On April 2, heads of state from the Group of Twenty (G-20), which represents twenty of the world’s leading economies, meet in London to discuss the international response to the global economic crisis. The following is an outline of which policy issues will command the most attention for each of the G-20 members.
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While each of the twenty members of the G-20 technically has equal power, experts say Argentina, which represents one of the smallest economies involved, will have more limited influence than most. President Cristina Fernandez de Kirchner recently held meetings (Prensa Latina) with Brazil’s President Luiz Inacio Lula da Silva to try to coordinate their stances ahead of the summit. The two leaders indicated they will come to the summit with a joint proposal (LatAm Herald Tribune) for financial reform. But CFR’s Shannon O’Neil says coordination among the three Latin American countries at the summit--Argentina, Brazil, and Mexico--will be scattered. Argentina favors a relaxation of certain International Monetary Fund (IMF) restrictions on loan recipients, she says, while Mexico and Brazil are more concerned with trade policy and tighter financial regulations--issues of less direct concern to Buenos Aires. Experts say Argentina might also push for increased IMF voting rights for emerging countries.
Brazil represents the largest Latin American economy and the second-largest emerging market economy (behind China) present at the G-20 summit. In a recent interview (video), President Luiz Inacio Lula da Silva argued that the United States needed to shore up its banks and called for "bold action" from U.S. President Barack Obama, citing Japan’s experience in the 1990s as a critical lesson about what could happen if Obama does too little to confront the crisis. CFR’s Julia Sweig says Brazil’s top objective at the summit will be to "establish Brazil as the leading voice for the developing world." He will likely push for more flexible access to the IMF and other forms of multilateral funding for developing countries, Sweig says. He may also make strong statements on trade issues, she says--both the need for increased trade financing and the goal of limiting trade protectionism. "This crisis, paradoxically, while hurting domestically, may well enhance Brazil’s standing as a leader in and voice for the emerging world," Sweig says.
In the final days before the G-20 summit, Prime Minister Kevin Rudd has been coordinating with allies, like British Prime Minister Gordon Brown, and speaking publicly about the need for global coordination and improved financial regulation. Addressing the Peterson Institute for International Economics in Washington on March 26, Rudd spoke of the failed London Monetary and Economic Conference of 1933 and the economic stagnation that resulted from countries’ insistence on handling their problems in isolation. Rudd met with Brown on March 30, and both leaders subsequently have made statements on the need for increased economic stimulus (Australian), world trade, and financial regulation. In Rudd’s view, global stimulus should be subsidized through an expanded IMF, in which China would play a more significant role (Australian).
As a former finance minister and the host of the G-20 summit, Prime Minister Brown has taken an outspoken role in advance of the meetings. Brown has called for a "global new deal" and has sought to establish himself as a broker of such a deal, alongside Obama. Brown later scaled back his rhetoric, calling the summit "part of a process" (FT) rather than a decisive event. Still, Brown is expected to release an ambitious plan for fixing international financial regulation. The Telegraph looks at different leaked versions of this plan. It notes Brown has drafted plans for a new international organization that would provide early warnings of future financial crises. He may also call for tighter regulation of banks and hedge funds, an emphasis on job creation, and the establishment of joint guidelines on executive pay, the paper reports.
Canada’s government has indicated it will push for a "very focused" agenda at the G-20 summit, revolving around fixes to specific problems that are undermining the financial system. A spokesperson for Prime Minister Stephen Harper said he would push for countries to implement systems to "ring fence" toxic assets (Dow Jones) at their major banks and act to restore credit markets, saying these basic measures are necessary before broader growth can take place. In a recent interview with Bloomberg, Harper said he expects a reasonable degree of consensus at the summit about the need for tighter financial regulation internationally.
