This month the countries of the G20 convene for the fifth time in the organization’s history. The capital of South Korea will host this latest summit of world leaders which is scheduled to discuss global financial regulation, the uneven economic recovery as well as the looming currency war between China and the West. An overview of what the world’s most powerful men and women will discuss and may agree upon.
Austerity vs. stimulus
At the previous G20 summit in Toronto, Canada world leaders agreed to fiscal restraint over American objections. The Obama Administration continues to favor stimulus over austerity whereas Europe is witnessing deep budget cuts.
French finance minister Christine Lagarde, who is a leading voice in the world’s financial leadership, defended European austerity measures last month, noting that public concern over mounting deficits leads people to save instead of spend which ultimately undermines the recovery. With unemployment rates decreasing, she wondered, “why would I inject more public money into the system when private investment is picking up?”
In the United States, by contrast, joblessness has remained at a consistent 10 percent rate but the Republicans, now in the majority in the lower chamber of Congress, are unlikely to support new, and costly, Democratic initiatives to put people back to work. With many of his allies around the world and an opposition at home opposing further stimulus spending, it will be difficult for President Barack Obama to ignore the call for austerity.
Lawmakers in the United States hammered out a financial reform bill this summer which critics allege has not addressed the roots of the crisis. President Nicolas Sarkozy of France and German chancellor Angela Merkel have urged Europe to implement stricter financial regulation aimed specifically at banning speculative trading against government debt.
At all of the G20 summits so far world leaders have affirmed their commitment to enacting more stringent rules for international banking. Heavier liquidity requirements were introduced by the Basel Committee on Banking Supervision which will be phased in next year as the world economy is expected to recover. Full implementation of new global rules for finance is expected by the end of 2012.
Emerging countries as Brazil, China and India have recovered much faster from the global downturn two years ago than many in the developed world. China’s fast growth rates in particular have been driven by a surge in exports which American lawmakers complain is caused by the country’s manipulative monetary policy. China keeps its currency artificially low in order to make exports cheap — at the expense of American industry, says Washington.
Chinese Premier Wen Jiabao defended China’s currency policy in Brussels last month where he warned than an unstable renminbi could “bring disaster to China and the world. If we increase the yuan by 20, 40 percent as some people are calling for,” he predicted, “many of our factories will shut down and society will be in turmoil.” China may seem an economic powerhouse from abroad; its leadership is still very much concerned that a contraction could spur social upheaval, both in the provinces, where development has been lacking, and among the urban middle class, already dissatisfied with the lack of political freedom.
The Chinese, moreover, have reason to point the finger at America as well where the Federal Reserve’s expansionary monetary policy is just another way to drive down the exchange rate of the dollar and boost exports.
Future of global governance
The G20 is itself a recognition of the fact that the world is no longer ruled between the two sides of the Atlantic. The more robust performance of the newly developed economies of East Asia in fact contributed to a large extent to the relatively fast recovery of countries in the West. It is no surprise that rising powers there as in South Asia and Latin America are demanding a greater say in other international organizations, including the International Monetary Fund.
The G20’s finance ministers and central bankers already already agreed to an IMF power shift in Seoul last month. The European Union is prepared to surrender two of its seven executive directorships in the Fund out of a total of 24 in favor of countries as Brazil, China, India and Turkey. The World Bank, too, is contemplating reform of its voting system in order to grant developing nations a greater stake in decisionmaking.
That is not to say that world power has suddenly shifted southward. Western countries continue to wield considerable voting power in both the IMF and World Bank whereas the desire of rising powers to have more power in these institutions attests rather to their strength than a demise. Brazil, China and India may have been holding neat summits together with Russia in recent years but this BRIC is by no means a viable alternative for global governance to existing frameworks — which continue to be dominated by Western countries and Western values.
The upcoming G20 summit is the first of its kind to be held in a country that has not been a member of the G8 as well. It’s also a first for several nations and newly-elected national leaders.
Singapore was invited for this summit at the expense of the Netherlands which, as the sixteenth economy in the world, should technically be included. But Singapore is a hub for international trade and finance and pivotal to the economies of Southeast Asia as well as the economic integration of ASEAN.
The summit will be the first G20 for Australia’s Julia Gillard who, at the time of the Toronto summit last June, had only just been elected prime minister. Brazilian voters have already elected Dilma Rousseff to succeed President Lula da Silva but he is nonetheless scheduled to attend as his term won’t expire until January of next year. The leaders of Ethiopia, Malawi and Vietnam, who made their first G20 appearances at Toronto, will attend once again but Nigeria has not been invited this time.
World leaders will convene in a facility that was specially built for the event on one of three artificial floating islands in the River Han which traverses the South Korean capital.