G-20: Rearranging chairs on the deck while the Titanic is sinking

G-20 Summit in London on April 2, 2009, which brought together leaders of 19 nations accounting for 90% of the world���s economic output, 80% of world trade and two-thirds of the global population was a momentous event. It reiterated general principles of global action for provision of global public goods.

It provided an occasion where the host could declare in the press conference (though not in the communiqu��) that the era of Washington Consensus is over. These are welcome. However, so far as the issue of tackling the deepening global crisis is concerned, the summit achieved very little.

In the run-up to the G-20 summit in London, there were deep divisions appearing between two sides of the Atlantic. The Europeans led by France and Germany were calling for improving international system of regulation of the financial systems in all countries, including the US, which the US was refusing to accept.

The country was, on the other hand, calling for large and concerted stimulus packages across the world which the Europeans were refusing to accept. While this trans-Atlantic family quarrel was going on, the Russians and the Chinese put the cat among the pigeons by arguing���rightly so���that the root cause of the crisis was the dollar reserve system that allowed US profligacy to continue too long.

They said in order to avoid aggravation of the problem, the world must begin to move towards a supra-national reserve currency system. This move got some support from developing countries such as Brazil, though India with its hyper-sensitivity about the feelings of the US was eloquent in its silence.


Caught in this cross-fire, the host of the London summit, prime minister Gordon Brown did his best to paper over the divisions and the communiqu�� of the G-20 Summit dealt with the real issues of financial clean-up and demand stimulus in general rhetoric terms. The vital issue of reserve currency was not even mentioned.

Instead, the emphasis was on how to help the developing countries, mostly those not represented at the summit (which account for only 10% of global GDP) by provision of funds through international agencies. The figure of $1.1 trillion mentioned as the additional support to be provided to developing countries was touted as the highlight of the summit. That will do very little to tackle the problems originating in the developed countries, and in any case, the figure is a gross exaggeration.

The old tired talk on changing voting power of developing economies is repeated with no reference to the key issues such as changing the veto power of one country on major decisions in the IMF. Nor was there any interest shown in changing the composition or usage of SDRs. Despite all the glitz, the resolutions passed at G-20 will do practically nothing to help the sinking world economy. The image of rearranging chairs on the deck while the Titanic is sinking comes to mind.

The emptiness of the G-20 summit can perhaps be illustrated by examining as to what is in it for India. India is facing a severe slowdown in the economy with GDP growth rates likely to decline to 5% or below in 2009 and even in 2010.

Exports have declined severely and an estimated 10 million workers have lost their jobs. The country has a huge deficit in funding of infrastructure, both physical and social, and it can undertake big programs for green recovery relating to energy efficiency, clean energy and forestation.

How can summit decisions help India? Apparently India will contribute some $4 billion to IMF funds. Could not these funds be better utilised to help finance India���s infrastructure? India will be increasing its borrowings from the World Bank but mainly for recapitalisation of banks etc. and not for real expenditures.

It is being hit by protectionism in the US; but the summit promises no relief in the matter. Action on tax havens will be good in the long-run but will that help inflow of capital and recovery in the near term? Altogether it is doubtful if the outcome of G-20 Summit will help India reverse its slowdown and facilitate recovery and job creation.

Instead of joining in the game of rearranging chairs on the deck while the Titanic is sinking, India should get some lifeboats out before it is too late. Perhaps we should focus on programs for cooperation in trade, investment and finance in regional framework such as East Asia Summit, which is taking place in Bangkok April 11-12, 2009.

The decline of demand in the west is unavoidable. Creation of additional demand in Asia in both investment and consumption is probably the only way out of the current world downturn. India should work jointly with its Asian partners to pool Asia���s reserves to create a regional parallel currency and fund its much-needed expenditures in physical and social infrastructure and green recovery. India has historically provided leadership in the South. That leadership is needed now more than ever before.

(The author is with Delhi-based think tank, RIS)