It took the worst US recession since the 1930s for the West to make a clean break with old thinking. The Group of 20 nations that emerged last November to tackle the global crisis and its aftermath will now replace the World War II Group of Eight powers as a permanent council for global economic co-operation, the White House said on Thursday.
The initiative to be formalised on Friday was pushed by president Barack Obama and satisfies the demands of the world’s new economic stars — China, India and Brazil —who have demanded a seat at the decision-making table. The US is working in the G-20 Summit in Pittsburgh towards giving greater representation to developing countries in the International Monetary Fund (IMF) and the World Bank in exchange for Obama’s compact on “sustainable and balanced world growth”.
The US initiative is likely to result in a five-percentage-point shift in the ownership of the IMF from industrialised to developing countries, and a cut in the number of IMF directors from 24 to 20. The loss in power would come from European countries whose economic clout has shrunk. “It is a substantial step in the right direction,” Montek Singh Ahluwalia, deputy chairman of India’s planning commission, said from Pittsburgh.
The BRIC grouping of Brazil, Russia, India and China had proposed 7 percentage points, but even then this a “significant shift” in voting power.
Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, said without a change in the voting structure, boosting the role of the IMF as envisioned by the G-20 summit could be dangerous and simply lead to American hegemony over parts of the world. “The IMF currently answers mainly to the US treasury, with some minor influence from Europe,” said Weisbrot.
The two-day summit, to end with a joint communiqué on Friday, envisions a potential agreement on a procedure where G-20 countries preview and assess whether each others policies are working, and the IMF provides technical help. An Indian official said there were no enforcement mechanisms such as sanctions or other penalties.
Prime minister Manmohan Singh will make a case in the plenary session on Friday for continuing with stimulus policies through 2010. India believes that Asia’s growth is a result of synchronised expansion policies. The G-20 is in general agreement that it’s far too early for governments to withdraw stimulus. With the G-20 summit likely to sign off on pro-growth fiscal and monetary stimuli, economists warn that the Reserve Bank of India will have to keep a “tight watch” on monetary policy to discourage asset bubbles as liquidity sloshes into rallying Asian stock markets.
There is heart burn over a potential climate change proposal. Obama has signaled plans to call for an end to extensive government subsidies that encourage the use of fossil fuels, such as oil and coal, which are believed to contribute to global warming. US officials said he would propose a gradual elimination. China and India are likely to fight the plan tooth-and-nail.