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G-20 concerns bear a close watch
Publication Date : 28-02-2014
Predictably, the G-20 was caught hostage in the ultimately futile debate between growth and austerity in the aftermath of the 2008 crisis.
Cynics will scoff at the indecisiveness of the grouping of the world's top economies which together account for 85 per cent of the global economy.
To be fair, when there was a crying need to rescue financial institutions from the recklessness and extravagance that had helped cause the crisis, it was clear to all that austerity had to be but a temporary measure before growth could be put on a sounder footing. When to switch gears was not simple to determine because of uneven conditions globally.
G-20 finance ministers and central bankers showed more appetite for growth at their meeting in Sydney by aiming to lift their collective gross domestic product by more than US$2 trillion over five years. Of immediate interest to workers, this philosophy should translate into tens of millions of new jobs.
If the strategy holds, it would mean that the post-crisis era is taking off, leaving behind the pain of austerity measures that hit the man in the street. The sobering truth, however, is that some economies are still fragile.
Also, of course, the grouping does not carry out central planning for its members. However, it is useful to have an output target for the G-20 because it sets in place a benchmark by which national economic policies can be judged. Given their centrality in the global economy, decisions by the G-20 countries affect others crucially.
For example, stricter rules on cross-border taxation would help to plug loopholes that have allowed some multinationals to avoid paying taxes. Even more importantly, the Sydney parley did not witness conflict between advanced and emerging nations that has made the work of the World Trade Organisation, for instance, so difficult. Instead, there was a shared understanding of spillover effects from one to the other that bodes well for the future of economic cooperation.
In particular, central bank cooperation is necessary to ensure monetary policy settings are calibrated to contribute to global economic stability and to mitigate market volatility.
In the longer term, it is essential for the G-20 nations to recognise the need for a new global architecture in which rising economic powers enjoy rights commensurate with their clout and contributions to the International Monetary Fund's resources. The Brics nations - Brazil, Russia, India, China and South Africa - represent some of the sunrise economies that deserve a greater say and developed countries ought to recognise the logic of economic change.
As in security matters, a stable economic order must fully involve key stakeholders.