The G20: No new beginning for the world economy
At the conclusion of the G20 summit, world leaders heralded the birth of a new economic system. In reality, their plans were designed to prop up an international regime still grossly skewed towards their own economic clout and historical power.
Proposed reforms to the IMF will do little to change the balance of power in favour of the global south. Currently, twelve wealthy countries – out of 186 members – hold over half of the votes. As even Simon Johnson, former chief economist of the IMF recognised, other countries “don’t trust it because it’s US and West Europe-dominated. That’s not fair.” However, the G20 called for as little as five per cent of votes to be transferred to emerging economies. Such a move is a minimal concession to shifting economic realities, let alone democratic global governance.
The IMF has been accorded a prominent role in the handling of the financial crisis. In April, the G20 decided to increase the Fund’s lending capacity by 50 per cent to $750 billion, of which $100 billion was to go to developing countries. Then at the latest summit, it was agreed that the IMF would oversee compliance with objectives set by G20 members each year to achieve a ‘balanced’ global economy. This is a sticking plaster to deal with the devastation of the financial crisis, rather than regulation of international finance to ensure the same problems do not emerge again. And the IMF’s increased money and power is likely to be used to push further deregulation on countries in the interests of multinational companies.
As Chinese president Hu Jintao noted, it ignores “the yawning development gap” between the global north and south. A stronger IMF is a worrying development given what Joseph Stiglitz has called the Fund’s 'free market ideology'. The IMF has a long tradition of forcing developing countries to adopt neoliberal economic policies, which have limited their policy freedom and damaged public services, in exchange for loans that impose a heavy debt burden. The summit demonstrated little desire to help alleviate the harshest impacts of the crisis, in the global south.
Despite Gordon Brown’s rhetoric, UK influence was significant in preventing agreement on international regulations for bonuses in the financial industry. Along with the US, representatives of the UK rejected mandatory caps on bonuses. The UK has also been resisting some of the EU proposals to regulate hedge funds.
Demonstrations expressing opposition to the G20 were derided by President Obama as “generic” anti-capitalism. On the first day of the summit, protesters were subjected to tear gas, and sonic weaponry previously used by the US military in Iraq.
More promisingly, the German finance minister, Peer Steinbruck, led calls for a global 'Tobin tax' on international financial transactions, to curb speculation and help cover the costs of the crisis.
Overall though, instead of seizing the opportunity to shift to a fairer, low carbon economy, the summit consolidated the G20’s weakly reformist reaction to the economic crisis.