Retooling the Global Economic System
As the frightening impact of the global recession on the less developed world comes into stark relief and the G20 preparing to meet in London early next month, visions for saving the world and restoring global economic order have begun to surface. The New York Times editorial page argues that rich countries are going to need to help poorer ones for their own good:
Helping the developing world is within reach, but it will require capital and concessions from rich countries. The United States and Europe should drop their resistance to a vast new issue of special drawing rights — which like newly printed dollars by the Federal Reserve act as the International Monetary Fund’s own currency.
The United States and Europe also must give more voting power to up-and-coming players. China, in particular, has the financial firepower to become an important contributor to the global effort, yet it will expect more say in the fund’s business.
As the credit crunch spreads, the whole world stands in need of economic stimulus. Poor countries, however, have the resources neither to pay for their own fiscal pump-priming nor to recapitalize foundering banks and reignite the lending to their private sectors. They need outside help. For their own sake, developed countries should provide it. Quickly.
In in today's Financial Times, Former Australian Prime Minister Paul Keating calls for a permanent, much more empowered G20 and a retooled, representative IMF:
Global financial confidence, once destroyed, requires myriad positive events and a heavy convergence of them to counter ambient pessimism and gloom.
The recent series of government packages, notwithstanding their scale and speed, has had little demonstrable effect on the level of confidence or the outlook for ongoing activity. Indeed the number of new and significant packages may begin to peter out out as the public accounts of most countries can no longer cope with the growing burden of insolvency or assume further private sector risk. This context underlines the urgent need for the Group of 20 industrialised and developing nations meeting in London to construct a new paradigm to resuscitate the world financial and economic system.
What is needed is a new global economic and political settlement. The first priority should be to make the G20 a permanent gathering. The leaders should meet at least once a year and, in current circumstances , twice. A permanent G20 structure, representative of the major debtor and creditor countries and the most strategically powerful ones, will sound the death knell of the Group of Seven leading industrialised nations. This is two decades too late, but better late than never.
Both seem to be on to something. A more representative body for making the global economic rules will ultimately be a good thing, even if letting go to the current order proves difficult. We'll be following this issue closely, both ahead of the London G20 meeting and beyond.
- Jake Berliner's blog
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