The G20 Conference held in Washington 15 November discussed global economic crisis and forged a consensus on the direction of reform and important issues of concern to the world economies arising out of the recent financial crisis.

The most important part about a G-20 gathering was that it was not another G-8 meeting. The expansion of participating voices represented a significant departure from a system dominated by the U.S. and Europe.

There was no doubt that the days of handful of western capitals managing the world economy are numbered. The meeting involved a great deal of discussion of how emerging economies should have an increased role in a variety of functions, particularly with respect to the International Monetary Fund.

US President George Bush said, “There is a common understanding that all of us should promote pro-growth economic policy. There is more work to be done and there will be further meetings, sending a clear signal that a meeting is not going to solve the world’s problems.”

In a post-meeting communiqué, leaders of the assembled group of G-20 nations said they agreed on a broader policy response to combat the current global economic crisis, based on ‘closer macroeconomic cooperation.’

Listing a series of general principles, the leaders pledged to strengthen the transparency of their financial markets and their own regulatory regimes, among other things.

World Bank President Robert Zoellick said the summit was a positive start. He praised China’s US$580 billion stimulus package and wanted other nations to initiate government spending initiatives of their own. Zoelick’s praise of China in some ways indicated the importance of the meeting. The old G-7 major industrialized nations formed a steering group within the larger G-20, which now includes the G-7, members of the European Union, and emerging economies such as China, India, Russia, and South Korea.

US President-elect Obama himself did not attend the meeting, saying it would be inappropriate. Instead, he dispatched a team of emissaries, including former Secretary of State Madeleine Albright.

Global Regulator

European Nations had been advocating a cross-border regulation and the United States had been lukewarm to it. Despite the replacement of a Republican administration with a Democratic one this stand is unlikely to change. Even the pro-change Obama administration would not be willing to accept a global regulator. That is a step too far.

But Obama is likely to accept deeper regulatory reforms at the national level. And his administration may be willing to join some coordinated global effort to use government stimulus to limit the extent of the world’s downturn.

G-20 Accomplishments

Perhaps the most staggering thing to come out of the meeting was the expression of the sentiment that global financial markets are not sufficiently self-regulating and that governmental interventions would be a necessity if the global economy is to be stabilised.

The pledge of G-20 nations to stabilize international markets with some specific policy proposals was a strong call to increase the regulation of hedge funds and advocacy for heightened oversight of credit rating agencies in recognition of stubborn credit problems.

Trade Issues

Trade issues also made it to the table. Notably, the membership agreed to a 12-month prohibition on new protectionist measures. Calls for the re-initiation of the Doha trade talks were also well-received. For skeptics who had wondered whether global events would lead to more cooperation or increased isolation seemed to have received an answer in support of cooperative trade and engagement.

Without making specific reference to American Federal Reserve’s low interest policies, the Conference placed onus on the nations of the world for future restructuring of regulations, transparency and management of risk mitigation.

The Conference communique identified the origin of the crisis partly at the wrong macro-economic policies and partly to defective regulation.

It also stressed the need for establishing a College of regulators, which would try to ensure that regulations of different countries do not miss obvious loopholes.

Be Safe than Sorry

Prime Minister Dr. Manmohan Singh spoke about the need for global governance, and he had in mind a radical restructuring of financial institutions. Better risk management protocols are already on the agenda, and as India has shown, dynamic provisioning must form the centrepiece of such protocols. Fundamentalists may argue that this is excessive caution in lending but it could be argued that it is better to be safe than sorry.

The communique of the G-20 conference informs a detailed work plan, which visualises a series of meetings of G-20 nations with time limits laid for different tasks. The G-20 is to meet again in April 2009.

The Conference communique called for a heightened role of the IMF and the World Bank. It admitted that the IMF did not have resources and called for efforts to reduce this handicap. Obviously, this calls for contributions from the emerging market nations, who hold a substantial chunk of the world’s reserves.

Breakthrough

The G-20 Conference was nonetheless a break-through, in the sense that it brought together different nations of the world at the Head of State level to discuss the world economic issues.

The communique mooted the need for establishing a College of regulators, which would try to ensure that regulations of different countries do not miss obvious loopholes.

The communique of the G-20 conference draws a detailed work plan, which visualises a series of meetings of G-20 nations with time limits laid for different tasks. There is a heavy burden of responsibility of the G-20 conference task force.

One did not witness a complete reinvention of international monetary management rules and no one walked away believing that a new framework for global cooperation had been set in place.

Shortcomings

The limits of the summit’s significance are readily apparent. For instance, although those gathered pledged to do whatever might be necessary to stabilize the financial system, no one seemed willing to divulge specific numbers with respect to individual stimulus plans.

The G-20 was basically silent on the hot topic of re-examining and re-calibrating exchange rates. Sometimes silence is significant and the failure to address this topic in a meaningful way definitely cut against the significance of the session.

Bretton Woods II

A recent BBC News story from Bridget Kendall wondered if a second version of Bretton Woods, the 1944 agreement between allied nations on the management of international financial and monetary affairs, might be on the way. The article noted the possibility of a major power shift on the immediate horizon and the potential to see substantial changes in the way the world approaches an increasingly globalized economy.

The G-20 Summit did not measure up to those lofty standards. However, a closer examination of the summit reveals that its limitations did not prevent it from planting seeds that could result in significant changes for the global economy.

Put simply, the very fact that a G-20 assembled is meaningful, regardless of the actual policy decisions that did or did not emerge. Definitely the value of the summit was t symbolic. There actually were some interesting and potentially significant decisions to come out of the meeting.