The G-20 is wrapping up in London, and they seem to have successfully issued a communique that is actually more than straight boilerplate non-commitment.
My hope is that the reforms discussed for the IMF begin a re-fastening of the embedded-liberalism that has served as the foundation of the international order and an institutionalization of this new compact.
The global economic turmoil is revealing two key structural facets of the international order. First, the US remains the Hegemon. In the end, the world is looking to the US for leadership, and its clear that only the US can provide the economic and political leadership to pull the world out of the current crisis. Second, and conversely, while the US is probably as powerful as its ever been, the price of hegemony is skyrocketing, and other actors are rapidly accruing power as it diffuses away from the US. Quite simply, the current US trajectory seems unsustainable, and it requires a new grand-bargain it is to reach a new sustainability. Immediate evidence of this new structure: the G-20 as the forum for rescuing the world’s economy.
As the NYT reports:
the leaders of nearly two dozen of the world’s largest economies agreed Thursday to a broad array of new fiscal and regulatory steps, in a desperate effort to revive the paralyzed global economy.
At the conclusion of the first economic summit meeting to rivet world attention in decades, Prime Minister Gordon Brown of Britain announced that the leaders had committed to $1.1 trillion in additional loans and guarantees to finance trade and bail out troubled countries….
Among the steps Mr. Brown detailed are strict new regulations on hedge funds and rating agencies, as well as a crackdown on tax havens, which will be publicly named and subject to sanctions if they do not agree to share tax information with the authorities of other countries.
The Group of 20 also agreed on new global rules to cap the pay and bonuses of bankers, as well as a common approach to dealing with the toxic assets on the balance sheets of the world’s banks. That is an issue that has bedeviled the Obama administration and other governments.
Giving teeth to an endorsement of free trade at the last summit in Washington, the countries agreed to “name and shame” countries that erected trade barriers. They also pledged $250 billion in financing for trade.
The most concrete measures relate to support for the International Monetary Fund, which has emerged as a “first responder” in this global crisis, making emergency loans to dozens of countries.
The Group of 20 pledged to triple the resources of the Fund to $750 billion — through a mix of $500 billion in loans from countries, and a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the Fund, which will be parceled out to all its 185 members.
The IMF is also set to have a bigger role in preventing future crises, by developing an early warning system for financial problems, and taking a larger role in looking at the problems of the financial sector as a whole, in conjunction with a new global regulator, the Financial Services Board.
But the biggest changes in the IMF will come after 2011, when it has been agreed that there will be a review of the voting structure. That could lead to the US losing its veto power, while China and other emerging countries get a bigger voice.
It has already been agreed that in future, the convention that the World Bank and IMF must be headed by an American and a European respectively will be abandoned.
In return, China will be asked to lend some of its reserves to the IMF – and will continue to push for the idea that the SDR will become a real reserve currency, ultimately replacing the dollar.
The changes to the resources and the role of the IMF are historic and perhaps the most important outcome of the G20 summit.
But it must be borne in mind that providing more resources for the IMF can be only a short-term solution to the immediate crisis now engulfing developing countries.
While full reform remains more of a fantasy than reality, this is certainly more than a nod in that direction.