A call to inclusive trade, timelines & workable tools

PITTSBURGH: The Leaders��� Statement issued at the conclusion of the G20 Pittsburgh summit is likely to go down in history as a watershed document that initiated the transition to inclusive globalization. If this sounds like hyperbole, consider what���s on the communique���s ambitious agenda.

It sets out to redistribute real decisionmaking power located in key institutions and groupings from the handful of rich countries that dominated the 20th century to a larger group of 19 nations that includes 11 developing countries ���- five from Asia, three from Latin America, two from Europe and one from Africa. (the 20th member is the European Union, a confederation of sorts).

Unlike a lot of summit declaratons that tend to be terse, the Pittsburgh communiqu�� runs to 50 paragraphs, sandwiched between a 32 para preamble and two annexes. Its length serves, however, to make it meaty rather than loquacious. The leaders��� statement seeks to harmonise and coordinate key regulation of finance across borders.

It opens up national economic and monetary policy of the most powerful nations to regular, ongoing scrutiny for conformity to a policy framework suited for sustainable global growth. It commits G20 members to conclude the Doha Development Round of trade talks in the first half of 2010.

It seeks to reform the global architecture to incorporate key developing countries into key policymaking and watchdog bodies and increase their say in key bodies such as the International Monetary Fund. It officially anoints the G20 as the successor to G8, till recently the premier global grouping on economic matters.

And it seeks to take new steps to increase access to food, fuel and finance among the world���s poor. It also seeks to promote energy security and arrest climate change by phasing out fossil fuel subsidies and promoting renewable energy.

Global coordination and vetting of policy to ascertain global compatibility calls for a supranational body. The G20 identifies the IMF as that key body. The developing countries��� voting rights in that agency will go up by another 5% by 2011. In the World Bank, the redistribution of voting rights would be at least to the extent of 3% to begin with and this would be a dynamic process to keep reflecting the shifting balance of global economic power.

The communiqu�� adds yet another acronym to the lexicon of global diplomacy: FSSBG or a framework for strong, sustainable and balanced growth. It commits member nations of the G20 to ensure that their domestic economic and monetary policies are consistent with global economic health. To assess this, they will subject themselves to peer review and identify corrective steps.

G20 finance ministers, aided by the IMF, will regularly assess the implications and consistency of fiscal and monetary policies, credit growth and asset markets, foreign exchangedevelopments, commodity and energy prices and current account imbalances. All this would sound intrusive even to a developing country, now this scrutiny would apply to the most powerful nations as well.

This reflects the integration and resultant interdependence of different national economies. Fleetfooted global finance has of late been behaving like a supranational force, dedicated primarily to its own profits, regardless of the risks its singleminded pursuit of short-term profits imposes on the rest of the world.

The G20 proposes to bring finance to heel. It will subject their functioning to new prudential norms ��� those who securitise loans will be obliged to keep their skin in the game by retaining a portion of the original asset on their books.

Their compensation will be restricted in quantitative terms, as a proportion of net revenues, and in qualitative terms by aligning compensation with the performance over time of the assets whose creation entitle them to compensation in the first place.

Basel II norms, enhanced with a new leverage ratio that will curb reckless borrowing by financial institutions. Commodity markets will have to ensure greater transparency and better accounting, to prevent manipulation of key commodity prices such as those of crude. The financial stability board, of which G20 members are also members will keep tabs on financial firms. Firms that are too large to fail will have to accept suitably tighter regulation.

The G20 will meet twice next year ��� in Canada in June and in November in Korea, and annually thereafter.