The G-20 Communiqué: A Viewer's Guide
The draft G-20 communiqué, as published on the Financial Times's website, is not encouraging. To be sure, there are humorous moments, such as:
Each of us commits to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.
Major countries have never allowed this and never will, despite a long tradition of such statements (e.g., ask about whether Gordon Brown welcomed frank assessments of the UK economy during the time he was chair of a ministerial committee that oversees the IMF). Asserting something blandly in a communiqué does not make it true, but it does, amazingly, often convince much of the media to applaud politely. Watching the spinmeisters at work is always entertaining although, under these circumstances, also more than a little scary.
On the real substance, the G-20 punts on most of the big issues, as predicted: The language on monetary policy and fiscal policy is completely vacuous (paragraphs 3 and 4; the Europeans won big and the United States lost on these issues), and the "regulatory reform" initiative amounts to building more ornate structures (we're to get a new Financial Stability Board!) on the same weak foundations that got us into trouble. There is simply nothing substantive here that would not have happened without the G-20 process; under current dire circumstances, window dressing is not a good reason to hold a summit.
Only three interesting points are apparently still open for discussion, all about some dimension of the IMF. First, how much additional funding will the IMF get (paragraph 6)? The debate is apparently still somewhere between an additional $250 billion and $750 billion. This is the
most interesting headline number to watch for. If it's only $250 billion, that's disappointing, and if they can't give an exact predicted number (i.e., they fudge the blank currently in the communiqué), that's a disaster.
Second, what is the form of increased funding for the IMF? Paragraph 6 mentions borrowing in the market and paragraph 8 mentions a general SDR allocation (this is essentially an increase in reserves for countries; stronger countries could lend these to weaker countries and it could make a difference within Europe). Both could be significant departures from past practice, if done at scale. Keeping this language in the communiqué would be good (and, of course, you leak a communiqué in order to make it harder to take them out); large specific numbers would be better.
Third, what will be the extent of financial support for the IMF from emerging markets with deep pockets? We will see that in their contributions to the expanded New Arrangements to Borrow (paragraph 6). If the summit ends without firm commitments from China and Saudi Arabia (again, it's all about seeing exact numbers), that is not good.
The big test of the summit's IMF-centric approach will be whether the IMF can get its increased resources lent out (paragraph 7), particularly on newly generous terms "for countries with strong policies." This will happen quickly if it happens at all, and the body language of emerging markets at the G-20—including whether Mexico, Brazil, and others sign up for the new facility—should give us early indications.
The failure to mention the need to restore IMF staffing resources in the communiqué is, of course, between incomprehensible and irresponsible: details here (the IMF needs more people; the ill-timed budget cuts of 2008 must be undone as a matter of international priority). If the G-20 wants its IMF-centric approach to be taken seriously, heads of government need to focus on how the job gets done, not just on slogans and wishful thinking.
The least surprising news is of course in paragraph 24: The G-20 will meet again before the end of the year. Once started, this kind of summiteering tends to go on for a long while.
Also posted on Simon Johnson's blog, Baseline Scenario.