G-20 : India to raise its concern over protectionism at Finance Ministers meet

[Pintu]

SNAP ANALYSIS: New world economic order takes shape at G20 | Reuters

SNAP ANALYSIS: New world economic order takes shape at G20
Fri Sep 25, 2009 5:20am EDT

By Lesley Wroughton

PITTSBURGH (Reuters) - The Group of 20 is set to become the premier coordinating body on global economic issues, reflecting a new world economic order in which emerging market countries like China are much more relevant, according to a draft communique.

Leaders of the G20 developed and developing nations also agreed to make the International Monetary Fund more representative by increasing the voting power of countries that have long been under-represented in the world financial body, said the draft G20 communique obtained by Reuters.

It called for a shift in IMF voting by at least 5 percent, although several G20 representatives said it was a 5 percentage point shift from developed to under-represented countries. Currently, the split in voting power is 57 percent for industrialized countries and 43 percent for developing countries. The shift would make the split nearly 50-50.

The G20 was formed in 1999 for finance ministers and central bank chiefs following the Asian financial crisis. The idea was to help the G7 -- the United States, Germany, Britain, France, Italy, Canada and Japan -- talk with the wider world.

Following are some of the implications of the decisions:

* The shifts reflect a recognition by the United States and Europe of a new global economic reality in which emerging market economies play a bigger role, especially in the aftermath of the global financial crisis that hurt developed economies more than developing ones.

* By making the G20 the new global economic coordinator, countries are committing to maintaining cooperation even after the global financial upheaval and recession recede. The G20 was upgraded from a ministerial to a leaders-level forum only last year as the crisis deepened.

* Adopting the G20 as the new economic steering committee raises questions over the whether or not the Group of Eight, which makes up the world's industrial countries, will eventually be faded out. Diplomats said the G8 would continue to function but would focus on non-economic issues.

* The agreements are big wins for U.S. President Barack Obama, hosting his first international summit. Since his election last year, he has pushed for changes in the global financial architecture to recognize the increasing economic clout of China and other emerging markets.

The agreement to overhaul the IMF's voting structure is especially big for the new Obama administration, given that the United States proposed the 5 percentage point shift. The speed with which the G20 agreed to the change -- if the draft communique is eventually adopted -- is surprising because of the politically sensitive nature of the issue for Europe, which will see the biggest dilution in its voting power.

* Giving developing nations more say at the IMF and a bigger say in global economic affairs could help Obama succeed in his push to get big exporters like China to increase domestic demand, helping slower-growing economies like the United States to find new markets.

* The shift of at least 5 percentage points in voting power is the largest increase ever seen in the IMF's voting structure and is likely to see China overtake old European powers Britain and France which have long resisted the move.

* The G20 decision on IMF voting reform will give momentum to a 2011 deadline for overhauling IMF governance which will then be voted on by the IMF's 186 member countries.

* The G20 also agreed the head of the IMF should be selected based on qualifications and not nationality, according to the draft communique obtained by Reuters. The decision is significant because the head of the IMF has always been a European, while the president of the World Bank has always been an American.

(Reporting by Lesley Wroughton, Editing by Frances Kerry)

 

[Vikramaditya]

G-20 summit

There is a new world economic order being shaped in Pittsburgh. G-20 nations have agreed to make the International Monetary Fund (IMF) more representative by increasing the voting power of developing nations like India and China.

This is a big win for US President Barack Obama, hosting his first international summit. Since his election last year, he has pushed for changes to recognize the increasing economic clout of countries like India.

But India also plans to raise other concerns at the G-20 meeting. "While the recovery efforts have been strong, we now need to be careful about the dangers of protectionism. Generally whenever growth falls and unemployment is high, you get an increase in protectionist sentiment and it is our hope that global leadership will make sure that the world does not lapse into Protectionism like it has in the past," says Montek Singh Ahluwalia, Planning Commission Deputy Chairman.

