PHA-Exch> Commentary on G20 draft communiqué

Wed Apr 1 04:07:23 PDT 2009

   From: "David Woodward" David.Woodward at neweconomics.org

Please find herbelow a commentary on the leaked draft G20 Communique, which
I've written for EG4Health. Hopefully it should be on the EG4Health web-site
(www.eg4health.org <http://www.eg4health.org/> ) shortly.

To give you a flavour:
"The draft G20 Communiqué leaked yesterday recognises explicitly, in its
opening paragraph, that "A global crisis requires a global solution". But at
no point does it recognise any need for a global process to decide what that
global solution should be. The G20 members appear determined that they, and
they alone, should determine the future course of the global economy - and
that it should be designed to protect their financial interests, with only
token efforts to limit the damage to the rest of the world. They are trying
to seize control of the global economy; but in doing so, they are amply
demonstrating why they must not be allowed to succeed."

Please forward this to anyone who might be interested - and you're very
welcome to post it on relevant web-sites, too (provided EG4Health is duly
acknowledged).

*Seizing the Wheel, and Crashing the Car – *

*Reflections on the G20 Draft Communiqué*

* *

*David Woodward, Economic Governance for Health
(EG4H)<http://www.eg4health.org/>
*

* *

*1 April 2009*

*The draft G20 Communiqué leaked yesterday recognises explicitly, in its
opening paragraph, that “A global crisis requires a global solution”. But at
no point does it recognise any need for a global process to decide what that
global solution should be. The G20 members appear determined that they, and
they alone, should determine the future course of the global economy – and
that it should be designed to protect their financial interests, with only
token efforts to limit the damage to the rest of the world. They are trying
to seize control of the global economy; but in doing so, they are amply
demonstrating why they must not be allowed to succeed. *

The publication by The Financial Times of the latest draft of the G20
Communiqué is a welcome development – although it would be rather more
welcome if it had been released officially as a recognition of the need for
greater transparency, rather than (presumably) leaked by a member country in
the hope of influencing the outcome of a meeting behind closed doors.

The draft raises a number of reasons for serious concern, not only about
what G20 members propose to do in response to the crisis, but also about the
role of G20 itself.

*The OTHER Dog that Didn’t Bark - What the Communiqué DOESN’T Say*

What is in the Communiqué has been widely reported – as has the apparent
absence of commitments to further “stimulus” packages. (This particular
omission is ironic: it may be open to question whether further “stimulus”
measures would be a good idea, but coordination of their own macroeconomic
policies is one of the few areas in which the exclusive club of the G20,
which has no mandate beyond its member countries, has any legitimate role.)

Another conspicuous silence of the Communiqué has been much less commented
upon. *At no point in the entire document is there any reference to support
for, or even the existence of, the global process for reform of the global
economic system established by the United Nations.* The Communiqué
recognises explicitly, in its opening paragraph, that “A global crisis
requires a global solution”. But at no point does it recognise any need for
a global process to decide what that global solution should be.

The G20, it seems, is happy to “call on” other global institutions of which
they comprise a small minority of the membership – the IMF, the World Bank,
the ILO, WTO – to do their bidding, and “encourage” the (mostly regional)
Multilateral Development Banks, to do their bit. They even “call on the UN
to establish an effective mechanism *to monitor the impact* of the crisis on
the poorest and most vulnerable”.

But they conspicuously avoid any mention of the process established by the
UN to allow a *global* discussion of this critical and far-reaching
*global*issue on a (relatively) even political field. They prefer to
keep the
process to themselves, and to use their political privileges and the
(waning, but still considerable) economic dominance they have gained largely
by abusing these privileges, to try to fix the crisis they created for the
rest of the world in such a way as to further their own interests. They want
a global solution; but they want to be allowed to design it themselves, in
accordance with their own interests, without any interference from anyone
else.

The G20’s demand that the UN should “monitor the impact of the crisis”, with
no reference to any broader role, merely reinforces the message: the UN
should sit patiently on the sidelines, shedding silent tears as they watch
the devastation wrought by the G20’s efforts to salvage its own financial
interests at the expense of the rest of the world (and, in all probability,
a large proportion of their own populations).

*Why the UN?*

Clearly, the G20 is not an appropriate body to decide how to respond to the
current crisis. It has no legal mandate or status, and its membership is
exclusive and grossly unrepresentative. (It includes only one
lower-middle-income country and no low-income countries.)

But this is, at root, a financial crisis. Why, then, should it be addressed
through the United Nations rather than the IMF, which has a global mandate
on international financial stability? There are three overwhelming reasons.

First, the roots of the crisis may be financial, but its branches extend
everywhere – to poverty, health, education, the environment, labour markets,
migration, etc, etc. And the IMF, in its single-minded obsession with
“making the numbers add up”, has shown a spectacular ignorance or, and
indifference to, all of these issues.

