G-20 summit: A walk in the woods

Washington: Trying to get grips on a financial crisis that has rocked all major global economies, leaders from 19 nations and the European Union have arrived at the nation's capital for a summit that is already being billed as the next Bretton Woods. 

With the German and Japanese economies devastated after WWII, a conference at Bretton Woods established a system of monetary management that laid down the rules for commercial and financial relations among the world's major industrial states.

World leaders today are grappling with a financial crisis that is also global in scale and comes at a time when they are trying to fend off recessionary pressures and prevent future meltdowns in financial markets of the kind recently experienced.

Judging from the statements issued by leaders before they set out for Washington, the summit may likely find itself trying to resolve three points of views – those who would much rather prefer minor tinkering without any substantive changes; those determined to bring in oversight into global financial transactions, which all said and done was the root cause of the current crisis, and those from emerging economies who would wish to protect fragile rates of growth from any protectionist clampdown in the developed world.

The summit itself is not expected to yield any breakthroughs with a lame duck presidency at the White House, and an incoming administration yet to find its moorings, and personnel, for a summit of this importance. Though former secretary of state Madeleine Albright and Republican Congressman Jim Leach have been appointed point persons for the summit by the Obama transition team, observers say neither of the two are expected to be assigned prominent positions in the next administration.

A split summit

"We share a determination to fix the problems that led to this turmoil," Bush said at a White House dinner for leaders of the Group of 20 advanced and developing economies.

Trying to fend off criticism that unbridled, "cowboy" capitalism was really to blame for the crisis, Bush urged leaders to work to fix the system, not dismantle it. Among the key objectives of the weekend summit, he said, would be "identifying principles for reforming our financial and regulatory systems (and) launching a specific action plan to implement those principles."

If Bush would appear to be adopting a centrist position with respect to the crisis, the Canadian prime minister, Stephen Harper was a bit more conservative in his response. "I don't think the major economies of the world will ... consent to have external control over their regulatory systems," he informed media before leaving for Washington.

A more hedged response, but broadly along the same lines as the Canadian one, came from Japan. "We think the fundamental principle should be that capital flows based on the free market should continue to serve as the foundation of the global system," Japanese foreign ministry spokesman Kazuo Kodama said.

Opposed to these conservative points of view are those of European nations whose economies are either already in recession, or close to it – in no little measure aided by the financial crisis which originated from American shores. The crisis, for them, demonstrates the need for a stricter set of market rules that would put checks on the free-wheeling capitalism.

British prime minister Gordon Brown, due to chair G-20 from next year, is urging reforms for the 60-year-old Breton Woods world financial order that would keep pace with the demands of a globalized economy.

German chancellor Angela Merkel said at a news conference in Berlin before leaving for Washington that the summit would need to establish some type of framework and rules to ward off the risk of future crises.

"The government will do everything to ensure there are more rules to prevent such a situation recurring," she said. Her finance minster, Peer Steinbrueck, backed up her position by saying the window of opportunity for financial reform had never been so wide open.

As for the emerging economies, they have genuine fears that the crisis would set protectionist tendencies in motion.

Before emplaning for Washington, Indian prime minister, Manmohan Singh, said "I will put forward our views on the need for greater inclusivity in the international financial system, the need to ensure that the growth prospects of the developing countries do not suffer, and the need to avoid protectionist tendencies" the prime minister said.

He expressed the hope that international financial institutions, such as the IMF, the World Bank and regional development banks, would be strengthened "to ensure that the fallout on the developing countries of the global crisis is minimal."

Indian finance minister, P Chidambaram, also accompanying the prime minister, said that global leaders "must agree to a new order of global oversight" if they were to resolve the crisis. "A more inclusive system can provide better surveillance and serve as an early warning mechanism," he said.

Brazilian finance minister, Guido Mantega, warned of severe consequences if the summit failed to produce required results. He said both regulatory reform and concerted government spending were needed. "If we don't take quick action we run the risk of falling into a depression," he warned.

On the face of it, results are just what Mantega is not likely to get. A lame duck presidency at the White House and an incoming administration just getting off the treadmill of an election routine, are not in a position to ensure results.

There is also the question of moral authority. US treasury secretary, Henry Paulson, admitted to CNBC television that the United States had "in many ways humiliated ourselves as a nation with some of the problems that have taken place here."