Friday, November 07, 2008

Purpose of the G20 Summit? Depends Who You Ask

International Herald Tribune - Emerging Nations Demand Big Role in Meltdown Talks
Financial Times - IMF Chief Curbs Summit Expectations

The United States will host the G20 group of developed and developing nations on November 15. U.S. President Bush called the meeting a month ago to address the global market turmoil that has radiated from the U.S. subprime mortgage crisis. Expectations for the summit, however, vary widely. Some see it as a reformulation of the global economy on the scale of the Bretton Woods conference 60 years ago. Others don't expect much more than a discussion about possible steps participants can take to stem the financial crisis in their own country.

One thing seems certain - developing countries are expected to make a push for greater influence and control over the international financial apparatus. The BRIC group of large emerging markets - Brazil, Russia, India, and China - in particular have been calling for more power and visibility. And because the G20 is made up of many emerging markets hit particularly hard by the financial crisis, the U.S. will likely get an earful because of its status as the epicenter of the crisis. The G20 membership list reads like a who's who of emerging markets struggling with outflows of capital and plunging currency exchange rates: Argentina, Brazil, India, Indonesia, Mexico, Russia, South Africa, South Korea, and Turkey, among others.

Although President Bush and IMF President Dominique Strauss-Kahn have been trying to tamp down expectations for the summit, other leaders are urging that the summit should be the catalyst for a reordering of global financial system, parts of which have remained unchanged since Bretton Woods. Brazil's finance minister, for example, has suggested expanding the current G8 to perhaps 15 nations, thereby including some of the newly ascendant emerging economies. He says that developing countries are tired of being mere "coffee drinkers" at the summits while the rich and powerful carry the day. France's President Sarkozy and England's Prime Minister Brown have stated that the G20 summit should explore growing the IMF into a global financial regulator. Others want developing countries to gain greater voting rights in the IMF. Strauss-Kahn, however, warned against excessive optimism, noting that the IMF had recently completed a contentious revision of the IMF's quota system. Notwithstanding Strauss-Kahn's hesitance, the IMF has been increasingly involved in the global crisis, extending loans to Iceland, Hungary, and Ukraine in the past few weeks to help those countries overcome liquidity crises.

Regardless of what actually happens at the summit next week, it appears there will be no shortage of strong feelings and suggestions on the future of the international financial system.

1. Is the current global financial crisis a result of the lack of international regulatory machinery? Would a more powerful IMF have been able to slow or stop the crisis from spreading from the U.S.?
2. Do the Bretton Woods institutions - the IMF and the World Bank - reflect an out-of-date paradigm of international financial regulation? Going forward, what is the role of the U.S. as the still-largest global economy?

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