Barack Obama came to London seeking a fresh spending package to revive the global economy and – despite European objections that tighter regulation and not more money was the way to go – he has got a surprisingly large trillion dollar package out of the G20 meeting. But will it actually work?
Probably not, beyond a temporary market bounce. Despite claims by British PM Gordon Brown that this deal represents a new world order, the G20 package looks more like a sack of Band-Aids than a coherent rewrite of Bretton Woods. The package includes for instance, $250 billion to ‘ stimulate’ global trade, which will somehow not – cross fingers – entail any further trade-distorting subsidies. (Safe to say, Brown’s new world order does not include paying any attention to the huge US and EU farm subsidies. Instead, the G20 will fearlessly ‘ name and shame’ countries that erect trade barriers. Wowzah.)
In the recent rush to shore up their national banking systems, the G20 countries have allegedly neglected the need to provide sufficient credit for trade between nations, which these new funds will now address. That’s nice. So, once the world’s economies start working properly again in oh, about 2011, its now good to know that the bridges between them will be able to be crossed, assuming those bridges haven’t turned into protectionist walls by then.
The IMF have turned out to have been the big winners, which should ring a few alarm bells. The IMF will receive a trebling of their lending funds to $750 billion – including a ten fold increase in the synthetic Monopoly Money for development projects that the IMF calls the Special Drawing Authority. Again , this effort looks more like disaster relief to ease the pain of the global meltdown on vulnerable countries than a driver of economic recovery. Especially since the $250 billion of the IMF’s synthetic currency is going to be shared out among 185 countries.
This looks like tokenism, with real tokens. As Scoop pointed out a few weeks ago, the IMF has just issued a major report called “The Implications of the Global Financial Crisis for Low Income Countries” in which it urged wealthier countries not to abandon the poor during the global financial crisis. Good advice, with a large serving of self interest. In reality, the G20 boost to IMF funds can be seen as a substitute for foreign aid, and the channeling of such assistance through the IMF can only give the donor countries greater control of these developing markets, if and when they ever do emerge from recession.
Around the edges, the G20 package pays attention to the need for greater regulation. It talks about tighter rules for hedge funds and rating agencies, greater transparency in tax havens ( good luck with that) and the ever popular crackdown on bonuses for top executives in those firms receiving taxpayer assistance. All very welcome, but again…cumulatively, is this really supposed to be a coherent plan that will do enough to lift the global economy out of recession? Is the IMF really expected to be the driver of that recovery?
On a quick scan of the G20 communique, I can’t see much of substance about the cancerous assets that lie at the core of the global financial crisis, or about the related issues of state control. Or about regulatory mechanisms with teeth, across borders. The G20 may talk about adopting a ‘common approach’ to the toxic assets issue, but it doesn’t spell that out. If the Americans can’t find a convincing way of pricing the toxic assets within their own banking system – and they can’t yet even begin to debate the merits of nationalizing the banks their taxpayers have just bailed out – then the G20 was always going to struggle to agree on a global policy about such matters. And so they haven’t. So the crisis and recession will, in all likelihood, continue.
As Scoop has been indicating for months, New Zealand is under pressure to donate some of our SAS special forces to the US military ‘surge’ in Afghanistan. Foreign Affairs Murray McCully has just been at the international conference on Afghanistan in the Hague, and will shortly meet US Secretary of State, Hillary Clinton in Washington.
New Zealand currently has about 200 troops doing reconstruction work in Bamiyan province, an Afghan backwater far from the fighting raging elsewhere in the country. If the SAS is to offered up to the Americans, McCully should spell out what the goal of their deployment would be.
We would deserve an explanation. After all, raising the stakes and the visibility of our military contribution to Obama’s war in Afghanistan would make New Zealand a more likely target for terrorism. That risk should be balanced against clear, achievable goals. Would we be there for the limited military purpose of eliminating any threat still posed to the outside world by al Qaeda? Or would our goal in Afghanistan be seen as a domestic one, to help turn that country into a viable, self sustaining democracy?
If it is the latter, we could be there for decades, and still be wasting our time. In essence, we would be putting our troops and this country’s name at risk in order to (a) curry some vague brownie points with the Americans and (b) to prop up a corrupt crew of drug running war lords and misogynistic old tribal theocrats. Helen Clark kept our contribution minimal, and out of the war zone. McCully would be well advised to maintain that approach.