Hindustan Times
G20 gets 6.4 out of 10
This post is going to go national today as your blogger evaluates the six pledges and 38 recommendations that the leaders of G20 signed and what they means for India. As I mentioned earlier, there are more benefits than costs and if we were to look at the big picture, I think India has gained. But 6.4 is a pathetic score for leaders of G20 to get in what was the biggest financial event this world has ever seen. Here’s the break-up:
Pledge: Restoring growth and jobs
Recommendation 1: We are committed to deliver the scale of sustained fiscal effort necessary to restore growth.
Score: 10 on 10
Reason: Have you ever heard of $5 trillion? Now, imagine if that was thrown to the world and one-twentieth came India’s way through trade. That’s a straight $250 billion to GDP by the end of 2010. That’s a lot of money — if Indian enterprise and go out and get it.
Recommendation 2: Our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.
Score: 7 on 10
Reason: I can appreciate the intent — lower interest rates going hand in hand with a fiscal stimulus could catalyse a revival. But the Reserve Bank of India has already cut policy rates by 400 basis points and seen not much change. The problem is demand based. And any further monetary
Recommendation 3: We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector.
Score: 5 on 10
Reason: India needs the credit, but I don’t see the details yet.
Recommendation 4: We have further agreed over $1 trillion of additional resources for the world economy through our international financial institutions and trade finance.
Score: 10 on 10
Reason: As in ‘1’ above.
Recommendation 5: We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.
Score: 5 on 10
Reason: I would have given it 10 on 10 but how can anyone forget the competitive devaluation following the Great Depression? And even now, will the US — the epicentre of this crisis — open its books to the IMF? So, 5 points for intent but I’d like to see some action before raising this number. India is compliant on this.
Pledge: Strengthening financial supervision and regulation
Recommendation 6: We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.
Score: 7 on 10.
Reason: All countries agree that greater oversight is required, but just how many will agree to implement it once the crisis is over next year? So, 5 points for intent and declaration, 2 for need. The last three will need to be evaluated against the rise of greed again. India is fairly conservatively regulated.
Recommendation 7: We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace.
Score: 7 on 10
Reason: As in ‘6’.
Recommendation 8: We agree to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission;
Score: 5 on 10
Reason: Insignificant to the crisis, more of something to strut around with than any tangible gain for India.
Recommendation 9. We agree that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them;
Score: 5 on 10
Reason: I am sceptical of IMF actions being hijacked by US-UK. India and other G20 members being there could help.
Recommendation 10: We agree to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks;
Score: 8 on 10
Reason: When it comes to domestic financial systems, each country realises the havoc it can play; the 2 missing points discount arrogance. India could learn a thing or two on the macro-prudential side. Not allowing finance ministers to bully the RBI governor, for instance.
Recommendation 11: We agree to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds;
Score: 8 on 10
Reason: 5 points for acknowledging the problem, 3 for intent but the balance 2 will be delivered following action. India has opened itself to hedge funds, this should help it indirectly.
Recommendation 12: We agree to endorse and implement the FSF’s tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms;
Score: 2 on 10
Reason: The new principles put the onus in the hands of directors who signed on the compensations in the first place. They will now be watched, the principles say. I’d be careful of getting too optimistic on this one — the excessive greed and personal interests these people have displayed, the insensitivity with which they have trampled on the rights of depositors who reposed trust in them is frankly quite disgusting. I don’t see them change and I have a truckload of scepticism salted away. No sir, you’re not going to get the points easy here. As far as India goes, executive pay is not an issue here.
Recommendation 13: We agree to take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times;
Score: 5 on 10
Reason: Irrelevant, too far off.
Recommendation 14: We agree to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;
Score: 5 on 10
Reason: May help close barely-legal money lines, but may hurt India in the short- to medium-term as Mauritius is our biggest source of FDI.
Recommendation 15: We agree to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards;
Score: 5 on 10
Reason: A by-product to the debate, but useful nonetheless. India aligning its accounting systems with those of the world’s would be useful.
Recommendation 16: We agree to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.
Score: 7 on 10
Reason: These guys sold their ratings and then said they were just “opinions”. Hard to tame them. I’ll wait and watch. Not a big issue here yet, but won’t harm to regulate them.
Pledge: Strengthening our global financial institutions
Recommendation 17: We have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary.
Score: 8 on 10
Reason: Much needed, though not by India — yet.
Recommendation 18: We support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.
Score: 8 on 10
Reason: Will help less developed countries, particularly in Africa, get by. No impact on India.
Recommendation 19: It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries’ balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexico’s decision to seek an FCL arrangement.
