G20 Booster and Blues

G20 leaders on Thursday agreed to pump in $1.1 trillion into the world economy by the end of 2010 through multilateral organizations like the International Monetary Fund (IMF) to tide over the present global financial meltdown, the worst in the last six decades. The booster dose, along with the measures taken by individual governments, would add up to a fiscal stimulus package worth a whopping $5 trillion by the end of 2010 with the expectation that the global economy would return to its growth path much earlier than has been predicted so far. The $1.1 trillion injection comprises an additional $500 billion in the IMF resources, a new allocation of special drawing rights (SDRs) worth $250 billion, trade finance support to the tune of $250 billion, and another $100 million for lending to the poorest countries by multilateral development banks (MDBs). Of all, the most significant development is the move to bring in transparency in the international financial regime. World leaders have unanimously agreed that the age of banking secrecy is over and pledged to take measures for greater transparency, including in tax havens; the summit has agreed to act against tax havens where black money is stashed in billions of dollars — first by naming institutions that do not conform to transparency norms, and then possibly by imposing sanctions against those who continue in their secrecy mode. The summit has also agreed to speed up the proposed reforms in the IMF and the World Bank, such as in the matter of the IMF’s date for reallocation of quotas among its members which would now be advanced to January 2011 and in the process of appointment of senior staff and heads of multilateral institutions. Presently it is the US that decides on the candidate to head the World Bank, while the European Union (EU) sends its nominee to be the IMF managing director. The summit has now decided to appoint these heads through an open, transparent and merit-based selection process. This is doubtless a welcome augury for the international financial system.

However, beyond the world awakening to the need for fiscal prudence, transparency and discipline to sail through the meltdown tempest lies a seething rage against modern financial practices and reforms as reflected by the unprecedented protests on the streets of London on the eve of the G20 Summit. Raising slogans such as ‘‘capitalism is condemned’’, ‘‘democracy is an illusion’’ and ‘‘Financial Fool’s Day’’ (on April 1), several thousand protesters stormed into London’s main financial district, with a violent mob breaking into the Royal Bank of Scotland building and stealing keyboards that were used to break windows, while others painted graffiti on the building, writing ‘‘class war’’ and ‘‘thieves’’. Such was the fear among bankers that some of them swapped their pinstripe suits for casual wear and others stayed home. But why the dissent and ire? It is because of the inability of the economies of the world to respond to the woes of the general public, to accentuate reforms in a manner that would naturally address the widening chasm between the different classes of people, and to confront recession without hurting the already weak and disadvantaged. One hopes that the G20 deliberation would set the global house in order and prepare a blueprint to successfully face the challenges of the future. THE SENTINEL