Ahead of the G-20 summit, China’s central bank governor criticized the West for financial irresponsibility in what some news organizations interpreted as an attempt (Bloomberg) to alter leadership roles at the summit. China, which is invested heavily in U.S. Treasury bonds, has pressured the United States and other Western countries to increase their stimulus spending to boost local economies and to implement more effective domestic financial regulations. CFR’s Adam Segal says Beijing, which has indicated it might move away from the dollar in favor of the IMF’s currency substitute, Special Drawing Rights (SDRs), knows that this is not a shift it can make in the short term but has made the suggestion as an "opening gambit in negotiations." China may well push for a restructuring of IMF voting rights and governance powers to better reflect Beijing’s growing economic strength, Segal says. Vice Premier Wang Qishan made this argument in a recent Times of London op-ed. Segal says China’s statements at the summit should be understood as addressing two separate audiences--the United States and Western Europe but also Chinese citizens, who desire a louder voice on the international stage in exchange for bailouts of foreign companies and countries.
The EU released a set of common goals for the G-20 summit at meetings earlier this month. Goals include coordinating fiscal stimulus measures internationally--though EU leaders have also spoken out against a U.S. push for increased stimulus spending--improving regulation of financial markets, including expanding regulation to hedge funds and the "shadow banking system;" reforming international financial institutions and improving financial monitoring to prevent further crises; reducing trade protectionism and creating a new trade financing fund; and increasing development assistance. Much has been made of the discord between the European Union and United States over fiscal stimulus, particularly after the EU president, Mirek Topolanek of the Czech Republic, called increased U.S. fiscal spending "the road to hell" (Deutsche-Welle).
Many analysts have cast Merkel as one of the most outspoken counterpoints to Obama in the run-up to the G-20 summit, given Merkel’s opposition to a U.S. push for greater fiscal stimulus spending. Merkel has downplayed these divisions, saying recently that Washington and Berlin are "in the same direction" (AFP) ahead of the summit. U.S. Treasury Secretary Timothy Geithner echoed these comments recently at CFR, saying he saw a "broad-based consensus" forming on many of the main points to be addressed at the summit. Despite these statements, William Drozdiak, president of the American Council on Germany, says Merkel will enter the summit much as news reports have indicated--"staunchly opposed to American efforts to persuade her country to join the United States and China in concocting large stimulus packages." Drozdiak says Merkel rejects comparisons between Germany’s and China’s current account surpluses, given the domestic financial burdens Germany faces due to its recent stimulus package and the generous social safety nets it has in place for state-funded health care and unemployment benefits--the costs of which are likely to expand during the crisis. Drozdiak notes Germany’s long history of abhorring inflation, dating back to the collapse of the Weimar Republic, and says Merkel won’t be inclined to risk stoking inflation through additional public spending. He notes, however, that she will be eager to cooperate with Obama on other points, including promoting regulatory reform of the global financial system.
President Nicolas Sarkozy has emerged as a leading voice for ramping up financial regulation. Sarkozy stated on March 31 that he wouldn’t sign (AFP) any multilateral agreement that ignores his calls for a strict new international financial regulatory framework, which includes tighter accounting standards and limits on speculation. Thomas Klau, head of the Paris office of the European Council on Foreign Relations, says Sarkozy has harmonized his position with that of German Chancellor Angela Merkel ahead of the summit. "Both Paris and Berlin reject the attempt to make stimulating the economy the only major focus of the summit," Klau says, noting that they prefer a push "for more supranational regulation and better transparency of the financial markets and the financial industry." Klau adds that Sarkozy is likely to push for a strengthened IMF, World Bank, and improvements to other international financial institutions.
In a statement before leaving for the summit, Prime Minister Manmohan Singh called for "credible decisions" (CNN) to stem short-term turmoil in financial markets, adding that the group also needed to ensure "adequate flow of finances" to the developing world. Experts say a push for trade openness will be high on New Delhi’s agenda, given its reliance on exports. Arvind Panagariya, a professor at Columbia University and an expert on the Indian economy, says revitalizing the U.S. economy, ensuring free trade flows, and restoring credit for trade financing will be India’s top priorities. Swaminathan Aiyer, a prominent Indian financial writer and current fellow at the CATO Institute, says India’s concerns can be divided into long- and short-term issues. Unlike other countries, Aiyer says, India does not need immediate assistance, but it still favors a significant ramping up of IMF funding in the near-term. In the longer-term, Aiyer says, India wants a restructuring of the international financial system with a bigger role for India, including increased IMF voting rights.
