The Pittsburgh summit of the G20 has been hailed for announcing that the Group of 20 will henceforth take on the role and mantle of the G8 but is it possible to tame the forces of instability that brought the world to the brink of financial and economic disaster last year merely by issuing edicts, fiat, and a check list of dos and don’ts? This is the question every country in the world needs to ask, especially those like India, China and Brazil, which bear little responsibility for the meltdown but which, nevertheless, are suffering from the aftershocks of the global crisis it caused. Broadly speaking, the Pittsburgh communiqué has what is needed to revive the global economy and insulate it from financial instability. Like every good primer, it emphasises three ‘Rs’ — reflation, regulation and risk management, and representation. Fortunately, the single measure most crucial for recovery in the short term is also the one which finds the most tangible mention: there will be no premature withdrawal of the stimulus package. India and China went in to the G20 apprehensive about the European and also the U.S. commitment to the ongoing reflation of the world economy and have every reason to feel satisfied at the outcome.
The stimulus package is truly win-win, because it allows for the recovery of Western economies and for developing country exports. Unfortunately, not all countries and players have a shared interest in the implementation of the Pittsburgh line in other areas. Take regulation and risk. If national governments do not implement the excellent recommendations made by the G20 on bankers’ pay, transparent accounting procedures and prudential banking norms, financial markets will once again start indulging in risky behaviour. As for representation, the G20 have made genuine headway by agreeing to a 5 per cent shift in quota share in favour of the developing and emerging economies. This was also a major demand of the BRIC countries, Alongside this, the IMF has also been asked to help the G20 conduct a regular ‘peer review’ of the macroeconomic and regulatory policies of individual countries, a mechanism that, theoretically, will allow the world to get an early warning of negative practices, especially in the Anglo-Saxon financial universe. But if this oversight task is performed perfunctorily, or not at all, all the fine words at Pittsburgh will get negated. And the BRIC and Asian countries will have even more of an incentive to develop their own institutions to insulate themselves from the next occidental financial contagion.