G20 prepares to take centre stage
By Anne Davies | smh.com.au | 28 September
Action...protesters march against capitalism at the G20 summit in Pittsburg on Firday.
The leaders of the world's 20 largest economies have agreed to a historic plan which, if implemented in its full spirit, will see the developed and developing nations co-ordinate their national economic strategies and financial regulation in a way that is unprecedented.
The communique which emerged from Friday's G20 meeting in Pittsburgh might be a little light on detail, but it is broad in its scope and ambition.
At its centre is a commitment for the G20 nations to consult each other on future economic plans and to subject them to "peer review", first by the International Monetary Fund, and then by the Financial Stability Board, comprised of G20 finance ministers, in an effort to avoid the dangerous imbalances that helped fuel the crisis.
"Our global economy is now fundamentally interconnected, we need to act together to make sure our recovery creates new jobs and industries, while preventing the kinds of imbalances and abuse that led us into this crisis," said President Barack Obama after the conference.
"Going forward, we cannot tolerate the same old boom and bust economy of the past. We can't grow complacent. We can't wait for a crisis to co-operate.
That's why our new framework will allow each of us to assess the others' policies, to build consensus on reform, and to ensure that global demand supports growth for all."
The downside is that there is no enforcement mechanism envisaged by the G20 other than disapproval by fellow members. It also assumes that governments are fully cognisant of the impact of their policies and in control of their economic direction.
The last crisis has been blamed on America's lax financial regulation and non-existent consumer mortgage regulation which led to a decade-long debt binge which drove consumer spending, house prices and a massive deficit.
This was fed by manufacturing nations, like China, who implemented policies to drive exports, such as artificially low exchange rates, leading to huge surpluses.
While it is obvious in hindsight that the US's lax laws governing the financial sector and China's currency policies played a large part in the global crisis, no regulators sounded the alarm bells until the crisis was well entrenched.
The Prime Minister, Kevin Rudd, said exchange rate issues were not discussed during the G20 but he hinted that they would be.
"Part of that future obviously lies in countries which have high savings rates being encouraged to spend more domestically, to consume more domestically.
This will not occur overnight," he said. Mr Obama is the first president for several decades to talk of the need for a US industry policy, which until now was regarded as a minor part of the commerce secretary's brief.
For Australia there are potentially issues in domestic policies which drive over-investment in the housing sector, driving up prices, and our strong reliance on the resources sector which is subject to the fluctuations of commodity prices.
The first reports on economic co-ordination will come at a G20 summit in Canada next June and again in November in South Korea. In a big win for Mr Rudd the G20 will be made permanent, giving Australia a voice in the process, which is likely to set the future economic direction of the nation.
"It's important for Australia that our voice be heard in the councils of the world," Mr Rudd said after the G20 meeting. "Decisions often made in distant capitals have a direct effect on jobs and livelihoods for the working people of Australia and working people elsewhere".
The leaders also agreed to tackle in a co-ordinated way the regulation of important financial institutions.
The G20 agreed to devise by the end of 2010 specific rules to ensure capital adequacy rules for systemically important financial institutions and implement them by 2012. They also agreed to regulate the derivatives market by the end of 2012.
In a win for the French, the G20 agreed to implement the Financial Stability Board's recommendations on regulating executives salaries so they are linked more closely to longer-term performance of the corporation rather than encouraging short-term, high risk-taking.
First published by Smh.com.au on September 28 2009
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