Italy currently chairs both the G8 industrialized nations and the Financial Stability Forum, an international body that focuses on coordinating regulation of financial markets. Ignazio Angeloni, formerly the director of international financial affairs at the Italian Ministry of Finance, says Rome will stress cooperation on reforms between the G-20 and those two bodies. Gianmarco Ottaviano, a professor of economics at the University of Bologna, says Italy’s inclination is to focus on the human aspects of the financial crisis and to use its position at the G8 to spearhead reforms aimed at minimizing negative social fallout. Experts add that Italy is likely to side with France and Germany in opposing calls for significant additional international stimulus spending.
Indonesia, one of the smallest economies in the G-20, will be pushing world leaders on support for developing countries. After a meeting with President Susilo Bambang Yudhoyono to prepare for the G-20 summit, Bank Indonesia Governor Boediono told the Jakarta Post that "the most practical thing (we can do) now is to expand the availability of SDRs--Special Drawing Rights. This will eventually become a global currency." Boediono’s statements on reducing dependency on U.S. dollars--a move championed by China--followed the signing of a $15 billion currency-swap agreement with China to stop the slide of the rupiah against the dollar as well as bolster bilateral trade and investment. With liquidity tight, Indonesian leaders have spoken in favor of the creation of global expenditure support funds (Jakarta Post) to provide capital to emerging economies.
Prime Minister Taro Aso recently said his country would play a "leadership role" (AFP) at the G-20 summit, citing the contributions Japan had already made to bolster IMF resources. Japanese media have also noted that Aso may make pledges to fund regional organizations like the Asian Development Bank. In practice, however, CFR’s Brian Klein says Tokyo "seems likely to support U.S. initiatives." Klein says Japan’s main goals will be to resist trade protectionism and to support joint efforts, led by the United States, to increase fiscal stimulus globally to around 2 percent of GDP, while leaving it up to individual countries to determine what level is appropriate for their own economy. Klein adds that Tokyo may speak out in support of incentives for bolstering green technology through stimulus spending.
Meeting recently with Britain’s prime minister, Mexican President Felipe Calderon said his objectives for the summit were to coordinate international responses (Reuters) to the crisis in a way that would restore economic growth, likely through stimulus spending. Calderon also said he would support commitments against any new trade restrictions. As a major trading partner with the United States, Mexico hopes Washington will not set new trading restrictions and contends that U.S. officials have already violated (Latin Business Chronicle) the terms of the North American Free Trade Agreement (NAFTA) through recent policies. CFR’s O’Neil says Mexico’s objectives at the summit will likely include implementing tighter bank and financial regulations internationally.
Following recent meetings with Germany’s Merkel, Russian officials indicated they were likely to back France and Germany (EUObserver) by opposing the new stimulus measures Washington supported. CFR’s Jeffrey Mankoff says in general, Russia would like to use the summit to begin a process of overhauling international financial institutions it views as "unresponsive to the needs of ’rising’ powers." Despite a desire for IMF reform, however, Russia has taken a cautious approach, experts say, due to fears of IMF officials meddling politically in countries within Russia’s sphere of influence, such as former Soviet states in Eastern Europe. The Russian delegation at the summit will propose a set of policies it calls the Standard Universal Regulatory Framework, or SURF, that would harmonize regulation across national boundaries. Moscow has also proposed abandoning the dollar as the main global reserve currency, but Mankoff says this proposal has found little backing. Mankoff concludes that Russia won’t exert much influence at the summit, both because of the severity of its domestic economic problems and because of disagreements between the Kremlin’s position and those of the major players involved.