Ahluwalia also explains that it may be too early for governments across the world to end stimulus measures injected to fight the global recession: "I think there is a general agreement that right now is not the time to withdraw. If you look at the IMF forecast, they have been saying is that the global economy has been going down till now, it has now bottomed out, and will start rising. It won't reach three per cent growth till the third or fourth quarter of 2010. When it gets back to solid growth, then yes some planned exit from, or withdrawal of stimulus, becomes necessary. Right now we should be saying that we should be staying with the policy. It has worked. Premature withdrawal is not the right solution."

G-20 summit: More power to India

 

[Pintu]

The Associated Press: G-20 leaders declare summit a success

G-20 leaders declare summit a success

By MARTIN CRUTSINGER (AP) – 38 minutes ago

PITTSBURGH — Major world leaders formed themselves into a new board of directors for the global economy Friday, vowing to overhaul lax financial regulations and work harder to control dangerous imbalances that contributed to a financial meltdown.

President Barack Obama and the other leaders declared that going forward, their meetings of the Group of 20 nations would be the primary way of coordinating global economic policy. That group will take over the job that had been done for more than three decades by a smaller group of the wealthiest countries known as the G-8.

"The old system of international economic cooperation is over. The new system, as of today, has begun," declared British Prime Minister Gordon Brown. He said that the G-20, which includes not only developed nations but fast-growing emerging markets such as China, Brazil and India, would become the "premier economic organization for dealing with economic management around the world."

To show their resolve, the G-20 nations held a series of discussions Friday to discuss the thorny problems still confronting the economy and to search for ways to make sure that the financial excesses that led to the worst global downturn since the Great Depression were not repeated.

The concluding communique, according to drafts that were circulating, addressed issues such as restraining excessive bonuses paid to bankers to stop financial institutions from engaging in the risky practices that contributed to the crisis.

According to participants, the final document papered over differences on the executive-bonus issue by avoiding language for specific caps, something that France had pushed for but that America had opposed. A U.S. push for stronger requirements for bank capital — the cushion that banks hold against loan losses — was included, but with many of the specifics over how the capital would be determined left to set at later meetings.

The leaders also agreed to a U.S. proposal for a "framework for sustainable and balanced growth" to deal with such issues as China's huge trade surpluses and the soaring U.S. budget deficit. Brown said the plan would set economic objectives for individual countries which would be reviewed annually with the International Monetary Fund assisting in those reviews.

However, there would be no penalties for failing to meet the objectives because no country wanted to see its sovereignty encroached upon by an international organization like the IMF.

Still, the leaders sought to portray their summit as a major success.

"I have the impression that we are on a successful path," said German Chancellor Angela Merkel, who was leaving Pittsburgh to fly back to Berlin where on Saturday she was holding her final campaign rally before facing German voters on Sunday.

After scattered acts of vandalism on Thursday, the streets of Pittsburgh were generally quiet Friday with heavy security around the David L. Lawrence Convention Center where the talks were being held.

As often is the case, foreign policy issues intruded in the economic discussions.

Obama and the leaders of France and Britain demanded that Iran fully disclose its nuclear ambitions "or be held accountable" to an impatient world community. They threatened new sanctions after the disclosure of a secret Iranian nuclear facility.

"Iran is breaking rules that all nations must follow," Obama said in the opening moments of the G-20 economic summit.

French President Nicolas Sarkozy said Iran has until December to comply or face sanctions. "This is for peace and stability," the French leader said. British Prime Minister Gordon Brown accused Iran of "serial deception."

The Pittsburgh meeting marked the third G-20 leaders summit in less than a year as the countries continued to grapple with a debilitating downturn that has resulted in millions of unemployed around the world, the loss of trillions of dollars in wealth and massive amounts of government stimulus spending designed to jump-start economic growth.

With spreading signs that the worst of the downturn is over and many countries beginning to return to modest growth, the leaders were able to hold their discussions in less of a crisis atmosphere than their two previous meetings — in November in Washington and in April in London.

But the lessening of the crisis raised concerns that the momentum to implement reforms could lessen as well, posing a threat that G-20 officials vowed to resist.

"We are not going to walk away from the greatest economic crisis since the Great Depression and leave unchanged and leave in place the tragic vulnerabilities that caused this crisis," Treasury Secretary Timothy Geithner told reporters Thursday.

