G-20 Summit at Pittsburgh, will it be second Bretton Wood?

ACCOMMODATE MORE OR QUIT THE PLACE 

The G-20 summit at Pittsburgh, once the epicentre of America’s heavy industries has aroused many hopes and placed the World at new horizons. The world leaders of both developing and developed countries met together to explore ways to tide over the ongoing recession and evolve system to protect world economy from similar global financial crisis in future. The World has changed ever since the Lehman brothers fell and failed; the too big to fail is now too big to survive, a conceptual change that has penetrated into the hearts, minds and system of the people in Europe and in USA as well. What a change indeed! The collapse of WTC on 9/11 changed the American psyche and so did the collapse of Wall Street on 9/15. Although many people, especially American, would not like this similarity to be drawn, the history once written cannot be rewritten.

The first Economic Crisis, the Great Depression in 1930s led to assemblage of world leaders at Bretton Wood in England in 1944 and this led to subsequent emergence of new world economic order, an order which till 9/15 remained unshakeable. Now the world is changed place to live and think. The G-20 summit at Pittsburgh where leaders of both developed and developing countries were rubbing shoulders in one conglomeration is testimony and witness to this change. The change has arrived, now it is up to the leaders of the developed nations to accept graciously or not, is to be seen.

AGENDA AND EXPECTATIONS FROM G-20- the G-20 is now gradually assuming the role of navigator of the ship of world economy. The association which was formed in 1999   to undo the after-effects of Asian crisis has now grown bigger and stronger. The official members of G-20 now are Australia, Argentina, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi-Arabia, South Africa, South Korea, Turkey, UK and USA. Thus, gradually this organisation is grown both in size and strength and world is likely to take the rein of leadership from G-8 and hand it over to G-20. In fact this would be the biggest success of this organisation, a success for which probably founders had also not thought and longed for. 

Underpinning the significance of this Summit and understanding the indispensability of this group, the developed countries like USA and developed continent, the Western Europe have agreed to rub shoulders with the east and north. The north-south divide is being blurred; the abhorrence towards east by west is now bygone. Even Obama had to admit in UN general assembly that distinction of north and south no longer exits.  

The macro agenda of the summit was to strengthen, revamp, reorganise and reorient global financial architecture. The focus is to remove aberrations which have developed in the financial systems over decades since the Bretton- Wood. The aberrations are too obvious and conspicuous to be discussed. The voting right in IMF has to be rescheduled. China has a double the size of French economy, but even then France has more voting right than China. In fact, Europe as a whole has as big as 40% of voting rights in IMF even when it is only 25% of the world economy, whereas USA has only 17% voting rights with 25% share in world economy. Thus USA is also singing in chorus with Asian countries. In this summit the demand again was raised that Europe should give up at least 7-8% of its voting rights for countries like china and India, a demand Europe is unlikely to accept. Thus perhaps for the first time in the economic-political history in the modern times, USA is seen standing on the side of developing nations on such important international platform.  It was perhaps due to mounting pressure, the summit agreed to give 5% voting rights to countries like India and China.

MAJOR DECISIONS TAKEN- The decisions taken at Pittsburgh has been published in a book titled ‘G-20 leaders statement’ which entails 32 major points on which either consensus is arrived or decision is taken. Important among them are constitution of one Financial Stability Board (FSB) which would take care of the financial systems across the globe. India has also been made member to it which signifies the emerging importance India vis-a-vis fiscal and financial system. In fact, world community is very much impressed to learn how smartly Indian banking and other financial systems survived the shock. The statutory provisions with regard to keep minimum reserve to be kept by banks found place in the G-20 deliberations and the world leaders agreed that this model should be made applicable to all the banks across the world.   The FSB shall monitor and regulate whimsical and unfettered functioning of financial institutions which the most important factor was contributing to the GFC.  On the issue of revamping world financial institutions like IMF, the summit committed to reschedule the ‘Quota Formula’ of governance and give weightage to the emerging economies like Indian and China vis-a-vis their share in the world economy. They pledged that this review would be complete by 2011, which means that performance of the economies of these two ‘Asian Giants’ would remain under watch for a couple of years.

Apart from above decisions on economic fronts, the summit also took some very important and valuable decision in areas of climatic change, international terrorism, narco-drug smuggling, trade and commerce and stimulus packages etcetera.

To sum up the whole discussion one can have reservations to say that this Summit was a huge success, but there is no denying the fact that the G-20 has now occupied the driving seat and the engine of the world economic and financial vehicle can no longer be driven by the small group of nations comprised of USA, UK, Germany, France and Italy etc. G-20 has assumed the role of global leadership and would write the history of years to come, it is however premature to say that India has been given her due and desired share on the board.