Business Times - 14 Nov 2008
By LEON HADAR
TWO dramatic developments would serve as backdrops for the gathering of the leaders of the world's 20 major economic powers in Washington over the weekend. Hovering over the meetings of the Group of 20 (G-20) would, of course, be the ongoing global financial crisis that has overwhelmed economies around the world, raising the spectre of a worldwide global depression.
At the same time, the summit will also be dominated by a sense of hope that has swept America and the international community in the aftermath of the historic election of Barack Obama as the leader of the world's most powerful economy.
But the charismatic and relatively young Mr Obama, who has committed his incoming administration to reform and revive the American economy and work with US partners to do the same in the global arena, will not be in the room during the meetings this weekend.
The leaders of G-20 economies, who were hoping to meet the US President-elect, will instead have to spend two days with a lame-duck White House occupant who has presided over the mortgage crisis and the ensuing financial mess and who will be moving out of 1600 Pennsylvania Avenue in a few weeks.
Hence the grand vision of redrawing the architecture of the global financial system, for example new regulations on complex financial instruments, that the leading organisers of this gathering, including French President Nicolas Sarkozy and British Prime Minister Gordon Brown had in mind - the so-called Bretton Woods II - would not be realised anytime soon and certainly not before Mr Obama and his economic team take office. Instead, the coming meeting will probably end up recalled as another photo-op that shows an effort by the 'old' industrialised nations such as the United States, Germany and Japan, and the 'new' emerging economies such as China, India, Brazil and South Africa, to come together and cooperate in calming the financial markets.
While one or two of the economists who advise the US President-elect will probably attend some of the G-20 meetings, there are no expectations that they will introduce their ideas for restructuring the current global financial system that were established in the aftermath of World War II.
The process of creating the foundations for the original Bretton Woods took about two years and involved long and serious discussion between some of the leading economists of the 1940s, including renowned British economist John Maynard Keynes. In contrast, the preparation for this weekend's meeting took no longer than two months.
Obama aides said on Tuesday that former secretary of state Madeleine Albright and former Republican congressman Jim Leach, who supported Mr Obama, would be available for informal meeting with foreign officials attending the gathering in Washington.
The expectations among observers in Washington are that Mr Sarkozy and other leaders would call for improving oversight of financial institutions along the lines of a resolution adopted by the European Union (EU) last week. President George W Bush and his aides are expected to resist pressure from the EU and other delegates to embrace a timetable for establishing a global oversight mechanism.
Although Mr Obama has refrained from outlining his own ideas about restructuring the current Bretton Woods system, his position probably lies somewhere in between the laissez-faire approach of the Bush administration and the regulatory stance of Mr Sarkozy and the EU that promotes the internationalisation of financial regulation.
The outlines of the new system will probably reflect a compromise of sorts between the position of the EU and that of the incoming Obama administration.
The leaders meeting in Washington will probably try to avoid airing their differences or engage in recriminations in a way that could only rattle the financial markets.
Instead, they will probably attempt to project a united front, pledging to work together to stimulate their economies and to contain protectionist pressures in their respective countries.
At the same time, the G-20 leaders also need to pledge at least US$500 billion to augment the resources of the International Monetary Fund (IMF) so it can meet the potential needs of developing countries hammered by the crisis, according to economist Lex Rieffel who is currently a visiting fellow at the Brookings Institution in Washington.
The IMF is already lending to Hungary, Iceland, Pakistan and Ukraine, but more economies are expected to ask for assistance from the Washington-based financial institution. Japan has offered US$200 billion, and Mr Rieffel expects growing pressure on China and the rich oil exporters to contribute more resources to the fund.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.