The leaders of the G20 put on a united face and declared the outcome of their London summit on April 2 a historic success.
As their final communiqué put it: “We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met. A global crisis requires a global solution. By acting together we will bring the world economy out of recession and prevent a crisis like this from recurring.”
The headline figures to back this up were substantial. Overall, the leaders committed to a $US1.1 trillion ($1.5 trillion) stimulus package, including trebling the International Monetary Fund’s (IMF) emergency fund to $US750 billion, authorising another $US250 billion in drawing rights and providing $US100 billion to finance trade.
But the reality was not so impressive. Chris Giles wrote in the Financial Times that genuine new commitments were less than $US100 billion. “Figures at the end of any international summit need to be examined closely.”
Much of the IMF funding was not accounted for and only $US3-4 billion of the trade finance figure had been committed. The G20 nations will not finance the increase in IMF drawing rights—they were merely giving the IMF permission to create new money, what is known as quantitative easing.
Although the final communiqué talked more broadly of $US5 trillion of global fiscal stimulus—government spending—this merely represented funds already committed by G20 countries for the years 2008-10. None of it was additional spending.
The united leadership façade scarcely disguised tensions among our rulers.
The summit, for example, committed to a 12-month freeze on introducing protectionist measures such as quotas or tariffs. But as Britain’s conservative Daily Telegraph reported:
“A similar promise was made last November; since then the World Bank has found that 17 member countries raised trade barriers.”
In the lead up to the summit, China and Russia postured against US hegemony, arguing for a new “world currency” controlled by the IMF to replace the US dollar as the international reserve currency.
Barack Obama went to London supporting major stimulus packages for each national economy. But he ran into opposition from France, Germany and Britain.
France and Britain have already committed all they can afford. The UK budget deficit is the largest since World War Two.
The summit simply could not agree on what to do about toxic debt. Obama favours a public-private partnership to buy the debt off the banks. Europe prefers to put up guarantees to stem the banks’ losses and get them lending again.
As Giles wrote: “The desire to produce large headline numbers as the main result of the gathering suggests the divisions and spats on other issues were considerable.”
The summit placed the IMF at the centre of its decisions. This will serve only to further entrench global inequality.
The $US250 billion in drawing rights, for example, will be allocated to the 186 IMF members according to their voting shares. As a result, 44 per cent will go to the richest seven countries.
The additional money given to the IMF will be dispersed as loans not grants.
Yet even before the crisis, the IMF was projecting that more than 30 of the poorest countries were at significant risk of debt distress.
And as Neil Watkins, executive director of Jubilee USA Network, pointed out, the IMF is still pushing harmful conditions including budget caps and wage restraints that limit poor countries from hiring doctors, nurses and teachers.
“Just this week, the IMF held up its most recent crisis loan to Latvia, which is in a full-blown economic depression, until the country slashed it government spending by more than 20 per cent,” he said.
The IMF is now better placed to make loans to countries in deep strife, such as Pakistan, Mexico, Turkey, Hungary, Ukraine, Romania and Iceland.
In the short term this will help stabilise these countries, many of which are strategically important to the US and the European Union.
The G20 leaders do not want to see economic collapse feed into political turmoil. Governments have already fallen in Iceland, Latvia and the Czech Republic.
But the cutbacks required in return for the loans will deepen the already existing anger against neoliberalism felt by hundreds of millions.
The G20 summit may have bought our leaders some time, but the tensions at both the top and bottom of the global economy are set to rise.
By David Glanz