Geithner said the U.S. supports China's efforts to gain greater voting rights in the IMF and its sister lending institution, the World Bank, over the reservations of European nations, who would lose influence. Officials said progress had been made on giving emerging countries more voting rights at the IMF but that further talks would be needed before the issue was resolved.

The leaders gathered with their spouses for a welcoming reception at a botanical reserve Thursday night where they were greeted by Obama and Michelle Obama, wearing a sleeveless taupe-colored cocktail dress.

Geithner said the G-20 countries had reached a consensus on the "basic outline" of a proposal to limit bankers' compensation by the end of this year. He said it would involve setting separate standards in each of the countries and would be overseen by the Financial Stability Board, an international group of central bankers, finance ministers and regulators that has representation from all the G-20 nations.

Associated Press writers Pan Pylas, Michael Fischer, Emma Vandore, Ben Feller and Daniel Lovering contributed to this report.

 

[ppgj]

all G-7 have been hit by the tornado in the recent past. trying to prop up themselves on the crutches of india, china, brazil, south africa, mexico etc..who are emerging. it is just a ploy placating these countries with fancy statements. if they want sort of equitable world order of some sort then how can they ignore UNSC permanent memberships to some of the referred countries. UNSC is based on skewed reality.

 

[Pintu]

More pitfalls at Pittsburgh- Editorial-Opinion-The Economic Times

More pitfalls at Pittsburgh
28 Sep 2009, 0633 hrs IST, ET Bureau

The biggest takeaway from last week’s meet of global leaders of the G-20 countries is that the G-20 will effectively replace the G-8 as the new body of self-appointed policemen. It will be the “premier forum for our international economic co-operation,” is how the leaders’ statement at the conclusion of the Pittsburgh Summit put it. But if you look more closely at the 23-page statement released at the end of the two-day meet or the track record of the G8 in a similar role, there’s not much reason to pop the champagne.

The statement does not say how the G-20 is to go about its new role. Many of the trickier areas have been left to the Financial Stability Board. There is no fresh thinking on the largely discredited Basle norms of capital adequacy nor is there any mention of how banks will be prevented from gaming it, apart from mention of a leverage ratio.

A yet to be reformed International Monetary Fund has been given pride of place in evaluating how “respective national or regional policy frameworks fit together”. Given that these are often likely to be in conflict with one another, it is not clear how much clout the IMF will carry either when it comes to disciplining more powerful nations like the US, or how much credibility it will carry with developing ones.

For now the agenda reflects the concerns of the developed rather than the developing world. The two main issues — how much capital banks need to hold and bankers’ bonuses — are not major issues in the non-G8 part of the grouping, most of whose banks are in a relatively better shape. But to the extent events in the developed world have a disproportionate impact on the rest of the world, it is but inevitable that it should set the agenda. But only for now!

In the not-too-distant future the old order must give way to the new and in a far less niggardly fashion than envisaged in Friday’s statement. The promise of a 5% shift in voting rights in the IMF from “over-represented to under-represented countries” without spelling out the details (which are these over-represented countries that are to make the necessary sacrifices and by how much?) is both vague and inadequate. Likewise the promise of 3% increase in voting power of developing countries in the World Bank. We must demand, and get, more.

 

[ajtr]

China warns G20 currency critics

China warns G20 currency critics
By Geoff Dyer in Beijing
Published: June 17 2010 13:54 | Last updated: June 17 2010 17:36
China tried to pre-empt a potential showdown at the upcoming G20 summit on Thursday when it warned the other large economies not to use the Toronto meeting as a platform to criticise its currency policy.

Fearing that the policy of pegging its currency to the dollar will come under attack, Chinese officials said the June 26-27 summit was not the correct place to discuss the level of the renminbi and cautioned against an outbreak of "finger-pointing", which they said would be damaging to the world economy.The comments will reinforce firming sentiment in Beijing that China is not readying a last minute anouncement on the currency ahead of the summit, despite the recent recovery in Chinese exports and rising anger in the US Congress.

Although some influential voices in Beijing believe the government has a golden opportunity to appreciate its currency against the dollar ahead of the summit, especially after the surge in exports and increase in inflation in May, most analysts think any policy shift has been put on hold.

