Global financial reform efforts likely to be stifled at G20 summit

By Liu Zongyi Source:Global Times Published: 2012-6-18 20:25:02

Illustration: Sun Ying
Illustration: Sun Ying

The G20 summit is currently taking place in the Mexican city of Los Cabos. Since the financial crisis of 2008, every summit of G20 has attracted global attention, and this one is no exception.

As a forum to deal with crises, the G20 group has played an important coordinating role in dealing with the financial crisis. The main economies of the world have worked together, making some achievements in dealing with the crisis.

But since the Pittsburgh summit in 2009, with the delicate recovery of the global economy and constant turbulence in some regions, the political and economic divergences among the G20 members have been growing.

The G20 summit is going through a difficult transition from a mechanism to deal with crises to one for global economic governance. But the G20 members are now focusing too much on their own interests and affairs, especially some developed countries that even adopted measures like trade protectionism and exchange rate wars to safeguard their own economic interests. This makes it hard to predict the results of the Los Cabos summit in Mexico.

However, as a dialogue and cooperation platform between developed economies and the new emerging economies, the G20 is still irreplaceable.

The main topic of the Los Cabos summit is the growth and stability of the world economy. Though the eurozone debt crisis is not officially on the agenda, there is no doubt it's a hot topic of discussion, as at the previous summit in Cannes.

In an era of globalization, the major economies of the world have become closely linked together. The eurozone crisis has affected the economies of the US, Brazil, India, Japan and China, and they worry the further deterioration of the crisis will force the world economy into recession again.

The main economies have reached a consensus on the eurozone crisis. They all agree that the European countries should solve the crisis by themselves, and they will give support by increasing their investment in the IMF.

The European countries shouldn't only concentrate on fiscal restraint, but should also adopt some measures to keep the stability of the financial system and boost economic growth. Any decision at the G20 summit could only provide guidance. The G20 can't force the countries involved to carry out its decision. Therefore, the final solution depends on compromise among EU nations.

As the eurozone crisis closely concerns the world's main economies, it's easy for them to reach a consensus. But the international community shouldn't have high expectations on the summit's ability to solve other problems.

At this summit, all emerging economies hope to make a progress on international financial system reform, especially the reform of IMF and World Bank quotas.

If there could be a breakthrough at the summit, that will greatly encourage the confidence of the emerging economies to participate in global economic governance. But considering the attitude of the developed countries, the prospects aren't great.

Mexico hopes sustainable development and green growth to become the light spot of the summit. However, green development should be distinguished from the green economy promoted by the EU previously.

The concept of green economy is promoted by the West to replace the concept of sustainable development, first advocated in the UN's Johannesburg Summit that was held in South Africa in 2002. The West is trying to weaken the principle of common and differential liability for environmental problems and put bigger burdens on developing states.

Therefore, green development should neither bring additional conditions to the development of developing countries nor act as an excuse for the developed countries to set up trade barriers. Otherwise, developing countries will face higher cost and risks during their economic growth.

The G20 is a primary forum for developed countries and new emerging countries to discuss global economic issues, and the success of the previous summits was a result of mutual cooperation and compromise.

Judging by the current global economic momentum, the G20 summit should become not only a platform for relevant countries to coordinate and cooperate with each other, but a platform to learn from each other. Every country should learn to examine itself.

The deficiencies of different countries' economic and political systems are reasons why the financial and economic crisis this time cannot be effectively curbed. China has accepted advice to undergo financial system reform. China is adjusting its domestic economic structure, increasing domestic demand and decreasing trade surplus.

The US and European countries should learn from the policies China adopts to boost economic growth and reflect on their own problems. Only when they start reform on the financial supervision systems, allocation systems and political systems that restrain their development, can the world economy escape its woes.

The author is an assistant researcher at the Institute for World Economy Studies & Center for South Asia Studies, Shanghai Institutes for International Studies.


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China has jostled to ensure the European debt crisis does not overshadow the need to address unbalanced development in the global economy at the G20 summit in the Mexican resort town of Los Cabos.

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