This consistent and often overlooked achievement evidences that multilateral cooperation, despite its shortcomings, has come a long way in trying to deal with global economic problems that require global solutions. It is easy to cynically dismiss these summits for their razzle-dazzle and frequently cliché-ridden declarations. But the mere fact that they bring together the heads of government and state from countries representing all continents, two-thirds of the world's population, 85 percent of global gross domestic product (GDP) and 80 percent of global trade to cope with vexing global economic issues is nothing to sneer at viewed from a historical perspective. They are a watershed in global economic governance coinciding with the seismic shift of power from developed to emerging economies.
The 24-page post-summit communiqué, titled “Leaders' Statement,” encompasses a broader range of thorny issues than the previous G-20 summits. The one sentence in the communiqué that deserves the most attention is “Today, we designated the G-20 as the premier forum for our international economic cooperation.” With this sentence, the G-20 has declared that it is now the permanent board of global economic governance, eclipsing the G-7 and the G-8, which will continue to exist but will focus primarily on non-economic issues. This milestone was underlined, as the summit got under way, by President Barack Obama's declaration, titled “Creating a 21st Century International Economic Architecture,” which called for the establishment of “the G-20 as the Premier Global Economic Forum.” It was the US that had initially insisted on designating the G-20 as the principal global forum for crisis management prior to the first G-20 summit last November in Washington, DC. Since its first summit, the G-20 has been moving from crisis management to charting the course of the global economy to minimize the likelihood of future crises. The next two G-20 summits will convene in Canada next June and in South Korea in November 2010. Thereafter, the G-20 summit will occur annually, beginning in France in 2011.
This is good news for Turkey, whose seat at the table of global economic governance as a G-20 member had been threatened by the proposal first floated by Italy and France at last July's G-8 summit to replace the G-20 with the G-14, which would have excluded Turkey. This proposal was recently attacked by Prime Minister Recep Tayyip Erdoğan, who emphasized Turkey's rising role in the global economy (Today's Zaman, Sept. 16). However, whether the G-20 can hold the global economic governance summit after conquering it through its first three successful campaigns depends on its success in continuing to deal effectively with the existing as well as new global economic problems.
In the preamble of their communiqué, the G-20 leaders take credit for and congratulate themselves for having stopped the global crisis from turning into another Great Depression. Whether they deserve full or partial credit for evading the economic abyss will keep historians busy in the future. But I hate to think what would have happened if first two G-20 summits, especially, had been colossal and dismal failures in global collective action, like the infamous London World Monetary and Economic Conference of 1933, whose collapse had deepened and prolonged the Great Depression.
The rest of the communiqué covers all the critical and contentious issues that had been debated for weeks before the Pittsburgh summit. Some issues are discussed in greater depth coupled with more specific proposals than others. The economic stimulus “exit strategies” issue is finessed as expected. “The Framework for Strong, Sustainable and Balanced Growth” is proposed as a means of dealing with global economic imbalances, referring to some countries, such as the US, running huge chronic current account deficits, reflecting inadequate domestic saving relative to domestic investment, and others such as China doing the opposite. Solving this problem, which is often blamed for being the ultimate cause of the global financial crisis, requires the US, in particular, to consume less and save more, import less and export more, and China, especially, to do the opposite. Whether this problem can be solved through mere peer pressure among countries, with the technical support of and surveillance by the International Monetary Fund (IMF) remains to be seen.
The part of the communiqué titled “Strengthening the International Financial Regulatory System” focuses on reforming financial institutions to minimize excessive risk-taking for short-term profits based on dysfunctional incentives that have, it is argued, led to the collapse of the global financial system. The related issues are bank capital requirements, liquidity standards, caps on leverage ratios and limits on variable pay for bank executives. Issues relating to the regulation of hedge funds and over-the-counter derivatives, such as credit default swaps, are also covered in this part. The G-20 leaders have designated the Financial Stability Board (FSB), whose “Charter” they approved in Pittsburgh, to spearhead the effort in international financial regulatory reform. The FSB, supported by the Basel Committee on Banking Supervision, has now become a major pillar of the global financial system. It issued last Friday for the G-20 summit three substantive documents: (1) “Overview of Progress in Implementing the London Summit Recommendations for Strengthening Financial Stability”; (2) “Improving Financial Regulation”; and (3) “FSB Principles for Sound Compensation Practices.” The last two contain highly specific proposals that will prove hard to implement.
The part of the communiqué titled “Modernizing Our Global Institutions to Reflect Today's Global Economy” particularly focuses on reforming the governance structure of the IMF and the World Bank by enhancing the voice of emerging economies that are underrepresented relative to their global weight. The rest of the communiqué is devoted to other no less important issues such as “Energy Security and Climate Change” and “Strengthening Support for the Most Vulnerable” (the poorest countries), “Putting Quality Jobs at the Heart of the Recovery” (reducing unemployment) and “An Open Global Economy” (fighting protectionism and liberalizing trade). This is an ambitious agenda that will keep the G-20 busy for years to come.
