Round The World

New Delhi, 11 November 2014

Brisbane G20 Conclave

WILL IT BAILOUT GLOBAL ECONOMY?

By Ashok B Sharma

All eyes are set at G20 Summit in Brisbane where leaders of 20 major economies are meeting to salvage the global economy that is striving to recover from the crisis that hit in 2008. Such an effort is not new. Immediately after the crisis such a summit took place in Washington and this annual feature was subsequently hosted in London, Pittsburgh, Toronto, Seoul, Cannes in France, Los Cabos in Mexico and St Petersburg. This year the turn is for Australia to host the two-day conclave in Brisbane on November 15-16.

In fact the routine annual feature has turned out to be a mere talk shop. No substantial effort has been made at the multilateral level to salvage the global economy. Whatever efforts are being undertaken are at national level for generating more demand to keep up the growth pace of their economy.

Indian Prime Minister Narendra Modi is attending the G20 Summit along with designated Sherpa, the new Railway Minister Suresh Prabhu. It is expected that India will make certain interventions, particularly on the need for financing infrastructure projects as Official Development Assistance (ODA) funds are drying up. India needs an investment of over $ one trillion for several infrastructure projects. The Modi Government is bullish in encouraging the flow of foreign direct investment (FDIs).

The G20 leaders are expected to announce a global infrastructure hub in detail at the Brisbane summit which will bolster and augment the flow in particular of private investment into global infrastructure, a demand that is estimated to be around $80 trillion over the next decade. 

The developing countries had demanded reforms in the global financial architecture – the IMF and the World Bank that would give them greater say and special drawing rights for infrastructure projects. However, there was some agreement on how recapitalisation should take place and how special drawing rights should be redrawn. But unfortunately action is lacking.

According to studies by the IMF, World, OECD and the UN the recovery in the developed world is slow and almost stagnant, whereas the recovery in the developing and emerging economies is comparatively better. If these reports are to be believed then the developing countries need more assistance in the form of investment to bring around a turnaround in the global economy.

Brazil, Russia, India, China and South Africa jointly set up the BRICS Bank with an initial authorised capital of $100 billion and the initial subscribed capital will be $50 billion, equally shared among the five founding members. China launched the $50 billion Asia Infrastructure Investment Bank (AIIB) by roping in 21 countries, including India. But the reluctance of major economies in the region such as Australia, South Korea and Japan to join the bank casts doubts about its usefulness in funding big-ticket infrastructure projects. The BRICS Bank and AIIB are not the panacea, whereas the proposed reforms agenda in IMF and World Bank definitely is a solution to an extent.   

The crisis that began with the collapse of Lehman Brothers in the US in August-September 2008 spread across the globe and encircled even the emerging and developing economies in its octopus clutch. Subsequently, the sovereign debt crisis in the Eurozone added to the problem. To rightly say the epicentres of the problem was the developed world.  

The developed world tried to drive growth through a series of countercyclical steps in the form of injection of liquidity through monetary easing with attendant ultra-low interest rates. The efforts on the side of the developing and emerging economies were more through fiscal stimulus and tax concessions. But this did not yield in putting back the world economy on its pre-2008 path.

The fact is that the developed countries have become more selfish and protectionist. They are unwilling to yield to the just demands of the developing countries for a level-playing field in multi-lateral trade by phasing out their high level of subsidies, high tariff regime, protectionist non-tariff barriers and politically motivated sanitary and phyto-sanitary (SPS) measures to deny imports of food items citing health and hygienic reasons, excess pesticide residue, heavy metals etc. This has caused stagnation in the negotiation in the WTO and held the Doha Development Round to hostage. Attempts had also been made to question India’s food security agenda.

Similarly in climate negotiations, the developed world is unwilling to make the desired cuts in their greenhouse gas (GHG) emissions and is pointing fingers at the emerging and developing economies that have the right to development permissible under “common but differentiated responsibility”

However, Australia is hoping for a successful outcome in the form of a “Brisbane Action Plan”. It has contended that growth strategies would need to include “practical actions to improve productivity and competitiveness, strengthen investment in infrastructure, encourage trade, make it easier to do business and boost employment”.

At September 2014 meeting of G20 Finance Ministers and Central Bank Governors in Cairns, the leaders had discussed the agenda of the G20 summit. The IMF and OECD reckoned that the new growth strategies of G20 members collectively would deliver two per cent increase in global GDP over five years. If such a strategy works out it would add $2 trillion to the global economy and millions of new jobs.

Australia has assured during its Presidency of G20 it would like to see completion of financial reforms in four principal areas that had been the causes of the 2008 crisis and therefore emphasis should be given to resilience of banks, preventing and managing the failure of globally important financial institutions, making derivative markets safer and improving oversight of the shadow banking sector. India is a member of the Financial Stability Board (FSB) and is expected to support such moves. 

Other issues of interest to India and the developing countries are job-oriented growth strategy, effective action on base erosion and profit shifting by multinational corporations, moving towards automatic sharing of information in tax matters, global change in energy mix, greater transparency in energy market leading to more free competition, dialogue on gas market, prevention measures for spread of Ebola, limiting tax on diaspora remittances to five per cent etc.

The world is eagerly looking for the outcome of the G20 Summit in the form of Brisbane Action Plan for bailing out the crisis-riddance global economy. Past conclaves have not yielded substantial results. Hopes are on Brisbane G20. --- INFA

(Copyright, India News and Feature Alliance)