THE fact was that none of the participants wanted the summit to conclude without result. At the end, the G20 summit turned out to be a diplomatic triumph of sorts – for the new US President as he stepped on to the global stage for the first time; and for the new community of global leaders assembling to give credence to the shift in the global pecking order. UK’s Gordon Brown described it as the emergence of “a new world order” while President Obama termed it a “turning point in our pursuit of global economic recovery”.
By sidelining some of the contentious issues, like the formation of a suprafinancial regulatory authority and a global reserve currency as an alternative to the dollar, the summit reached a consensus on most of the critical policy concerns brought to the table: coordinated global stimulus package, more rigorous oversight and monitoring of financial institutions and markets, adequate resources for Bretton Woods institutions for countercyclical finance and for fighting poverty, and a pledge to stem the tide of rising protectionism worldwide.
Consensus apart, a quick review of the major decisions looks like an endorsement of economic stimulus packages already in place, with additional monies for IMF and World Bank to fight consequential financial instability and poverty; an extra $250 billion for trade finance to boost trade with a renewed call to eschew protectionism; and, finally, an agreement to clamp down on tax havens plus stricter national level regulation and monitoring offinancial institutions and markets.
The developed and emerging market economies together have formulated stimulus packages totaling $1.8 trillion or some 3.0% of global GDP of $62 trillion (Table 1). Governments have built up huge debts to finance these packages. The US is running a 8.0-10.0% budget deficit in the current fiscal year on top of its $10 trillion of debt. UK is in much the same situation with an 8.0% budget deficit and public debt of 40% of GDP. At this time, nobody is talking of the long-term implications of the mounting debt burdens and fiscal stimulus on future inflation or interest rates.