive meetings with Russian and Chinese leaders.  His wife Michelle also seemed to have very much won over the queen.

But the summit was always going to be a lightning rod for malcontents, and there was jarring footage of large demonstrations in the streets of London as protestors – with a gripe against anything from banker’s payouts to globalisation – took on the police in scenes very much reminiscent of 1999’s battle of Seattle.

Out of the streets and in the meeting halls, there were important policy differences as well.  France and Germany were stoic about not committing to further fiscal stimulus and their leaders held a joint press conference in London just before the summit to underscore this.  Little progress was made on moving beyond the rhetoric of ensuring free trade (a preoccupation of the export-oriented states) or tackling toxic bank assets.

Even so, there were several tangible achievements.  The summit agreed to boost the resources of the IMF considerably.  It was a fiscal stimulus of sorts in disguise and a means of circumventing objections from individual legislatures, even though most of it was not new money. The G20 also agreed to fork out $250 billion in trade finance to maintain global trade, but again it was unclear where the funds would come from. It also called for the regulation of the so-called shadow banking system, including entities like hedge funds.

Yet perhaps the summit’s bigger contributions were somewhat more intangible. It cemented the role of the G20 as the de-facto forum for coordinating global economic policy. The grouping’s wide-ranging composition has ensured that the gains from this summit accrue more to developing nations than the developed bloc – measures like increased IMF funding and the trade finance facility are likely to disproportionately benefit developing countries.  That should confer on the G20 a mantle of legitimacy stronger than the G8’s, or even the much-talked about G2 of America and China that some had feared.

In fact the summit showed that China’s supposed arrival as an economic behemoth is still slightly premature.  The summit agenda was driven by the Europeans and Americans, with Mr Obama very much at the centre of the limelight.  The developed countries and their allies still make up the majority of the G20.  It is also notable that China had already committed an extra US$40 billion to the IMF prior to any changes to its voting power in the institution, though at the summit adroit American diplomacy opened up IMF and World Bank to more representation from developing countries.

In the end what was important was that the summit exceeded expectations – the flashy tagline of a US$1 trillion boost to the world economy helped enormously in this regard – which allowed the departing leaders to play up its achievements.  The British hosts orchestrated a largely harmonious outcome, helped in part by the other leaders realising how important it was to put up a united front.  With the ongoing global financial crisis just months old, it is a bit too much to ask of the summit to be a second Bretton Woods – that historic meeting in 1944 had entailed over two years of preparation – but it has shown the way towards finding a way out of the world’s economic woes.