Score: 10 on 10
Reason: The first signs of reform of IMF, which otherwise would put US-driven conditions on poor countries, turning borrowing into a humiliation. No impact on India.
Recommendation 20: We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.
Score: 10 on 10
Reason: Any liquidity helps. This adds up to the big numbers. Minimal impact on India.
Recommendation 21: We commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011.
Score: 8 on 10
Reason: The much needed quota reforms are almost here. But how India plays its cards, will decide the balance 2 points.
Recommendation 22: We agree that, alongside this, consideration should be given to greater involvement of the Fund’s Governors in providing strategic direction to the IMF and increasing its accountability.
Score: 5 on 10
Reason: Part of reforms, but insignificant to the tangible picture.
Recommendation 23: We commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings.
Score: 5 on 10
Reason: Intent to reform is here, how it plays out will decide the balance 5 points.
Recommendation 24: We agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process.
Score: 8 on 10
Reason: What can I say? This should have been the case from the word go. But I still need to see how merit is decided.
Pledge: Resisting protectionism and promoting global trade and investment
Recommendation 25: We reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010.
Score: 5 on 10
Reason: The Washington Declaration was thrown to the winds hardly a week after it was declared. So, noble intent need not necessarily translate into noble deeds. But what’s good is that all countries realise that protectionism is a race to the bottom. Give credit to Prime Minister Manmohan Singh for flagging this issue. But noticed the last line? I wonder why this pledge is only till 2010. When I asked him, Singh told me ““These are emergency measures. By 2010 the world economy will revive.” Let’s see. If it works, as I hope it will this time, it will be good for India.
Recommendation 26: We will minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries.
Score: 5 on 10
Reason: As in ‘25’.
Recommendation 27: We will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis.
Score: 5 on 10
Reason: As a senior official told me recently, ‘Protectionism’ is an opinion, not a fact.
Recommendation 28: We will take, at the same time, whatever steps we can to promote and facilitate trade and investment.
Score: 5 on 10
Reason: As in ‘25’.
Recommendation 29: We will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.
Score: 10 on 10
Reason: This money should get trade flowing once again.
Recommendation 30: We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.
Score: 8 on 10
Reason: 5 points for initiating free trade, 5 points for potential benefits for India. But removing 2 points on how India plays its agriculture and livelihood card.
Pledge: Ensuring a fair and sustainable recovery for all.
Recommendation 31: We reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa.
Score: 5 on 10
Reason: High on motive, but statistically irrelevant to the issue at hand. Neutral for India.
Recommendation 32: The actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets.
Score: 10 on 10
Reason: As in ‘31’ but 5 more because it’s a tangible number.
Recommendation 33: We are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank’s Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund.
Score: 5 on 10
Reason: Good intent, but we need to see how it goes. Irrelevant to India.
Recommendation 34: We have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings.
Score: 5 on 10
Reason: Good intent, but we need to see how it goes. Irrelevant to India.
Recommendation 35: We have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings.
Score: 5 on 10
Reason: Good intent, but we need to see how it goes. Irrelevant to India.
Recommendation 36: We call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.
Score: 5 on 10
Reason: Good intent, but we need to see how it goes. Irrelevant to India.
Recommendation 37: We recognise the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labour market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future.
Score: 5 on 10
Reason: Yes, yes, yes…we’ll change the world. Good intent, but we need to see how it goes. Irrelevant to India.
Recommendation 38: We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.
Score: 5 on 10
Reason: Good, green intent, poor track record. Question: why now, why here?
Recommendation 39: We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.
Score: 5 on 10
Reason: As in ‘38’.
Also read:
G20 D-Day tomorrow: a Summit that could have been
1 day to G20: 157 expectations, 20 heads, 1 day
2 days to G20: India still keeps its cards close to its chest
3 days to G20: the US-UK-IMF “Spend!” proposal is destined to die
4 days to G20: children have some advice for leaders
5 days to G20: the debate gets dirty
6 days to G20: a new paper tells Obama what to do
7 days to G20: Obama writes an agenda strengthening op-ed
8 days to G20: it’s raining recommendations — 101 and counting
9 days to G20: China likely to get influence support from Down Under…and other stories
10 days to G20: a reading list that hopes to change the world
11 days to G20: 24 recommendations but no breakthrough
12 days to G20: IMF’s spend-your-way-out-of-the-crisis recommendations are best ignored
13 days to G20: set broad principles, leave detailing to sovereigns
14 days to G20: no space for a common global financial regulator
15 days to G20: can India grab its geopolitical moment?
16 days to G20: will G20 bring solutions?
17 days to G20: look who’s driving the G20 agenda
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