Summit faces major tasks
- By Liu Youfa
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E-mail China Daily, June 18, 2012
Early-warning and crisis management mechanisms and effective oversight over transnational corporations needed
Four years ago, the G20 became an effective platform to manage the international financial crisis, but that crisis has now been compounded by the sovereign debt crisis in Europe and complicated by the weak growth of the world economy.
The G20 has to beef up its institutional capacity in order to more effectively manage the still evolving crises, promote closer economic and trade cooperation, further reform the existing international economic institutions, and promote equitable global economic governance.
In terms of the sovereign debt crisis in Europe, the G20 leaders have reached the consensus that they need to help those countries most at risk before they become "financially failed states" and pull more countries into the quagmire. However, they are still to iron out a rescue plan.
From the G20's perspective, the European Union has failed to act decisively to prevent the crisis from engulfing the whole region. From the EU's perspective, against the backdrop of the economic globalization, no country or economy is immune to the financial crisis and sovereign debt crisis. Therefore, G20 members should pitch in and help in order to contain the crisis before it is too late. The fact is that the sovereign debt crisis is reaching a tipping point and the G20 leaders will have to act resolutely and promptly to contain it.
In terms of sustainable development, which is the fundamental means to address the financial and debt crises, the G20 is yet to formulate the collective political decision to prop up the weak recovery and growth of the world economy. Unlike all the previous economic cycles, the developed countries are yet to usher in new technologies and industries, which would help pull their economies out of the recession and facilitate conditions for sustainable growth. Furthermore, the bulk of the liquidities resulting from the stimulus packages introduced by many governments or the quantitative easing monetary policies adopted by the national financial authorities did not flow into real industries. Instead they sneaked into the stock markets and real estate markets of the countries where they could make the most profits, causing bubbles.
For many developing countries, the delayed effects of the dwindling demand from developed countries are beginning to hit their export industries, which have been the main engines for national development. And, the growing trade protectionism of many developed countries has become an invisible roadblock for the developing countries to maintain the momentum of economic development and realize their Millennium Development Goals chartered by the United Nations.
In terms of reform and the creation of international economic institutions, the G20 is facing an uphill battle. Echoing international public opinion, the summit attendees have acknowledged that the Bretton Woods system of monetary management is outdated. They have also realized that the three pillars of the Bretton Woods system, namely the International Monetary Fund, the World Bank and the World Trade Organization, have been increasingly failing to fulfill their duties in the field of trade facilitation and harmonization, development promotion and assistance, and financial and monetary oversight and promotion. The 2008 international financial crisis and the ongoing sovereign debt crisis have amplified their redundancies.
The G20 has to establish: an open and fair mechanism to nominate and elect the leaders of the three institutions, more representation from the developing countries in both decision making and institutional management, more equitable rights of say for developing members, a more dynamic and effective process for designing and implementing programs, more effective oversight mechanisms, more capacity building for developing members, more working capital, and more capability for the institutions to allocate international resources to address pending development issues and cope with any possible economic or financial crises in the future.
But more importantly, the G20 has to search for the ways and means to create new institutions that will be conducive to the sustainable development of the world economy as well as that of all countries in the world.
In terms of global governance, the most profound lesson that the 2008 financial crisis has taught the international community, especially the G20 members, is that it is high time to build up an effective global oversight mechanism. In retrospect, it is mainly due to the lack of oversight and management of the international transactions of the toxic financial derivative products by transnational corporations that caused the financial crisis in the United States which soon spread across the world through the goods chains, service chains and value chains.
The G20 would be well advised to design and establish a standing early-warning mechanism, an effective crisis management mechanism, and an effective oversight mechanism over transnational corporations, especially those in the financial sector. An effective evaluation and reporting system should be established so that the relevant leaders, institutions and authorities have ample time to effectively respond to any future emergencies.
The author is vice-president of the China Institute of International Studies.
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