Monday, November 10, 2008

G-20

The latest G-20 meeting in Brazil was part venting against America and part expressing frustration. Apart from Robert Zoellick’s suggestion to combine G-7, G-20 and BRIC into one single group; not much worth seems coming out. May be it might have prompted China to declare the gigantic stimulus package.

But China’s package may be in response to cover herself when head of states of G-20 nations meet in Washington DC coming week end. However, with Barack Obama even refusing to name his Treasure Secretary before that gathering; he is clearly signaling that he does not want to play that ball. So then it is questionable how much substance can be achieved in that gathering too.

When heads of states meet again sometime next year with Barack Obama firmly in the saddle; it will be worth to note how much substance can be achieved by then. Barack Obama has unusually and starkly claimed on the campaign trail that global community will have to come forward to address this financial challenge. He meant USA will not be alone to clean the mess even though it might have been USA’s CDOs which started the bedlam.

Based on his mandate, it is logical that Barack Obama would pursue policies strictly beneficial to hilt to USA in short term. What it means is he will not actively bother to find replacement to Dollar. Though no one is talking that for now, the goal for rest of the world is to institute a mechanism by which eventually there is a currency regime which does not have Dollar at the center.

The problem with that is not that Dollar must be always at the center of the world; but rest of the world refuses to make their currencies that much fully convertible on capital account. One DPW example is sure to point America’s failure in allowing foreign investment; but rest of the world is far behind in such openness and is not much ready to change.

The reason for that is no country wants to disturb ‘apple cart’ of conflicting interests they have allowed to grow domestically. In a sense, the political capital to take on vested interests in their respective countries is quite short with rest of the states. These G-20 states can ramble about ‘global solution’ to today’s economic problem till ‘cows come home’; but it will not matter if they are reluctant to bring their own houses in order.

This whole ‘export driven Asian miracle’ seems like have run its course. If Barack Obama’s Administration is indeed able to make some good progress in energy independence; then ‘oil riches’ of some more countries will also be threatened. This means, there is no substitute for growth ‘driven by internal demand’ and necessary political reforms to dismantle vested interests which are making countries not be fully ‘internationalists’ in economic sense.

Till then it all will be just blaming America and simply hot air.

No comments: