Better to focus on bilateral deals rather than waste resources on multinational talk fests.
There was one prominent absentee at the Seoul meeting of the G20 finance ministers last week. Even more significantly, he was the one who had coined the phrase “currency wars”, a topic that was central to this Seoul meeting. So, why did the finance minister of Brazil choose to stay away? Perhaps it was due to the pressure of national elections, says Alan Beattie of the Financial Times charitably. But is there a bigger message? Is G20 already sputtering? It was born 11 years ago as a discussion forum. It wasn’t supposed to take binding decisions, and certainly did not have the authority to impose its decisions on members outside the club. The emergency meeting of November 2008, convened by the outgoing US president, changed that perception. Subsequent success in global coordination of fiscal stimuli seemed to increase its credibility and clout. But questions about G20’s legitimacy and representativeness remained. It may not be merely an enlargement of the erstwhile G7, but it cannot speak for everybody. It seems to be a self-appointed body that will set universal rules. But will others listen? It prides itself on not having any permanent secretariat but it still needs a much stronger and well-defined constitution, and transparent rules of engagement. Else its image as a just series of talk fests without consequences is likely to get entrenched. Already there are cracks within, and Brazil’s no-show at Seoul is not helping.
Granted, that the issues being discussed at G20 are inherently intractable and require multinational coordination. So, failure of G20 may be less institutional, and more to do with the issues themselves. Even then, G20 appears increasingly ineffective in tackling the challenge of preventing mindless currency devaluations, or correcting trade imbalances. The former requires that everyone gang up on China, from which even US allies shy away. The latter requires that Germany, Japan and China cut back on exports, which they won’t. Even the IMF quota reform announced in Seoul is also not really a G20 achievement. India has been campaigning for quota reform for 15 years in the IMF. It has been a net lender to the IMF for most of that time. So, if IMF realignment is happening now, it is a belated victory of a long-running campaign, and not just due to hard-bargaining within G20.
It is not just G20, but even the other well-founded organisations of global governance are facing similar challenge of looming irrelevance. IMF quota reform has come now, but just two years ago, the IMF was searching for a new mandate for itself. Since the East Asian crisis, emerging economies have been stocking up on foreign exchange as self-insurance, declaring independence from contingent IMF rescue. Back in 1997, Malaysia showed that capital controls work against IMF advice, and eventually in 2010 the IMF agreed. The IMF advocates risk diversification, but its own funds are concentrated in just four risky countries. As for the World Bank, it has acknowledged that private investment and aid flows completely dwarf its development funding. The ability of sub-national entities to directly tap into capital markets and global investors has made the Bank less relevant. Besides, who wants Bank/Fund conditionalities? Ever since one of their own insiders (now ostracised) wrote scathingly of the Bank’s record, especially in Africa, there has been recurrent talk of reforming the Bretton Woods organisations.
The World Trade Organisation (WTO) isn’t faring much better. The round of talks launched in Doha in 2001 is now in its 10th year, with no end in sight. The western economies will not reduce their agricultural subsidies, and the developing countries will not ease industrial trade barriers in return. There seems to be no way out of this multilateral deadlock. To make matters worse, the financial and job crises seem to be making western economies more protectionist. Non-tariff barriers may be going up. The WTO also seems to be unfairly loading the trade agenda with unrelated issues like environment impact, labour rights, intellectual property rights and newfangled ideas like food miles.
More than free trade, or global financial architecture, the issue of global warming is a genuine global commons concern, requiring multilateral coordination. Here too there is currently a distinct lack of enthusiasm. In December 2009, Copenhagen was the venue for a historic 15th meeting of the Conference of Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC). It was also an occasion for a meeting of the parties to the Kyoto Protocol. That protocol will expire in 2012, and Copenhagen was to have resulted in a clear road map beyond 2012. The most important non-signatory to Kyoto was expected to lead the charge. But Copenhagen was a failure. There were no binding agreements, no firm commitments, no adoption of numerical targets, only vague statements of intention. There was just an insipid accord signed by six big countries, including India. It was indeed an anticlimax to a frenzied build-up to what was promised to be a defining milestone in global cooperation.
India has thus far invested heavily in conforming to and strengthening multilateral fora. It prides itself on being a founder member of Bretton Woods and GATT. Its negotiating teams whether to G20, or WTO, or UNFCCC are ever larger and include non-government delegates as well. There are hectic pre-conference parleys to ensure predictability, or softening of opposing stands. There are world trips by various government officials to project soft power and evidence of good faith. But what is India getting in return? It can be argued that even the end of nuclear apartheid that India was subjected to for three decades came not by multilateral negotiations, but by single-focused deal-making with one country. So also in trade. India’s largest trade partner is now China, a country hardly known for its passion for multilateralism. It understands quid pro quo, and this is best achieved in bilateral talks, not multilateral ones. India belatedly woke up to the futility of multilateralism in trade, and furiously worked to make up for lost time, with signing up of several free trade agreements (FTAs). Those FTAs are reaping richer dividends for India than what the WTO has done so far. In nuclear diplomacy too, the bilateral deals with France, Russia or Japan will go a long way than any multilateral engagement with the Nuclear Suppliers Group.
Seoul, Copenhagen, Doha (or Cancun, or Geneva, or whatever is the latest venue) are all pointing to a fatigue of multilateralism. India needs to play this down cycle of globalisation with realigned priorities and reallocated resources.
The author is chief economist, Aditya Birla Group. The views expressed are personal