G-20 distracted

Sep 08, 2013 Editorial

After the western economies were rocked by the meltdown of their economies in 2008 and pushed into a recession, their leaders expanded their cozy G-8 club to include the emerging economies that were now ascendant and G-20 was born. Their annual meetings since the first one in Washington, hosted by the outgoing US President George Bush, became institutionalized as they attempted to find common ground in coordinating their economies, which constituted two-thirds of the world’s GNP.
The two-day meeting scheduled for this year has just wrapped up in St. Petersburg, Russia. But even though there were pressing economic matters on the agenda, they were all literally pushed to the side by the US insistence on going ahead with military action against Syria. Among the leaders present, only France has indicated that it would support a unilateral US action. Britain’s “special relationship” with the US was not enough to persuade its lawmakers from voting against support for military action.
On the economic front there were widespread fears expressed that any attack on Syria would lead to higher petroleum prices from the region. This would further dampen Europe’s lagging recovery programme and which is already threatened by the shifting monetary policy in Washington, D.C., after signs that its economy was improving. The U.S. Federal Reserve has signalled its intention to “taper” the stimulus program it put in place to pull that country out of recession.
What this means in the real world is that the Fed would rein back its US$85 billion-a-month bond-buying programme, which releases cheap money into the system. This decision has roiled the global financial markets as investors pulled funds from the emerging markets back into the US in the expectation of higher interest rates there.
The most deleterious effects were felt in India where their Rupee fell to historic lows and their growth rate has dropped to half of the double digit rates they were shooting for.
In his welcoming speech, the host, Russian President Vladimir Putin tried to remind G-20 of its goal: “Our main task is returning the global economy towards steady and balanced growth. This task has unfortunately not been resolved. Therefore systemic risks, the conditions for an acute crisis relapse, persist,” he warned.
The BRIC group of emerging economies – Brazil, Russia, India and China – criticised the unilateral action of the US in its monetary policy reversal and in a joint statement, cautioned, “The eventual normalization of monetary policies needs to be effectively and carefully calibrated and clearly communicated.”
On the sidelines of the G-20 meeting they attempted to take direct action to confront the challenge. They announced they will contribute US$100 billion to a fund meant to steady currency markets destabilized by an expected pullback of U.S. monetary stimulus.
China would be contributing the largest portion of the funding. Some decisions were made on dealing with the multinational companies’ use of legal, highly complex tax minimisation systems that end up squeezing their home governments’ efforts to deal with their domestic social programmes. Not much is expected, however.
Another issue that has distracted the G-20 summit is the spying conducted by the US via their NSA on many of its erstwhile allies. While some like India have not raised too much of a public stink, others such as Brazil are demanding an explanation from the US after spying tactics were revealed by whistleblower Edward Snowden. Brazilian President Dilma Rousseff met with Barack Obama on Thursday, prior to the meeting, to discuss revelations that the US had spied on her private communications. Rousseff has threatened to cancel her planned trip to Washington in October unless the US issues a written apology to Brazil.
What the entire episode reveals is that the role of the UN as the arbiter of relations between states will continue to be undermined by the stronger powers that insist on the “might is right” approach. This is as true in economics as it is in international relations.

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