The world’s leading oil exporter thus far has not forecast any major proposals for the G-20 summit. "My sense is that they are like the kid who never got invited to the parties in his neighborhood and then finally got invited to one," says F. Gregory Gause, a Saudi Arabia expert at the University of Vermont. "They are happy just to be there, are going to keep relatively quiet and try not to attract too much attention," he says. Riyadh, Gause notes, has expressed a willingness to increase its funding support for the IMF but has also made clear that it doesn’t intend to function as "an ATM machine for American proposals to increase global liquidity."
As the G-20 summit’s only delegate from Africa, experts say South Africa may push broadly for additional funding to the IMF, World Bank, and regional development banks. CFR’s J. Anthony Holmes says the country has "had a hard time identifying exactly what its interests are in the G-20." Pretoria has thus made no concrete demands for what should be accomplished at the summit, Holmes says. He adds that South African officials are concerned about a rising tide of trade protectionism that could hurt developing economies, but that "this has not been a hobby horse, perhaps because it doesn’t want to box itself in by precluding options it may want to pursue domestically." Holmes says South Africa has generally tried to identify issues that will benefit Africa writ large. These include pressing for a redivision of voting power within the IMF and generally pushing donor countries to meet and potentially even expand their aid commitments to the developing world.
President Lee Myung-bak, a former businessman, recently wrote in the Wall Street Journal that leaders at the G-20 summit can learn lessons about solving lingering financial problems by examining Seoul’s response to its own financial crisis in the 1990s. Lee calls for 1) "bold and decisive measures, rather than incremental ones;" 2) a combination of bank recapitalization and efforts to get toxic assets off the books of existing banks; 3) focusing on measures that are politically acceptable; 4) implementing measures with exit strategies built into their time frames; and 5) encouraging private capital to fully participate, rather than leaning solely on governments. David Kang, a South Korea expert and professor at the University of Southern California’s business school, says in addition to short-term financial fixes, South Korea is likely to press for free trade at the summit. Kang says "as a country that derives much of its income from exports, South Korea is particularly concerned about the potential for rising protectionism and hoping for signs of leadership from the G-20 that will help keep markets open." He says Seoul is close to finalizing a free trade deal with the European Union and still hopes its deal with the United States--stalled by Congress and the new Obama administration--will be ratified.
Washington has signaled it will make a strong push for unity at the G-20 summit. The primary policy point President Obama has lobbied for is that other countries should match Washington’s commitment to fiscal stimulus spending. Obama has said (VOA), for instance, that he wants to make sure "the stimulus efforts of all countries are sufficiently robust to deal with the decline in demand." Speaking recently at CFR, U.S. Treasury Secretary Geithner declined to specify firm targets for stimulus spending but said "the important thing is for people to say that they’re going to do what it takes and they’re going to make sure it’s sustained over a period of time that matches the likely duration of the recession." Geithner also said he hopes a "very forceful package" of commitments to bolster international institutions like the IMF, as well as broad agreements on a global regulatory reform agenda, will come out of the summit. CFR’s Roger Kubarych, in a recent briefing paper (PDF), said it is clear that the United States is no longer resisting tougher regulatory standards proposed by other countries in the same way it has in the past, but rather that it will try to reach agreement on new standards with other countries. Benn Steil, another CFR expert, said in a recent interview that Washington is likely to try to draw Japan more into the discussion of stimulus, but that it will focus mainly on Europe. Obama recently signaled that he will try to reach an accord (Bloomberg) on establishing accounting and transparency rules for offshore tax havens at the summit.
With reporting from Jayshree Bajoria and Julie Ginsberg.
With Turkey’s unemployment rate over 10 percent, some experts predict the country’s leaders may use the summit to ask for economic support from their better-off counterparts. Finance Minister Mehmet Simsek told Dow Jones that the country needed assistance from the IMF because "there is a real risk that this recession could turn into a depression." He has asked the IMF for a program to help prevent countries from defaulting on their international debt and tackle more immediate external financing needs, after Turkey suspended negotiations with the IMF in January over disagreements regarding conditions. At the summit, Turkey is also expected to push for the establishment of anti-protectionist measures and G-20 standards to coordinate fiscal stimulus (Today’s Zaman).