While two months ago Beijing seemed on the verge of abandoning its US dollar peg and letting the renminbi modestly rise, the crisis in Europe has emboldened those parts of the Chinese government who oppose a stronger currency.

A senior Chinese government official said that the G20 summit should be about co-ordinating policy, not criticizing individual countries.

"If we allow the G20 to turn into a process of finger-pointing, then it will certainly send out a very confusing and misleading signal to the markets," he said. "This will certainly lead to very serious consequences in the global economy."

Qin Gang, a Chinese foreign ministry spokesman, delivered a similar message. "We believe it would be inappropriate to discuss the renminbi exchange rate issue in the context of the G20 meeting," he said.

In addition to the US, Brazil and India have also recently voiced criticisms of China's currency policy. According to Reuters, a senior Canadian official said a stronger Chinese currency would benefit both China and the rest of the G20, although he added the G20 had to be careful not to put too much direct pressure on China.

On Wednesday, a senior US lawmaker stepped up warnings to China that the US Congress would introduce legislation if it did not change its currency policy soon.

The rhetoric from Beijing over the currency issue has also toughened in recent weeks as criticism has mounted in the US. A commentary piece published earlier this week by the Xinhua news agency said that those US lawmakers proposing legislation linked to the renminbi were "baby-kissing" incompetents who were "poisoning the atmosphere".

A piece published in Thursday's People's Daily argued that the Chinese currency should be getting weaker, not stronger. "Currently, the renminbi exchange rate does not have a problem of being undervalued; on the contrary, it may be overvalued," said the commentary by Xie Taifeng, an economist at the Capital University of Economics and Business in Beijing.

 

[ajtr]

Does strategy even matter in foreign policy?​

Posted By Daniel W. Drezner Friday, June 18, 2010 - 1:22 PM Share
Continuing on the grand strategy theme from yesterday, I see that China is blowing off the G-20:

China tried to pre-empt a potential showdown at the upcoming G20 summit on Thursday when it warned the other large economies not to use the Toronto meeting as a platform to criticise its currency policy.

Fearing that the policy of pegging its currency to the dollar will come under attack, Chinese officials said the June 26-27 summit was not the correct place to discuss the level of the renminbi and cautioned against an outbreak of "finger-pointing", which they said would be damaging to the world economy.

The comments will reinforce firming sentiment in Beijing that China is not readying a last minute anouncement on the currency ahead of the summit, despite the recent recovery in Chinese exports and rising anger in the US Congress....

A senior Chinese government official said that the G20 summit should be about co-ordinating policy, not criticizing individual countries.

"If we allow the G20 to turn into a process of finger-pointing, then it will certainly send out a very confusing and misleading signal to the markets," he said. "This will certainly lead to very serious consequences in the global economy."

Qin Gang, a Chinese foreign ministry spokesman, delivered a similar message. "We believe it would be inappropriate to discuss the renminbi exchange rate issue in the context of the G20 meeting," he said.

In addition to the US, Brazil and India have also recently voiced criticisms of China's currency policy. According to Reuters, a senior Canadian official said a stronger Chinese currency would benefit both China and the rest of the G20, although he added the G20 had to be careful not to put too much direct pressure on China.

A few thoughts. First, as near as I can figure, here is the list of topics that Beijing feels would be "appropriate" to discuss at the G-20 meeting:

1. Debating the role of the developed world in triggering the global financial crisis

2. Sorting out the redistribution of power in the IMF and World Bank towards rising developing countries

3. Reaching agreement on cool G-20 uniforms for the next summit.

4. Reaffirming the global consensus that chocolate is awesome

5. Hugging puppies. Puppies!!

Second, China's strategy here is of a piece with their behavior over the past nine months or so, which, intentionally or not, could be characterized as "Pissing Off as Many Countries As Possible."

Seriously, it's a distinguished list. The Europeans are furious at China because of how the country acted at Copenhagen. The Japanese and South Koreans are furious at China because of how Beijing has handled the Cheonan incident. India is unhappy with China's naval aspirations, nuclear aid to Pakistan, trade imbalances, and an unsettled border. A fair number of ASEAN nations are upset with China's currency policies and its reassertion of territorial claims and spheres of influence in the South China Sea. And then there's the United States, where despite some understanding between Obama and Hu, the People's Liberation Army and the Ministry of Commerce seem bound and determined to derail any warming trend between the two countries.