Second, the IMF’s governance structure is wholly unsuited to this role. Its
economically weighted voting system gives a substantial majority of the
votes to a small rich minority (the developed country governments) and a
veto on major policy decisions to a single country (the US). Substantive
discussions take place in the Executive Board, where five countries can
directly control how their votes (38.4% of the total) are used, while others
cannot. The UN undoubtedly has its shortcomings – but it operates on a
one-member-one-vote system, in which all countries are represented on an
equal basis, and where representatives are directly accountable to the
governments they represent.

Third, in large measure because of its bizarrely anachronistic and
undemocratic governance structure, the IMF has consistently (and quite
spectacularly) failed even to fulfil its own relatively narrow mandate of
maintaining the stability of the international financial system for the last
30 years. Apart from the current crisis, it has not only failed to prevent
the Sub-Saharan and Latin American debt crises and the Asian financial
crises, but has responded to them in such a way as to compound their
economic and social impacts.

The IMF is not merely an inappropriate body to deal with the current crisis,
with an excessively narrow mandate – it is quite simply not capable of doing
so in anything resembling its current form.

*The Arrogance of Wealth and Power*

While telling global institutions what to do, the G20 members also
graciously commit themselves, without apparent irony, to “candid,
even-handed, and independent IMF surveillance of our economies and financial
sectors, of the impact of our policies on others, and of risks facing the
global economy”.

Of course, this should go without saying – and the fact that the G20 do feel
the need to make such a commitment it is a recognition that certain G20
members (no names, no pack drill….) have abused their political privileges
in the IMF’s undemocratic weighted voting system to prevent it from doing
this critical part of its job. This is a major part of what got us into this
mess in the first place.

Equally, it should go without saying (and is symptomatic of the system’s
malaise that it doesn’t) that the G20 members “commit to implementing”
measures on IMF and World Bank governance reform that have already been
approved.

However, the G20 members seem to forget themselves when they say they “have
agreed a general SDR allocation”. This is not a matter for the G20, but for
the IMF. It is also worth noting that a general SDR allocation, in the
absence of any redistributive mechanism, essentially amounts to printing
large sums of money and giving most of it to… G20 members.

It would be more to the point if the United States were to withdraw its veto
on the amendment to the IMF’s Articles of Agreements which is necessary to
implement the special one-time allocation of SDRs (*not* a General
Allocation) approved by the IMF Board of Governors, including the US itself,
in September 1997. This would allow somewhat more of the benefits to go to
countries outside the G20.

Of course, the US could do this quite independently of the G20. But it does
suggest that perhaps there is some point after all in the G20 members
“committing themselves to implement” changes that have already been approved
in global institutions, with their support….

*The Economic Model – More of the Same….*

The most important reason why the G20 should not be allowed to dictate the
response to the financial crisis is that it will largely determine the
dominant economic model to which the rest of the world will have to adapt –
at least until the next crisis. (Although we may not have too long to wait,
if the G20 gets its way….)

Here, the message is crystal clear. The objective is to “restore global
growth”, and the way to do it is through “an open world economy based on
market principles, effective regulation, and strong [but not, apparently,
democratic, accountable or transparent] global institutions”. In other
words, the G20 wants to get back to business as usual – presumably because
the vast majority of the proceeds of global growth accrue to… the G20
members.

Of course, there are tokenistic references to protecting the poor and
vulnerable – but only to protecting them, in part, from the effects of the
crisis and the G20’s self-serving crisis response. And what do these really
amount to?

G20 members “remain committed… to achieving our ODA pledges” – but no G20
member country has yet achieved the pledge to provide 0.7% of their national
income in aid, and some G8 members have even slipped even further behind
since the promises they made at their Gleneagles Summit in 2005.

The also repeat a previous G20 commitment “not to raise new barriers to
investment or to trade in goods and services…, not to impose new trade
restrictions, and not to create new subsidies to exports”. But they make no
commitment to reduce such barriers and subsidies.

In terms of any more positive changes in trade policies, the Communiqué
merely seeks “rapid agreement… on modalities leading to a successful
conclusion of the Doha Round”. But the Doha Round, too, is not only based on
further intensification of the current economic model, but on the commercial
interests of the developed countries, modified slightly by the growing power
in the WTO of the larger and richer developing countries – who just happen
to be the ones represented on the G20. And the “agreement” they are after
undoubtedly entail the rest of the world succumbing to their political and
economic pressure and submitting to their demands.

Otherwise, gestures to the poor are limited to promoting new lending through
international institutions (for which, of course, G20 members will pick up
only part of the bill – once again, spending other people’s money). But
these loans will have to be repaid, with interest – and they will increase
indebtedness even as the recipients’ debt-servicing capacity is destroyed by
the crisis. Historical experience suggests that this may not prove entirely
helpful in the long term.

