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Beijing Review Exclusive
Special> G20 London Summit> Beijing Review Exclusive
UPDATED: April 10, 2009 NO. 15 APR. 16, 2009
Implementation First
The G20 summit achieved better-than-expected agreements, but whether they can be implemented to resuscitate the sluggish global economy remains a question
Chinese economists welcome the outcomes of the G20 London summit, but worry about the implementation of the agreements made.


FINDING A SOLUTION: U.S. President Barack Obama talks with British Prime Minister Gordon Brown at the G20 summit in London on April 2 (XINHUA) 

Wu Qiang, professor of economics at Beijing Technology and Business University, said he hopes the participating nations could take substantive measures and work out some feasible schemes on the agreements reached on the summit, especially those on the international financial system, international monetary system and the International Monetary Fund (IMF).

"This is the only way to put the outcomes of the summit into practice," Wu said. "Otherwise, the situation would be that world leaders just issue a principle consensus to give the world some confidence but in fact each of them still sticks to their own argument."

The London summit produced a consensus in six main areas. The implementation of the agreements reached not only would lift the world economy out of the crisis, but also help it to avoid similar problems in the future, Wu said.

Financial supervision and regulation

For a long time, the United States had relaxed its financial supervision, which led to increased instances of malpractice by financial institutions and caused a severe blow to the global economy. Hence, the leaders of the 20 countries all agreed at the summit to take action to build a stronger and more globally consistent, supervisory and regulatory framework for the future financial sector. For this purpose, the leaders issued a declaration entitled "Strengthening the Financial System," which contained the following main points: establishing a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum; that the FSB should collaborate with the IMF to provide early warnings about macroeconomic and financial risks and the actions needed to address them; extending regulation and oversight to all systemically important financial institutions, instruments and markets; and taking action against non-cooperative jurisdictions, including tax havens.

"Among the six major outcomes of the summit, strengthening financial supervision and regulation is the biggest highlight, but may be the most difficult one," Wu said.

Wu stressed that there are two reasons. First, no country would actually carry out the strengthening of financial supervision, although there have long been calls to strengthen financial supervision in the past. Such calls were heard after the Asian financial crisis in 1997, but that kind of talk has always amounted to mere lip service, Wu said. Another reason is that if financial supervision and regulation are strengthened immediately, they will run counter to the goal of restraining the financial crisis considering that all countries are relaxing credit conditions to revitalize their economies, he said.

Ding Yifan, Deputy Director of the Institute of World Development at the Development Research Center of the State Council, said he believes that strengthening financial supervision and regulation is a big problem. In a report on the portal 163.com, he pointed out that financial supervision and regulation involve many aspects and have been carried out by individual countries. But this time, people are finding that the situation is very complicated, and many problems are caused by uncontrolled transnational investment. The huge losses in Europe in particular were mixed up with their uncontrolled investments in the United States and they have severely affected the financial health and reputation of European countries on the international market.

Strengthening supervision would entail strengthening international supervision over all transnational investments and financial institutions, Ding said. The big questions then are who will supervise and who has the power to supervise? IMF Managing Director Dominique Strauss-Kahn firmly said that his organization will not act as the global supervisor.

Rejecting protectionism

Rejecting trade protectionism was an important decision of the G20 leaders. But it is never easy to reject trade protectionism. A World Bank report published on March 17 indicated that of the G20 nations that signed a pledge in November 2008 in Washington to avoid protectionist measures, several countries, including 17 of the G20, proposed and/or implemented roughly 78 trade measures. Of these, 66 involved trade restrictions, and 47 trade-restricting measures eventually took effect.

Bai Ming, Deputy Director of the Department of International Market Studies of the Chinese Academy of International Trade and Economic Cooperation (CAITEC) under the Ministry of Commerce, said that the biggest resistance to rejecting protectionism comes from developed countries. During the process of tackling the international financial crisis, western countries headed by the United States coveted business opportunities in other countries, but obstinately refused to share the opportunities with them, laying some groundwork for the rise of trade protectionism.

"At present, many western countries are rejecting trade protectionism in other countries, but not trade protectionism in their own countries," Bai said.

Funding the IMF

Increasing IMF resources to $750 billion shows that members of the G20 have reached a consensus that they should not overthrow the existing mechanism, but to rely on it and make it play a more important role to resolve the crisis, said Gao Haihong, Director of the Research Section of International Finance at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences.

Most of the increased capital the IMF receives will be probably used in East Europe to stabilize the badly wounded economy, so that Europe will become the biggest beneficiary, Gao said, according to a report on the news website sohu.com.

Furthermore, because $250 billion will be used to support trade finance, it will help developing countries make up capital shortage in exports, Gao said.

More confident

According to a report on 163.com, Liu Jipeng, professor of economics at the Capital University of Economics and Business, said he believes that while the $1.1 trillion will easily beef up the IMF's resources, it will be difficult for the overall $5 trillion to stimulate the economy. Different countries are facing different situations and the $5-trillion stimulus plan may be difficult to realize, he said.

Mei Xinyu, associate researcher of the CAITEC, wrote on his blog that all countries not only need to overcome various systematic obstacles such as the EU's restrictions on the fiscal deficits of its member states, but also need to eliminate the selfish motivations of various countries to carry out the $5-trillion stimulus plan. When implementing proactive fiscal policies, a country needs to pay its current resources, but the benefits may be enjoyed by other countries through channels such as expanded imports, he said. Under such circumstances, many countries have strong inherent motivates to evade their responsibility to adopt proactive fiscal policies, and just enjoy the benefits of proactive policies enacted by other countries.

"The summit can just raise confidence, but is hard to save the world economy," Liu said. "It is unrealistic to place the hope of changing the economic operations on the G20."

Liu said the success of the summit is a new starting point for countries to act together to get through the hard times, but they must all focus on implementing the consensus they have reached at the summit so that recession can end and the global economy can recover.

 Outcomes of the G20 Summit

IMF funding

The leaders agreed to provide a total of $1.1 trillion to multilateral financial institutions such as the IMF and the World Bank.

Stimulus plan

The G20 countries are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs that would otherwise have been destroyed. By the end of next year, the plan will amount to $5 trillion, raise output by 4 percent and accelerate the transition to a green economy.

Financial supervision and regulation

The leaders believe that major failures in the financial sector and financial regulation and supervision were fundamental causes of the crisis. They agreed to take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector. Hence the summit issued the "Declaration on Strengthening the Financial System."

Aiding developing countries

The leaders agreed to make available an additional $850 billion of resources through global financial institutions to support growth in emerging market and developing countries. The summit agreed that the IMF should double its concessional lending access limits and capacity to increase support for low income countries. The leaders reaffirmed their historic commitment to achieving their respective official development assistance pledges.

Global financial institutions

The G20 countries are determined to reform and modernize international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. Their mandates, scope and governance will be reformed to reflect changes in the world economy and the new challenges of globalization. Emerging and developing economies, including the poorest, must have greater voice and representation.

Rejecting protectionism

The leaders reaffirmed their commitment to refrain from raising new barriers to investment or trade in goods and services, imposing new export restrictions and implementing inconsistent WTO measures to stimulate exports. Any such measures should be rectified promptly.

The leaders committed that they would not retreat into financial protectionism, and in particular that they would not adopt measures that would constrain worldwide capital flows, especially to developing countries.

(Sources: G20 summit communiqué and explanatory guide to the communiqué)

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