:: Editorial

G-20: Lofty vows, but no results

Sept.28 : It is not surprising that the two-day G-20 summit in Pittsburgh did not produce any breakthroughs because the various views were clearly defined and irreconcilable even on the eve of the summit. There was no substantial decision on financial sector reforms even though the financial sector was the main villain in the downfall of the global economy. Prime Minister Manmohan Singh put it starkly when he said the collapse of the US financial markets caused a huge loss of $900 billion in just one year to the non-oil developing countries for no fault of their own. There was also no road map of how and when the stimulus packages would be withdrawn. This is frightening because no politician wants to take the risk of withdrawing stimulus packages, preferring to continue and add to the fiscal deficits in their countries. This means there is another bubble in the making in the stock markets and real estate sectors, to name just two, and there could be another crisis waiting to happen, if not round the corner then at least in a few months, unless some action is taken.

US President Barack Obama, in his now famous trademark style of dishing out warnings like a schoolmaster to errant students, is unable to rein in the powerful financial lobby in the US. In fact, the Organisation for Economic Cooperation and Development, a club of rich nations, has already cocked a snook at the G-20, warning that overemphasis on banks, bonuses and under-regulation would only do more harm than good. They say it would only treat the symptoms, not the cause. So a major struggle is ahead and it’s not going to be pretty. In this context, the re-balancing of the world economic order by giving a greater say to the G-20 over the G-8 seems a pyrrhic victory for India, Brazil, China and South Africa. It sounds good on paper, but what it actually means in reality remains to be seen. It could turn out to be a mere debating society on the world stage which does nothing for ushering in a new economic order.

The bottom line is that unless the US reforms its financial system, the world economies are in danger of yet another crisis. The US has poured in billions of dollars primarily to save the banks that caused the global financial meltdown. If they had put even half of that money into the real economy it could have built their badly needed infrastructure, whether bridges, railroad systems or power, and created much-needed employment. It is only the government that can put money of that magnitude into infrastructure. If it doesn’t and falls prey to the machinations and money power of the financial sector, the problems of the US will not go away. It is an irony that unemployment figures in the US are growing by the week while hefty bonuses to bankers have been resumed. The situation is bad and, according to some statistics, 1.4 million people are losing their medical insurance every day not to mention an equal number of foreclosures on mortgages. If these statistic are correct, it’s a scary situation for the US and the other national economies. Mr Obama talked of the rest of the world bearing equal responsibility, but what can the rest of the world do if he doesn’t set his house in order? America is still the world’s largest economy and consumer spending accounts for 70 per cent of this economy. And this spending keeps some of the world’s other economies ticking.