This is a long and distinguished list of countries to alienate. It certainly signals a shift, intended or not, from the "peaceful rising" approach of the past decade or so. It also appears to be bad strategy -- simultaneously angering the countries that could form a balancing coalition is not an exercise in smart power. And as I've said before, China has badly overestimated how it can translate its financial capabilities into foreign policy leverage.

All that said, the question is whether poor strategy matters all that much. Even if China's property bubble bursts, the country possesses formidable advantages, and the trend lines in terms of economic and military do seem favorable to Beijing. China is now the largest manufacturing power in the world, and its economy is imbricated in global production chains. Its military is only growing stronger. Robert Kaplan argues that it's geographically well-placed. It might be the case that enough countries in the list above -- plus Russia, Brazil, Africa and the Middle East -- decide that Beijing's bellicosity is a price worth paying to stay in China's good graces. Indeed, the underlying assumption behind China's policies is that nothing succeeds like success.

A lot of commentators notice these material advantages, and then mistakenly infer that China has pursued a brilliant grand strategy. At this point, however, China's continued rise seems to be occurring in spite of strategic miscalculations, not because of them. That's the thing about grand strategies, however -- they matter less when the margin for error is greater. Which is why greater attention needs to be paid to U.S.. grand strategy now than before.

 

[SHASH2K2]

China Signals a Gradual Rise in Value of Its Currency

HONG KONG — China announced on Saturday evening that it would allow greater flexibility in the value of its currency, a move that could deflect growing international criticism of its fiscal policies and defuse one of the greatest sources of tension between Beijing and Washington.

The statement, by China's central bank, was the clearest sign yet that the country would allow its currency to appreciate gradually against the dollar. World leaders are due to meet next week in Canada for economic talks, and China's currency policies appeared bound to be a source of conflict.

The United States has been leading a chorus of countries urging China to let its currency fluctuate. Many members of Congress believe China's exchange rate policy gives it an unfair trade advantage, and a movement has been growing to take retaliatory trade action if China did not make an adjustment.

President Obama and the Treasury secretary, Timothy F. Geithner, immediately praised China's action. "China's decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy," Mr. Obama said in a statement. The European Commission also said it supported the move.

But it remains to be seen whether the move will significantly rebalance the global trade picture. The People's Bank of China was cautious in its statement about how far its currency, the renminbi, might fluctuate, warning explicitly that "the basis for large-scale appreciation of the RMB exchange rate does not exist." Chinese officials said the renminbi would move in relation to an unspecified basket of currencies, not just the dollar. Experts said that depending on how the system was designed, China could avoid rapid fluctuations.

Mr. Geithner alluded to this in a statement, saying, "This is an important step, but the test will be how far and how fast they let the currency appreciate."

The first sign of how much currency appreciation will be tolerated is likely to come Monday morning, when the People's Bank of China will set the initial trading band for the value of the renminbi in Shanghai trading.

China has kept its currency value low since mid-2008 by pegging it to that of the dollar and not letting it fluctuate. Any fluctuation would have been higher, making China's goods more expensive to foreign consumers and possibly slowing the country's export-based economy.

In its statement Saturday, the central bank said that the Chinese economy was strengthening after the crisis and that it was "desirable to proceed further with reform" of the currency. Tellingly, the announcement was made simultaneously in Chinese and in English, a rare occurrence, and Chinese officials advised foreign governments beforehand that they were about to take a new stance on currency policy, according to an American official.

Though China said its action was based on the interests of its own economy, it has been under steady pressure from the United States in recent months, in addition to nations in Europe and Brazil and India. Mr. Obama had held repeated conversations with President Hu Jintao over the last year or so, the most recent of which was two weeks ago, and Mr. Geithner traveled to China for meetings last month.

China has handled currency policy gingerly, fearing that its people might see appreciation as a step taken in response to foreign pressure that might not be in the national interest.

