Is the G20 Plan for Recovery and Reform that emerged from the London Summit on 2 April 2009 the answer to the global economic crisis?
Let us respond to that question by examining some of the central features of the Plan. To start with, the Plan pledges regulation of credit agencies and hedge funds, crackdown on tax havens that are out of line, and new rules on pay and bonuses. Since it is now widely acknowledged that these are some of the institutions and practices that are part of the casino capitalism that developed over three or four decades and caused the financial crisis in the United States which has now metamorphosed into a massive global economic crisis, any attempt to regulate hedge funds and check tax havens, for instance, would be most welcome. However, there is very little detailed information in the Plan on how regulation will be carried out or on the sort of sanctions that would be employed against errant tax havens. Perhaps, the mechanisms will be formulated at the proposed meeting in Scotland later in the year.
In this regard, the Plan also does not offer concrete measures on curbing speculative, often volatile, capital flows. Critics point out that the Plan should have endorsed ideas such as the Tobin Tax or encouraged governments to impose capital controls. There is no indication that it wants to eliminate even in the long term short selling of stocks and shares or trade in derivatives. The impression given is that financial wheeling and dealing will continue albeit within a framework of rules, oversight and monitoring. The dominant power of financial markets will remain. They may choose to behave for a while but there is no guarantee that they will not flout the yet to be installed rules and trigger off another mammoth crisis in the future.
There is another dimension to the Plan that also raises our concern. The international Monetary Fund (IMF) is given a pivotal role to “kick start the global economy, meet balance of payments needs and provide social support for countries in crisis.” One trillion dollars will be channeled through the IMF and other international institutions. The people of the Global South have very little faith in the IMF. Its policies have increased the financial vulnerability of nations in the Global South and hurt their domestic agriculture and industry. The IMF continues to insist upon interest hikes and reduction in state expenditure on essential social services as conditions for its loans. By and large, it is perceived as an instrument for the perpetuation of US helmed global financial and economic hegemony.
Unless there is serious reform of the IMF, it should not be given such a critical role in any global economic recovery plan. Of course, the Plan does talk of reforms to the “mandates and governance” of international financial institutions( IFIs) such as the IMF and the World Bank to “make them more accountable, more representative and more effective including heads of IFIs appointed on merit”. Even if these reforms happen soon, we should realize that the real issue is not about enhancing the accountability of IFIs or making them more representative. The central challenge is to change the entire policy orientation and direction of the IMF, and to a lesser degree, the World Bank. It is only too obvious that there is no commitment towards this goal on the part of the G20, especially the US, Britain and other Western governments.
Instead of making the IMF the anchor of the Plan, shouldn’t we consider channeling assistance to people in the Global South and the Global North through the United Nations? Specifically, the UN’s Economic and Social Council (ECOSOC) could play a tangible role in this, with the UN’s General Assembly (UNGA) assuming a sort of supervisory function. If the G20 is sincere about the 50 billion earmarked for the poorest nations of the world in the Plan, it should have no qualms about channeling the assistance through the ECOSOC and the UNGA which have, over the years, articulated the interests of the majority of the human family much more than the IMF or the World Bank.
Similarly a UN outfit like the United Nations Conference on Trade and Development (UNCTAD) would be a better conduit for disbursing the additional 250 billion to support trade finance that the Plan envisages, than the World Bank or the World Trade Organisation (WTO) or the G8. UNCTAD has a clear commitment to fair trade and will not place obstacles in the path of countries in the Global South that are determined to harness trade in order to revive their economies. By charting significant roles for the World Bank, the WTO and the G8 in trade financing — institutions that have done so little to protect the trade interests of the Global South— the Plan has revealed its lack of sensitivity to the well-being of the world’s poor.
That sincere commitment to the aspirations of the poor is missing from the Plan is even more evident in yet another area that receives hardly any emphasis in the London Summit’s document. As a result of the global economic crisis set into motion by the casino capitalism of the Washington helmed global system, some of the poorest countries of the Global South which are already heavily indebted are now facing even greater difficulties in servicing their debts. The G20 should have issued a clarion call for the total and complete elimination of the debts of all the poor debt ridden states in Africa, Latin America, Asia and Eastern Europe. It would have been a tremendous boost for them as they struggle to restore their economies. It is a shame that freeing the poor from the debt trap was not a priority for the G20.
There is another act of omission— perhaps even more significant in the context of the present crisis — that the G20 is guilty of. The Plan fails to address the critical question of the position of the US dollar as the world’s reserve currency. The global economic crisis has brought to the fore the fundamental issue of the instability of the dollar and its adverse impact upon the entire international monetary system. It is mainly because of this instability that China which holds some 2 trillion in US debt — as a result of its huge trade surplus vis-a-vis the US — has appealed to the US to ensure the safety of its money. In fact, the governor of China’s Central Bank has gone even further and proposed that the dollar be replaced as the world’s reserve currency by a super sovereign reserve currency in the form of the Special Drawing Rights (SDR) to be administered by the IMF. Russia supports the proposal. Nobel laureate Joseph Stiglitz has also espoused a new reserve system linked to the SDR.
Whatever the merits or demerits of the proposal, the G20 Summit should have subjected to evaluation the position of the US dollar and examined in depth alternative ideas on a global reserve currency. In fact, in 1944, at Bretton Woods, the British economist, Maynard Keynes, had suggested the creation of an international currency unit to be called ‘Bancor’ which would serve as super sovereign currency. He realized the risks and dangers inherent in projecting a national currency as a global reserve currency. Keynes’ proposal was not accepted. It was the US delegation’s bid to establish a monetary system around the dollar that triumphed.
Today, 65 years later, it is obvious that the US is determined as ever to ensure that the dollar remains the world’s dominant currency. The dollar’s dominance is a pre-requisite for US hegemony. This is why whatever adjustments the US Administration was prepared to make to some of the demands of other states at the G20 Summit, it made it clear even before the meeting that it would not allow anyone to question the role of the dollar as the global reserve currency.
This then is what the G20 Plan is all about. While it addresses some of the underlying causes of the global economic crisis, it also tries very hard to preserve and perpetuate the existing US helmed global financial and economic order. An act of commission, on the one hand— buttressing the IMF— and an act of omission, on the other— remaining silent on the position of the US dollar— bear testimony to this. But the Plan, as we have shown, fails to respond to the needs of the Global South. It will not ensure global justice. It is not the answer to the global economic crisis that the people of the world are waiting for.
Dr. Chandra Muzaffar is Professor of Global Studies at Universiti Sains Malaysia and President of the International Movement for a Just World (JUST)
April 6, 2009.