G20 Review: Better or Worse off?

In Financials, Politics on April 3, 2009 at 21:17


The highly-anticipated G2O summit in London belongs now to the past. Large part of the outcome was a collective pledge of $1.1 trillion deal to boost global economy. Let me brake it down for you; $500 billion for the IMF to lend to struggling economies (as we discussed two posts earlier), $250 billion to boost global trade, $250 billion for an IMF new overdraft facility countries can draw on, and $100 billion extra funds international development banks can loan to the poorest countries. Along with that comes another $6 billion for the IMF from selling its gold reserves to further increase lending to the poor countries. This is a massive amount of money that is targeted to the developing world and we couldn’t be happier for that. Now, the ball is on IMF’s hands to get the developing economies back on track.

IMF, was agreed, to have an ‘assistant’ body as a new Financial Stability Board which will be set up to ensure co-operation and alert economies for the financial system (like an OECD for the developing world).

Moreover, world leaders agreed on stricter controls on banks’ payments and bonuses, greater regulation on Hedge Funds and credit rating agencies – both highly responsible for the collapse of the financial markets – a common approach on cleaning up banks’ toxic assets, and monitor tax havens that don’t comply with global standards.

What they didn’t do; agree on a co-ordinated fiscal stimulus package (something the US was really fond of), find a way to encourage banks lending again, and deter any kind of protectionism. I am not afraid for the first two as much as for the latter one. Economies that see their balance of payments deteriorating in such difficult times may try to protect domestic industries and shut the door to exporters.

Overall, the summit can be described successful considering the lack of  major discrepancies amongst its members. Leaders did take some radical measures to revamp the global economy and deter its recurrence. The only thing is that the tax-payer is called, once again, to pay for others’ mistakes.


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