For Mr. Obama, China's currency has been a particularly sticky problem. He also has been leaning on Beijing to help contain the nuclear programs of Iran and North Korea, to act as one of the main engines for the world economy, and to moderate its efforts to gain exclusive access to raw materials around the world needed to fuel China's huge growth.

But Mr. Obama's leverage has been minimal, and in the end it may have been the threat of a Congressional bill's protectionist actions against Chinese products that convinced Beijing that it had to begin to free its currency.

That threat had been gaining ground in Congress among lawmakers convinced that China was keeping its currency value artificially low to the detriment of the American economy.

"China's currency practice has cost American jobs and hurt American ranchers, farmers and small businesses," Max Baucus, Democrat of Montana and the chairman of the Senate Finance Committee, said in a statement Saturday. "Today's announcement is a welcome first step to help keep American businesses competitive and create more American jobs."

Senator Charles E. Schumer, Democrat of New York, however, cautioned that unless China gave further detail to its plan, "we will have no choice but to move forward with our legislation."

If the renminbi were to rise significantly, goods from the United States and other countries could eventually start displacing Chinese exports. That could help fuel economic growth in many of China's trading partners, while braking growth in China, which has been expanding so fast that inflation is now accelerating.

Rising wages after recent labor unrest, combined with a stronger currency, may also make China a more attractive consumer market for international companies. But this could help Europe more than America, whose exports to China have been weak and concentrated in a few categories like aircraft, turbines and soybeans, while European companies have been more successful in selling high-end consumer goods there.

For China, a stronger renminbi will increase the buying power of its consumers and could make gasoline and other imported commodities seem less expensive. Faced with spreading labor unrest, particularly in the auto industry, the government has started to make an energetic effort to improve the standard of living of industrial workers.

But many economists inside and outside China have argued that currency appreciation is in China's interest most of all. The country has been spending nearly one-tenth of its annual economic output to buy Treasury notes and bonds and other foreign securities while printing and selling renminbi, all in an effort to prevent the renminbi from rising against the dollar.

The renminbi has already risen with the dollar by 15 percent against the euro in the last two months. That has made Chinese officials nervous about the future competitiveness of Chinese sales to Europe, the biggest market for Chinese exports.

Cui Tiankai, a vice foreign minister, said on Friday that the value of the renminbi was not a subject for global discussion, the latest in a series of remarks by Chinese officials indicating strong nationalistic sensitivities about currency policy.

But people familiar with Chinese currency policy making have been saying for two months that the Chinese leadership agreed in early April to a change of direction. A devastating earthquake in western China in mid-April followed by worries about economic turmoil in Europe delayed action on the decision.

 

[SHASH2K2]

India to raise its concern over protectionism at G20 meet Read more: India to raise

NEW DELHI: India will raise its concern over the increasing protectionist policies in the United States at the upcoming G20 meeting, finance minister Pranab Mukherjee said on Friday.

"G20 needs to coordinate policies in a manner that should ensure sustainable and balanced growth," Mukherjee said at a conference on G20 issues organised by ICRIER.

He said G20 member countries should work together to ensure financial stability and make international trade more open and transparent.

Mukherjee said India would lobby with other countries of the group to raise the issue of increasing tendencies of protectinism in some countries, especially in the United States.

The fifth summit of G20 is scheduled to be held in South Korea on Nov 11 and 12. Finance ministers of the group of 20 countries will meet next month to outline the agenda for the meeting of the head of states.

Referring to the global economic crisis, Mukherjee said a coordinated effort should be made to overcome the crisis as no country was insulated from it.

He said the global economic crisis was turning out to be more broader and deeper than expected.

The US government recently announced a series of measures to curb outsourcing of business and boost demand for local products.

The state of Ohio in the US early this month said it would forbid outsourcing of IT services by government departments. The US has also increased visa fee by $2,000 for certain H-1B and $2,250 for L1 categories.

This will negatively affect the businesses of Indian IT companies which are dependent on the US for over 60 per cent of their income.

Read more: India to raise its concern over protectionism at G20 meet - The Times of India India to raise its concern over protectionism at G20 meet - The Times of India