With only two days left until the high-profile G-20 summit in Mexico against the background of the escalating eurozone crisis and increased signs of trade protectionism around the world, a senior Mexican government official has ruled out the possibility of including a global financial transaction tax on the meeting agenda for the leaders of the world’s major economies.
In an interview with Sunday’s Zaman in Mexico City, Deputy Finance Minister Gerardo Rodriguez said the need for a financial transaction tax to fund growth will not be on the table when leaders meet for the summit scheduled for June 18-19 at the resort town of Los Cabos on the southern tip of Mexico’s Baja California peninsula. “As the chair of the G-20 presidency for the year 2012, we do not see any compromise on that,” he said, adding that the Europeans may push that issue at the European level.
There are sharp differences among European countries on the need to adopt a financial transaction tax, also known as the Tobin tax, as a way to generate revenue for stimulating growth. The UK, keen to prevent any negative impact on Europe’s leading financial center in the city of London, is opposed to the idea while France and Germany are backing the tax. The UK said it would veto a European-level Tobin tax unless adopted at the global level, which seems almost impossible. France, under former President Nicolas Sarkozy, unsuccessfully pushed the idea at the Cannes summit of the G-20.
The Mexican official is also critical of Europe’s response to the crisis that has sort of overshadowed the Mexican presidency of the G-20. “It is frustrating not only for me but for everyone that we continue to give into the crisis. Confidence was lost in Europe. You need to come up with a solid response. You need more specific action that people expect. You need to overshoot in your policy response,” he said, warning that “something is lacking in crisis management in Europe.”
Rodriguez underlined that it usually takes a longer time for structural reforms to kick in. He suggested that handling economic and financial crises in multilateral forums like the G-20 may be the only effective way to overcome problems, stressing that the Mexican presidency is trying to accomplish exactly that. “We are fully confident that this is the best way to respond to challenges,” he noted.
The Mexican deputy finance minister predicted that the G-20 leaders will be discussing the eurozone crisis to some extent. “We have to talk about coherent narratives on how to face these challenges,” he remarked, anticipating specific additional action from Europe that look beyond the crisis but also include elements to withstand the current short-term crisis.
Pointing out that the spillover effect of the eurozone crisis is substantial on many fronts, Rodriguez warned on the negative impact of the crisis on growth prospects. “The effect is already there. No one benefits from an environment where there is a lack of confidence and uncertainty, which has dominated the world economy for months. That is why both the European economies and emerging economies are working on the assumption that we need to do something,” he explained. Emphasizing that all this confirms the importance of the G-20 summit, Rodriguez said, “Not only was the financial sector impacted, but the overall economic activity was affected.”
The deputy finance minister vowed that his government will continue to push for the implementation of stalled 2010 voting reforms at the International Monetary Fund (IMF) and governance reforms at both the IMF and the World Bank. “Yes, it is going slow. But we will push this at the summit. It is a work in progress,” Rodriguez stated, while emphasizing the importance that Mexico attaches to improving the international financial structure, more specifically to boosting resources at the IMF for what is called the “global firewall” for emergency funds. He praised the Turkish role as co-chair in a working group created solely for the purpose of reforming world financial institutions. “I think Turkey is doing a great job” he said, adding that Mexico will also push for the acceptance of further changes to the IMF governance by January 2014.
The deputy finance minister shied away from giving a possible ballpark figure that he expects from the summit for the financial contribution to IMF funding which was already increased by $430 billion in April with pledges from some G-20 members. “We are working on numbers. We think we can increase that number if that is possible. We are working with our colleagues and the IMF to come up with the final numbers,” he explained. He stressed that the funds will be available to all members and subject to the conditionality of the IMF rules and regulations.
Drawing on the Mexican experience in past crises, Rodriquez said countries facing economic difficulties may learn from Mexico and other developing countries. He said that Mexico has launched a G-20 Financial Inclusion Peer Learning Program as a process for countries to share their experience of establishing national coordination mechanisms and financial inclusion strategies. The Mexican presidency has invited specific commitments from countries, to establish such national coordination mechanisms, and is engaging with a broader target audience that goes beyond primary regulators to include political actors and other stakeholders.
Rodriguez said there will be a strategic financial inclusion side event to be held at the G-20 Leaders Summit in Los Cabos. “This will have countries commit themselves in some areas, helping raise awareness and share experiences so that we all can benefit,” he underlined. Mexican officials said, “We have a very powerful G-20 tool to hold countries accountable.”
As for the legacy of the Mexican presidency of the G-20, Rodriguez responded by saying that his government will have accomplished different things at various levels. As for the accountability, he said there will be tools to produce an assessment of past commitments by G-20 members. “At the most specific level, the Mexican presidency will help strengthen international financial architecture,” he said, citing reforms of the IMF, boosting European and world funding resources for stronger firewalls to tackle economic crises. Secondly, he mentioned that Mexico has incorporated green growth as part of the G-20 agenda with specific recommendations for sustainable development. Third, he said, has to do with financial inclusion, education and consumer protection. “The Mexican presidency will be an effective one,” Rodriguez predicted.