Whether the decisions of the recently held London Summit of G-20 will provide a way out of the present worldwide depression is not certain, one thing, however, is crystal clear: Thatcher-Reagan approach based on Mises-Hayek-Friedman thinking has been buried fathoms deep. Obviously, the much trumpeted ultimate wisdom, the
Releasing the official statement of G-20 Summit, British Prime Minister Gordon Brown who had presided over it, underlined that ‘old
The point that the
The Washington consensus (termed also as neo-liberalism or market fundamentalism) had ten points, namely, fiscal discipline; redirection of public expenditure priorities in order to get high returns, tax reform to lower the marginal rates and broaden the tax base; liberalization of interest rates; competitive exchange rate; liberalization of trade; encouragement to free inflow of foreign direct investment; privatization of public assets, undertakings, facilities, etc.; deregulation in order to abolish barriers to entry and exit of firms whether indigenous or foreign; and guaranteeing secure property rights. Subsidies, poverty alleviation schemes and welfare programmes were regarded as wasteful expenditures and they were to be done away with as early as possible. The role of state in the economy was to be kept as small as possible and the economy was left to be driven by "magic of the market place." In
Para 21 of G-20 leaders’ statement rightly discards the
The next paragraph (no. 4) spells out the broad objectives of G-20. To quote, ‘we have today pledged to do whatever is necessary to:
- restore confidence, growth, and jobs;
- repair the financial system to restore lending;
- strengthen financial regulation to rebuild trust;
- fund and reform our international financial institutions to overcome this crisis and prevent future ones;
- promote global trade and investment and reject protectionism, to underpin prosperity; and build an inclusive, green, and sustainable recovery.’
A close reading of the statement makes obvious the consensus that, from now-on-wards international economic institutions will not be dominated by US-led developed countries nor will they work towards giving priority to their interests. Emerging markets and developing countries will have adequate representation and role in decision-making and management of these institutions. This flows from the commitment that ‘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.’
Leaders have recognized that ‘Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis.’ In this connection, one may recall the abrogation of the Glass-Steagall Act of 1933 and the formation and operation of hedge funds. They have, therefore, pledged ‘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.’ Further, ‘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.’
It has been resolved to set up a new Financial Stability Board, with representation of the entire G-20 on it, which will alongside IMF so that the latter does not work arbitrarily. The financial resources at the disposal of IMF are to be augmented and SDR will be made more effective so that the role of dollar as the only international currency diminishes.
The Summit has pledged itself to the revival of the Doha Round of Development, accelerating the pace towards achieving Millennium Development Goals and redeeming the pledges to Overseas Development Agencies.
So far, it is all right. The main problem is its implementation, which is not going to be easy. Paul Taylor in his piece "Can we trust the G-20? Maybe…" (International Herald, April 7) has written: ‘Promises, promises. The last time world leaders pledged not to take protectionist measures during the financial crisis, 17 of the 20 signatory nations imposed some form of trade restriction within two months.’