Universally challenged – G20 focus on global economic solution

Illustration: David Lyttleton

Eighty years ago a banking crisis on Wall Street triggered a sequence of events that led to the Great Depression and years of subsequent misery.

Eight decades later, it seems all but certain the shock that hit world markets a year ago will now not lead to a similar degree of financial and economic Armageddon.

For once, world leaders can take some credit. Given the nature of politicians, it was no surprise that the heads of state that gathered first at the G20 Summit in Pittsburgh in late September and the finance ministers, central bankers, academics and businesspeople that convened in Istanbul in October for the International Monetary Fund meetings, made sure their voters knew that. As Gordon Brown said in a communiqué from the G20 meeting he chaired: “Our countries agreed to do everything necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital.”

“It worked,” they added.

But the nine days of talks clocked up between both sets of meetings have also made it clear that any hope of a return to business as usual is a remote fantasy. However, there were six broad elements to the recipe world leaders cooked up at the meetings for recovery that finance directors should take note of.

Emerging powers
The first, and perhaps most long-term one, is the proof these meetings provided of the shifting balance of power between the West and the fast-growing emerging economies. The G20, counting among its most currently pertinent members Hu Jintao’s China and Lula da Silva’s Brazil (jubilant in having won the 2016 Olympic Games, a victory in which Lula tellingly said that the country is no longer “second class” but had instead “entered the first-class level”) and 11 other developing nations, declared that it was now the “premier forum” for international economic cooperation, effectively supplanting the G7.

This was evident from another communiqué issued by G7 finance ministers, which said meekly that it would “adhere to the commitments agreed by the G20 in Washington, London and Pittsburgh”. But the irony of the location of the IMF and G7 meetings in Istanbul ­ on the Bosphorus, where Europe and Asia meet ­ was not lost on those attending.

“The world is moving to a different place,” said Mike Rees, CEO for wholesale banking at Standard Chartered. The transition of power won’t be immediate, though: the G7 insisted on talking about the Chinese exchange rate even though China was not in the room, while the G20 was silent on currencies. That is a disconnect that needs resolution as the decline in the dollar must be managed, especially amid speculation that the greenback will lose its role as the global reserve currency.