This meeting, which President-elect Obama has said he won’t attend anyway, has been pushed in some circles (even on our blog, in a highly conditional way: see posting of 22d October “NOT a Slow News Day”) as a possible “Bretton Woods II.” The Harvard trade theorist Dani Rodrik managed to get his hands on the documents, which he posted on his blog.
Everyone knows that the final communiques of summits held by political leaders are written way in advance by their “sherpas.” Through my contacts in the Bush administration I have managed to get my hand on the communique that will be issued at the conclusion of the G-20 summit being held on November 15th in Washington, DC. Here is how it reads:
The G-20 communique of November 15th
We, the leaders of the G20 nations, have come together to develop a common action agenda to prevent the further spread of the financial crisis and to ensure that the consequences for output and employment are minimized. We are pleased that G7 member governments have agreed to engage in an appropriate degree of fiscal expansion to stimulate their economies. While the degree of reflation of different economies can be best evaluated by policy makers in individual countries, we believe joint action on this front will be more effective than isolated changes in policy.
We also call on countries with large current account surpluses to adopt policies that boost domestic demand. China has a particularly important role to play here, and we are happy to report that the Chinese government has decided to embark on a significant program to increase domestic consumption–both private and public–by boosting spending on infrastructure, health, education, and social transfers.
We are particularly concerned that the financial crisis, which has already hit emerging markets, will have even more serious consequences in the weeks to come for the stability of their banking and financial systems. We welcome the creation of the new Short-Term Liquidity Facility (SLF) at the International Monetary Fund, and the Federal Reserve’s new swap facilities for four emerging market economies. These countries are the casualty of financial excesses that are not the result of their own doing. So we emphasize that access to the SLF will be available to all developing countries that are adversely affected by the financial turbulence emanating from the subprime fallout.
Further, G7 member governments emphasize that they stand ready to expand these facilities as needed, in case they are not sufficient to restore stability to markets. We also welcome the decision by the Chinese government, described in greater detail in the accompanying communique, to make available part of its foreign currency reserve assets towards an expanded swap facility in support of global financial stability.
The weeks and months ahead will be trying times for economic policy makers everywhere, as they try to contain the fallout for output and employment. Raising trade barriers against imports will be a temptation, especially when currencies fluctuate so much. But the experience with the Great Depression teaches us that this is the surest way to magnify the costs of the crisis, and to spread it to other countries. Hence the most serious challenge for the global trading regime at the present is to ensure that the financial and economic crisis does not lead to a vicious cycle of protectionism, greatly exacerbating the economic downturn.
So we jointly commit ourselves in public to not raising protectionist barriers in response to perceived threats to employment from imports. We further ask the secretariat of the World Trade Organization to monitor and report unilateral changes in trade policy, with the purpose of “naming and shaming” G20 members that depart from this commitment.
The unfolding financial crisis has made it amply clear that we need a new regulatory approach to finance–both domestically and internationally. The rules that govern financial globalization need to be rethought to ensure that finance serves its primary goals–allocate saving to high-return projects and enhance risk-sharing–without leading to instability and crises. Our discussions have revealed that there exist great differences amongst us with respect to our respective needs and therefore with respect to how to achieve these ends. A key challenge will be therefore to strike an appropriate balance between common international regulations, on the one hand, and space for domestic approaches that may diverge from harmonized regulations, on the other. Recent experience has taught us that there may need to be a greater role for the active management of international financial flows by governments.
Designing the new traffic rules for international finance, as it were, will take considerable time and thought. We have asked our ministers of finance to establish a high-level working group that will convene as soon as practically feasible to seek wider input, and craft a framework for discussion among heads of governments. Despite our differences on the details, we share a common goal: to make international finance safe for the world economy–and not the other way around.