Seeking some way out in this ruthless economy, the world leaders gathered at the G20 summit in London last week to discuss the global economic recovery. The summit received much momentum before the final day in European media, though not so much in the American, for the controversy surrounding Franco-German demands for more international regulation.
While the summit reflected on the gravest issues relating to the global economy, some keynotes were left pending with no decision made yet. Of the key issues, boosting economies, resisting protectionism, aiding poor nations and imposing regulation on financial institutions were addressed by the leaders.
G20 mainly made news as the International Monetary Fund (IMF) received more funding which will help the poor nations breathe a sigh of relief. The resources have been bumped up to $1000 billion, which is the biggest success marked by the summit. Countries like Ukraine, Hungary and Latvia had already approached IMF for financial aid.
Moving on, a couple of days before the summit, Nicolas Sarkozy’s demand for a ‘moral’ capitalism and a stop to stimulus packages was wise, though that didn’t go down well with the American media, as his tone gave subtle hints of U.S. being responsible for the recession. But that is the most important area of concern for world economies at the moment. How many stimulus packages will be doled out to save the financial institutions and firms? The problem lies in the regulatory body which has to be addressed and that’s what happened at the summit after Sarvozky pressed on the matter, along with Angela Merkel.
Now, they mapped out a new future for financial regulation with the agreement for better bank capital and establishing a new Financial Stability Board Regulation of systematically important hedge funds. However, the details about regulation on hedge funds were missing. First and foremost question, how will hedge funds be regulated? Either the leaders didn’t mention or the media coverage failed to point out what would be the optimal regulation required for hedge funds or why is the current SEC oversight on hedge funds not sufficient. Also, they didn’t talk about how regulation could be one of the reasons for the failure of hedge funds in 2008 and to what extent will it be more regulatory?
Protectionism, which is being practiced by most of the countries today, was under microscope too. Though G20 decried protectionism and encouraged international trade, only time will tell what comes out of that discussion. If the limited (American) media coverage is to be believed, there was no clarity on the status of home-market-first laws like Obama’s Buy American provision’s status. One will have to wait and watch where economic nationalism leads after the summit, as these policies will have been in practice. The global trade grew around 6 percent in 2007, and the good shipment is expected to drop by 9 percent in 2009. India imposed a 5 percent duty on import of steel, and foreigners are being denied jobs in countries like Malaysia and Gulf countries. Let’s see which countries are “named and shamed” by the WTO.
While most of the issues were successfully addressed with potential solutions, its implementation will prove how triumphant was the meet in London. A similar meet took place in Washington D.C. last year in November on a lower scale though. Since then the global economy has recorded a disastrous fall with no ray of hope whatsoever. Protectionism was rejected even then, but between then and now, there have been myriad protectionism policies initiated in various countries, Barack Obama’s Buy American provision being one of them. If this issue was on the agenda for April’s summit, why did the global leaders, who approved rejection of protectionism, go ahead making policies against foreign workers?
Oversight on hedge funds was discussed last November too, so this meeting had nothing new to offer in terms of a solid solution.
Well, actions speak louder than words and its best we don’t believe in the promises that they make.
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