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Setting the agenda

The emergency meeting of over 20 heads of state at Washington ended on Saturday with a formal declaration of commitment to certain basic principles and an ambitious plan to reform the financial regulatory system and institutions such as the IMF and the World Bank. Billed as the most important economic meeting after the Bretton Woods summit in 1944, the Washington meeting fell short of arriving at the basics of a financial sector rescue package. However, expectations from the summit were muted. With an imminent change of guard in the U.S., a lame duck President hosted the conference. There has been a realisation that a much higher order of preparatory work was needed for such conferences to be meaningful. However, the severe crisis which few expect to end anytime soon brooked no delay in attempting a global solution. The U.S. seems inexorably headed towards a recession, in whose grip 15 European countries already find themselves. Both the IMF and the World Bank are predicting a contraction in the developed economies as a whole in 2009. Their prognosis for India, China and other developing countries, though more optimistic, still points to a sharp drop from the high growth rates they have become used to.

On the positive side, there is a commitment from the G20 countries, which collectively control 85 per cent of the world’s output, to adhere to a time-bound programme of furthering the common agenda agreed upon. All countries have welcomed the idea of coordinated monetary and fiscal responses to the crisis. However, while fiscal stimulus packages are welcome, there was much less agreement on coordinating those efforts. The global financial sector, which is at the root of the crisis, is to be reformed through a number of measures. There is a commitment to step up the level of supervision of financial institutions, especially those that operate across many countries. India, China, Brazil, and a few other countries who have finally been given their rightful place in the world economic order will have a greater say in the working not only of the IMF and the World Bank but also of the not so well known but extremely relevant institutions such as the Swiss-based Financial Stability Forum. While these and other measures will make the global financial system more inclusive, the proposal to reactivate the Doha round of talks is a vote against protectionism. While not much came out in specific terms, the G20 meeting reiterated the core principles that ought to govern responses to the crisis and must be viewed as a precursor to other meets with specific and focussed agenda.

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