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Judged against the low expectations before the G-20 meeting, the outcome of the London summit meeting was not too bad. The G-20 communiqué signaled one clear and important achievement: beefing up the resources of the International Monetary Fund (IMF) substantially and by agreeing to issue $250 billion in new Special Drawing Rights (SDRs)—a proposal originally made by my colleague Ted Truman, now serving at the US Treasury—this has been accomplished in a sensible way. New SDRs are like usable foreign exchange for countries that do not have enough reserves. They are to come unencumbered so that they can be used quickly.
But if the communiqué is to be judged even against the not-so-ambitious standard of reshaping the system for the future and heading off the real dangers, the outcome was disappointing in two important respects: governance of the international economic system and protectionism. But the biggest achievement may well be that there will be another G-20 summit.
Spin
Start first with the spin. The $1 trillion that the leaders claim they have injected into the world economy amounts to spin in two respects. Not all of it is really additional. Up to $250–300 billion was probably already in the pipeline. But the real obfuscation is to compare this $1 trillion with the fiscal stimulus of $5 trillion they have already provided (in cricketing terms, one would say that the leaders bowled a googly, or for baseball fans, they threw a knuckleball).
This $1 trillion of additional resources is financing. It will not necessarily produce $1 trillion of additional spending. It will only produce extra spending in those countries that are currently constrained by lack of foreign exchange resources. So the $1 trillion will not lead to additional stimulus in the United States, Europe, Japan, China, or many emerging-market countries. Note also that about 60 percent of the new SDRs will go to reserve currency countries, that is, to the United States, Europe, and China, who don't need the SDRs. Therefore this amount will have little effect on new spending.
Don't get me wrong, issuance of new SDRs and providing resources to the IMF are good things and a positive development, but its effect will be much more modest than the communiqué makes out and substantially less than $1 trillion.
IMF Reform
While providing resources is a positive development, there is still the problem of supply trying to chase demand. Who will take up these resources? The IMF scored a coup on Wednesday when Mexico signed on to the new flexible credit line. But there is not going to be a stampede at the IMF's doorsteps. Emerging markets such as Brazil and especially those in Asia, all of which remain wary of the IMF's demands for austerity measures in return for assistance in past crises, still do not want to borrow from it. There is still no serious attempt at addressing the IMF's so-called stigma problem.
The way to remove or ease the stigma, of course, would be to initiate governance reform by giving emerging-market countries more say in the running of the IMF. Apart from ritual invocations of giving voice and representation to emerging-market countries, there is nothing concrete, no sign of any serious commitment to change. Whatever little there is has been promised for 2011 (by which time the pressures for reform may well dissipate).
Really noteworthy is the fact that even the reference to appointing heads of institutions does not contain the key codewords, “without reference to nationality.” So there is no guarantee today that non-Europeans will be serious contenders for the job of future IMF Managing Director. It is not surprising to me that China has not committed to giving any more than the $40 billion it had earlier promised. Just compare that to what China could have contributed, easily another hundred billion or even more, and one gets the sense that it too held back because more reform of the institution was not forthcoming.
Trade
On the one hand, this communiqué goes even further than the November 2008 summit language, not just in declaring good intentions not to impose protectionist measures (including in the financial sector) but adding the intent to reverse some of the protectionist actions already taken. There is also an attempt at naming-and-shaming by calling upon the World Trade Organization to go public on protectionist actions.
The problem, of course, is that these intentions and political declarations were made at the November 2008 summit. There is no reason to believe that countries will adhere to these declarations this time and there is no credible enforcement mechanism. There is also the ritual genuflection at the altar of completing Doha, repeating a gesture that has proved unsuccessful for several years. So on trade, it seems like more of the same, the same that has not worked well so far.
In a new twist, though, the communiqué converts the political problem into one of financing. In other words, the leaders suggest that trade is declining because trade financing is declining. It claims to address that factor by throwing $250 billion at the problem. Now trade financing may be part of the problem, but one gets the sense that financing is becoming a substitute for the political will to resist protectionist pressures.
The Greatest Achievement: Meeting Again?
Finally, the G-20 leaders have said that they will meet again. In some ways, this might be the most important outcome. After the first G-20 summit, there was the distinct possibility of lapsing back into the G-7 mode. After two G-20 summits, that possibility receded slightly. After three G-20 summits, we can more safely assume that the G-20 is here to stay, and that the days of the G-7 as the focus of international decision making are gone. That is a very positive development. So even if summits do not produce momentous decisions and lead often to disappointments, at least the responsibility will be more widely shared. Nobody, not even President Lula of Brazil, will be able to say that it was the fault of the white guys with blue eyes. White, black, brown, and yellow all will be complicit in failure and, hopefully, some day in success.
