By Liu Ming
The third G20 Summit ended in Pittsburgh on September 25, 2009, after having achieved a number of breakthroughs.
In the run-up to the summit there had been worrying talk about G20 leaders devising “exit strategies” from their stimulus plans. But in the event, the leaders decided they would keep stimulus measures in place until the recovery is secure. This was good news for a world economy stuck in the mire of the financial crisis. Perhaps even more important, the summit met the long-standing demand of the emerging economies that the G8 be replaced with a more balanced and representative mechanism.
The summit reached consensus that the G20 would become a platform for coordinating global economic policy and implementing effective regulation. Emerging markets and developing countries were guaranteed a rise of at least five percent in their International Monetary Fund (IMF) quota shares. The G20 also committed to an increase of at least three percent in the voting rights of developing countries in the World Bank (WB). These are clear signs of reform in the international economic order.
But they are just the first steps on a long journey. Further progress depends on the attitude of the advanced countries to the remodeling of international institutions. So far, Western developed countries have not been prepared to share power on an equal footing with the leading developing countries. They have been forced to compromise on financial issues because they are dependent on the emerging economies to restore the health of the world economy. In the political sphere however, the West, and the U.S. in particular, want to preserve G8 authority over international security and diplomacy.
Thanks to the financial crisis, the chaos caused by derivatives transactions and its domestic fiscal deficit, the U.S. lost some of its authority and was forced to turn to the G20. But when the US economy gets back on track, will the G20 still have a major role to play? Is the U.S. really willing to share the power with other countries? After all, the G20 is a purely advisory body without a clear leadership, systematic organization, or rules. The G8, by contrast, shares values and regulations, and its members are political allies.
Moreover, real current global economic power and decision-making authority is rooted in international institutions such as the IMF and World Bank, which were formed after the Second World War. The fact that World Bank increased voting rights for developing countries did not fundamentally alter its domination by the U.S. and Europe. On a more fundamental level, developing countries cannot compete with developed countries in the fields of financial management and regulation. As long as the U.S. is unwilling to reform the Bretton Woods system, as long as dollar remains the principal reserve currency, as long as the Federal Reserve keeps its position as the world’s central bank, and the U.S. still has the largest economy, the emerging economies will still have a huge hill to climb to substantially reshape the international economic order.
Dr. Liu Ming is the deputy director of the Institute of Asia-Pacific Studies, Shanghai Academy of Social Sciences.
(China.org.cn September 28, 2009)