In other words, the G20 is just seeking more and wider application of the
same old free market model, designed to make the rich (most of whom are in…
G20 countries) ever richer, with vacuous language and tokenistic add-ons to
give the appearance that the poor and excluded are not being screwed
completely.

The need for change goes far beyond this. The current slowdown in global
economic growth has certainly been damaging to the poor – but only because
the rich and powerful have spent the last 30 years imposing on them an
economic model which has made them critically dependent on ever greater
over-consumption by the rich to avoid sliding inexorably into complete
destitution.

Simply restoring global economic growth is not the answer. It isn’t even
part of the answer. Current levels of over-consumption in the North – and
among Southern elites – are already grossly unsustainable, and have brought
us to the brink of an environmental precipice in the form of climate change.
Worse, the first to fall over this precipice will unquestionably be the
poorest. Simply getting us back on to the environmentally disastrous track
which led us into the current crisis might help to avoid making the poor
poorer in the short term; but it will spell disaster for many of them in the
longer term – and not as long as all that.

The issue of climate change is critical to the response to the current
crisis, precisely because the current model is environmentally, as well as
socially and financially, unsustainable. And yet it rates only 26 words in a
2,288-word draft – and these 26 words are just another reaffirmation of an
existing commitment “to reach agreement at the UN Climate Change conference
in Copenhagen in December” (in other words, to agree to do something
unspecified in another eight months, so long as the rest of world accedes to
their demands to do it their way). There is not the slightest hint that
climate change might impinge in any way on any of the issues discussed
elsewhere in the draft.

Everyone has a stake in these issues – and no-one more so than the poorest
people in the poorest countries. And yet it is precisely these countries
which are systematically excluded from the G20. As long as the G20 is in the
driving seat, we will inevitably be driving towards social disaster and
environmental oblivion.

*Global Economic Governance*

At first sight, the draft Communiqué might appear to offer slightly more
hope on future decision-making processes. International financial
institutions’ “mandates and governance must be reformed”, and “Emerging and
developing economies, including the poorest, must have greater voice and
representation”. But “reformed” does not mean “democratised”; and they must
be reformed “to reflect changes in the world economy” – an implicit
reference to making economic weighting more accurate, rather than shifting
towards a more democratic system.

Worse, this would actually *reduce* the votes of the poorest countries,
already the most under-represented, still further – largely because the
damage wrought by the disastrous economic policies foisted upon them by a
global system from whose decision-making they are effectively excluded has
reduced their economic weight in the global economy.

The draft Communiqué also states, yet again, that “the heads and senior
staff of the IFIs [international financial institutions] should be appointed
through open, merit-based selection processes”. But this is a sentiment that
has been parroted meaninglessly for years, without any significant effects
on the selection of the last two IMF Managing Directors or the last two
World Bank Presidents. And the word “commitment” is curiously absent from
this particular bullet point….

Slightly better news – perhaps the only (slightly) good news in the draft –
is the call on the IMF to “launch the next review of quotas at the 2009
Annual Meetings and commit to complete the process of quota reform by
January 2011”. In principle, this provides another opportunity to raise the
issue of democratisation sooner than we might otherwise have hoped.

Before becoming too enthusiastic, however, we need to bear in mind why this
call is there, and what the interests of the G20 members are. It is
undoubtedly there because the larger and richer developing countries (most
notably China) want it there; and their interest is not in democratisation,
but in more accurate reflection of economic weights in voting shares.

The developed countries would undoubtedly prefer not to push ahead with a
further quota review; and they will undoubtedly use their existing majority
of the votes once again to make sure they keep a majority of the votes,
while giving just enough extra to the “emerging markets” to keep them on
board – and just enough to smaller and poorer developing countries to avoid
a politically embarrassing reduction in their votes from their already
embarrassingly low levels.

This is perhaps the most conspicuous reason why the G20 must not be allowed
to pre-empt global discussions of much needed global reforms. Yes, unlike
the G8, it includes some developing countries; and this means that some
attention needs to be paid to the concerns of these countries. But it only
includes a handful of developing countries, of a certain type – the larger,
richer and more successful ones.

These countries are larger, richer and more successful precisely because
they have contrived, in one way or another, to benefit from the status quo;
and because they are larger, richer and more successful, they stand to
benefit from preserving global governance systems which reinforce
inequalities in economic power rather than off-setting them.

Only when we can move to a global economic governance system which reflects
standards of democracy at the national level, and gives equal weight in
decision-making to the smaller and poorer countries which have been
penalised by the status quo can we seriously hope to deal successfully with
the real global challenges of poverty, climate change and health. And we can
only begin to move towards such a system by putting the G20 (and the G8)
firmly back in its box, and quietly turning the key.
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