My general assessment is in terms of (1) how the outcome of the second summit compares with that of the first, which was convened on Nov. 15, 2008, in Washington, D.C., and (2) how the outcome of the second summit compares with its expected outcome. The outcome of the second summit compares favorably with that of the first summit, which was hastily called and inadequately prepared during the US presidential transition. It promised more and delivered more. One telling difference between the first and second summits is that there were no protests and demonstrations against the first, but there were angry protests, resulting in the death of one person, some property damage and over 100 arrests during the second summit. So, the G-20 summits have joined several other international meetings, such as those of the International Monetary Fund (IMF)/World Bank and the World Trade Organization (WTO), in inciting some to take to the streets to show their visceral opposition to capitalism and globalization.
The second summit also surpassed the expectations of most observers, who were disheartened by the prior deep rift between the US and the EU, especially France and Germany, on whether the summit should focus on economic stimulus or financial regulation (see my columns "Contention over the second G-20 economic summit [1]" on March 16 and "Contention over the second G-20 economic summit [2]" on March 23). Given the heavy emphasis on financial regulation in highly specific terms, which some interpret as the death knell of freewheeling Anglo-American-style financial capitalism, and the mere lip service paid to economic stimulus in the documents issued after the summit, it seems that the EU came out as the winner. The IMF also emerges as a clear winner, with its financial resources to be increased and mandate to be expanded significantly. The increased resources of the supercharged IMF, as well as the additional resources of the World Bank and other multilateral public financial institutions, which have pledged $1.1 trillion primarily for economic stimulus in developing countries, can be interpreted, however, as supporting the US argument for a much-needed coordinated global stimulus.
Turkey is likely to be one of the major beneficiaries of the IMF's greater munificence with less severe conditions as it gets ready to sign in the coming weeks a new stand-by arrangement (SBA) to borrow as much as $50 billion, double the amount talked about before the summit. So, the most concrete and immediate benefit of the summit for Turkey was the high-level negotiations on the sidelines between Prime Minister Recep Tayyip Erdoğan and IMF Managing Director Dominique Strauss-Kahn toward an agreement on the new SBA.
China's controversial proposal, which I reviewed in my last column, to replace the US dollar with the IMF's Special Drawing Rights (SDRs) as a global currency is not even mentioned in the second summit documents. The reform of the international monetary system is to be gradual, with long-overdue changes in the governance of the IMF and the World Bank to give emerging market economies such as China greater representation and voice occurring after 2011.
In terms of a scorecard, the summit's wins include agreements (1) on the need for and the basic principles of financial regulation; (2) to boost the resources and mandate of the IMF and to modernize its governance structure; and (3) to end banking secrecy and crack down on tax havens, countries that reject or ignore a common set of tax standards and thus enable tax evasion. The losses include a lack of agreements (1) to deal with global economic imbalances, reflected in huge and chronic current account deficits and surpluses, such as those of the US and China, respectively, that lie at the root of the global crisis; (2) to come to grips with the toxic assets of financial institutions in order to cleanse and repair their balance sheets through a specific and comprehensive cross-border program; (3) to settle on a fiscal stimulus package for developed countries; and (3) to set a deadline to conclude the Doha round of multilateral trade negotiations as a concrete step to stop creeping protectionism.
The reaction of the pundits, not surprisingly, varied between effusive praise for the outcome of the summit and cynical criticism that it was mostly theater and rhetoric, grandstanding with lots of razzle-dazzle by world leaders at taxpayers' expense, unlikely to serve any useful purpose. The reaction of the financial markets, however, was positive -- unlike their reaction to the first one. Global stock markets rallied after the summit's conclusion. But their exuberance might have been partly fueled by the relaxation of the mark-to-market valuation accounting rule for toxic assets announced by the US Financial Accounting Standards Board (FASB) to help financial institutions limit, if not hide, the hit to their balance sheets from the global financial crisis.
It is premature to conclude that the second summit has been a resounding success in meeting its ambitious and wide-ranging objectives. It is even more premature to view the summit as another significant step toward the establishment of a "new world order" in which the G-20 will be the board of governors. More specifically, whether the new Financial Stability Board, the renamed and expanded old Financial Stability Forum, will realize its potential as an effective global financial regulator, working with the IMF, remains to be seen. But we can definitely and thankfully say that the summit has not been a colossal and dismal failure in global collective action like the infamous London Monetary and Economic Conference of 1933 during the Great Depression. By the time the third summit meets in September in New York, we will be able to assess how well the second summit, ending in consensus based on compromise, has been achieving its objectives. What is already beyond dispute, however, after the first two summits, is the global acceptance of the dictum that global problems require global solutions.
