Sound Bites at G-20

The communiqué that the G-20 summit in London issued on 2 April had the intended impact. The global equity markets turned buoyant immediately thereafter and a week later share prices remain on an upswing. But the true value of the summit must be based on an evaluation of the decisions the G-20 took to end the current global crisis and not in terms of the immediate market reaction or the international media’s portrayal of the meeting as a success. On that count, it can be said without any hesitation that the G-20 summit was more hype than substance and whatever the current talk of “green shoots of recovery”, the world economy remains mired in a morass.

A close reading of the headline decision taken at the summit– provision of $1.1 trillion of additional resources – indicates that it was more of clever packaging than anything else. Consider, for example, the expansion of the capital of the International Monetary Fund (IMF) by $750 billion. It has since been brought out, first, that as much as $300 billion of this amount was already in the pipeline and that the additional funding committed is therefore only about $450 billion. Second, the additional lending from the expanded capital base is likely to flow in the immediate term largely to the crisis-affected countries of east Europe that have borrowed heavily from west European banks. (In other words this is a G-20 decision to bail out west European banks who indiscriminately lent to the “emerging markets” of east Europe!) About the only concrete funding decision of major import that was taken was to make a new allocation of special drawing rights (SDRs) of $250 billion to members of the IMF to help them tide over foreign currency difficulties – but then since allocation will be based on current quotas of the members of the IMF, most of this allocation will go to the advanced market economies!