7 days to G20: Obama writes an agenda strengthening op-ed
Surprising for a superpower that still believes it leads a unipolar world, US President Barack Obama’s March 24, 2009 op-ed published in 31 newspapers was free of arrogance. Whether that’s a recognition of the emergence of a multi-polar world a quarter of a century down the road or whether that’s a true spirit of cooperation that Obama hopes to usher in following the country’s Bush-led isolation, we will know some day.
His prime focus, as he has spoken about earlier, remains the same: “Our efforts must begin with swift action to stimulate growth.” That to him means fiscal stimulus, which not all G20 members would be able to afford. Obama urged the G20 to “embrace” open trade and investment and resist protectionism.
Protectionism is something that Prime Minister Manmohan Singh too had laid out strongly, and India was probably the first to flag the issue, during the Washington meet on November 15, 2008. Subsequently, it became part of the Washington Declaration — under Point No 13 and as part of G20’s commitment to an open global economy, the G20 leaders put out this rather brave statement, which subsequently, as we all know, was thrown in bin on the way out.
“We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.”
For months later, in a March 14, 2009 communique signed by finance ministers and central bank governors of G20, the anti-protectionism stance was raised to the top slot. “We have taken decisive, coordinated and comprehensive action to boost demand and jobs, and are prepared to take whatever action is necessary until growth is restored,” the communique stated. “We commit to fight all forms of protectionism and maintain open trade and investment.”
I sense that such holy words backed by unholy actions will continue post the London Summit — and I hope I’m wrong.
The second point Obama raises in his op-ed — embrace a new financial framework that insists upon “transparency, accountability and a focus on restoring the flow of credit that is the lifeblood of a growing global economy” — may see more global resonance. However, we should all know that restoring the flow of credit is of the utmost need right now; the rebirth of a new financial architecture will take time, though the building blocks should begin right away.
The third thing that must be implemented now is Obama’s fourth-last para: “Rigorous transparency and accountability must check abuse, and the days of out-of-control compensation must end. Instead of patchwork efforts that enable a race to the bottom, we must provide the clear incentives for good behaviour that foster a race to the top.”
This is somewhat close to what The Turner Review, released on March 18, 2009, too discusses in some detail. There is little doubt that the excesses of executive compensation, their underlying philosophy — excessive incentives for marginally better performance but no reverse flow for bad performance — and probably the very model of compensation and remuneration is going to be ruthlessly examined in the London Summit.
If we are to read Obama’s op-ed as a statement of intent, I can find nothing to fault here. The problem comes when his pet themes like ‘spend your way out of the problem’ are shoved down the throats of nations that may not have the fiscal space to do so. The good part, so far, is that Obama’s tenor and tone is not brazen, condescending or downright crude like Bush’s you-are-with-us-or-against-us expression of isolation.
This will be put to the test on April 2. The London Summit will be Obama’s first global foray and his words and actions there will probably set the agenda for the creation of a new global financial order.
George Soros wrote this piece in Wall Street Journal, arguing that CDS (credit default swaps, that caused the AIG fiasco by selling them without covering their positions) are “toxic” and there should be restrictions on its usage.
“I believe that they (CDS) are toxic and should only be allowed to be used by those who own the bonds, not by others who want to speculate against countries or companies.”
One of the world’s most successful speculators arguing against speculation — this crisis is throwing up interesting moments.
Here’s a press release on the overhaul of IMF’s lending framework, including the creation of a new flexible credit line.
“These reforms represent a significant change in the way the Fund can help its member countries — which is especially needed at this time of global crisis,” said IMF Managing Director Dominique Strauss-Kahn today. “More flexibility in our lending along with streamlined conditionality will help us respond effectively to the various needs of members. This, in turn, will help them to weather the crisis and return to sustainable growth.”
Coinciding with IMF’s internal reforms, from the southern hemisphere — physically as well as financially — comes a voice accentuating it. Brazilian finance minister Guido Mantega today said one of Brazil’s proposals will be a massive capitalisation of IMF. The country, he clarified, doesn’t want to tap the money. Brazil’s suggestion follows EU’s March 20, 2009 proposal to double IMF’s capital to $500 billion.
More than half-way across the world, South Korea showed its public leanings towards the US-IMF spending strategy. Sakong II, senior economic adviser to President Lee Myung-bak, said a stimulus figure of 2 per cent of gross domestic product for governments advocated by the International Monetary Fund is a “very good starting point.” The number, he added, should be higher.
According to China Daily, the country may offer $100 billion to IMF during the G20 summit. “If the IMF issues bonds to finance itself, China will actively consider buying” those bonds, Hu Xiaolian, vice governor of the People’s Bank of China (PBOC) told a press conference in Beijing on the same day.
The reform of IMF is imminent and I am glad to see this institution begin the process. So far, all it has done is throw the US line on other countries. This, I hope, will change, post April 2.