When leaders of the world’s 20 largest economies met at the G20 summit in Seoul, South Korea, on November 12-13, the only story in the news was a currency face-off between the United States and China. Missing was real movement on two issues with implications for Latin America and the Caribbean: Reform of the International Monetary Fund (IMF), and a new “consensus” on development for the world's poorest countries.
The political outcome of each offers some indication of the degree to which the replacement of the G8 by the G20 in economic affairs could bring meaningful change to struggles on the ground. IMF reform ended up as a bait-and-switch maneuver that maintains the European and U.S. stranglehold on the Fund. The new development thinking, on the other hand, while a pro-business approach sure to please multinational corporate interests, nonetheless provides the long-overdue final nail in the coffin of the neoliberal economic model that has held sway for a quarter century.
Chastened by complaints from China, Brazil, and India that they were the ones anteing up to replenish the IMF’s coffers but had little voice in the Fund’s affairs, the G20 agreed a year ago in Pittsburgh to a 5% shift in voting power to the undefined category of “emerging countries” and a consequent change in the makeup of the IMF governing board. IMF voting rights are allocated according to a quota formula to reflect a country’s weight in the world economy. Seats on the 20-member board (currently expanded to 24) are determined by political negotiation.
The 5% shift was not a bad deal for Europe and the United States, given that Europe would continue to name the head of the IMF and have many more board seats than it deserves. (Europe represents about a quarter of the world economy, yet holds nine of the board’s 20 permanent seats.) The United States, with nearly 17% of all votes, would retain de facto veto power, since all decisions require an 85% majority. However, a year of backroom battles followed, as no rich country was willing to volunteer even a marginal reduction in its influence.
In October, the United States forced Europe’s hand by insisting the board return to its statutory 20 members from its interim size of 24, and the Europeans caved, conceding two of their nine seats (and the board size became permanently 24). G20 finance ministers then grandly announced the voting quota shift to emerging countries would be greater: 6%, not five.
The details were revealed a few days before the Seoul summit, and as expected, the United States retained its veto and Europe its power to name the director and more seats on the board than merited. What no one predicted was that most of the transfer of votes to the “emerging” countries came not from rich countries, but from other poor countries.
China, India, and Brazil were the big winners, and now sit third, eighth, and tenth in the power ranking on the board. But some key “emerging” G20 members lost share, including Argentina and South Africa, as did other poorer countries, including El Salvador, Bolivia, Pakistan, Sri Lanka, Lesotho, Botswana, Swaziland, Croatia, and Bulgaria, as well as oil-producers Venezuela, Trinidad and Tobago, Nigeria, and Algeria. All in all, the net gain for the non-G8 G20 members was only 2.8%, not the 6% percent claimed.
The lesson to be drawn perhaps is an old one: power gives up nothing without a fight. The G20 called on the IMF to review the formula by which voting quotas are calculated, thus confirming that the fight is not over yet. Whether Brazil, China, or India would use their influence to transform the IMF of course remains unknown. The new development consensus announced in Korea offers another window on that question.
The “Seoul Development Consensus for Shared Growth”, a repudiation of the privatize-and-deregulate orthodoxy emanating from Washington since the 1980s, was championed by the Korean chair and embraced by the G20. In a three-page statement of principles, with an accompanying multi-year action plan, both purportedly based on the successful experience of countries who have recently “emerged” from poverty, the G20 set forth a plan to address the plight of low-income countries, whose growth the group views as key to global recovery.
The nail in the Washington Consensus coffin is explicit: “We . . . believe there is no ‘one-size-fits-all’ formula for development success and that developing countries must take the lead in designing and implementing development strategies tailored to their individual needs and circumstances.”
Yet there may be more concordance than rupture with the fallen orthodoxy. The G20 posits economic growth via private investment as the motor force of development, while giving barely a nod to public investment in health, education, or agriculture, and not a word about democracy or human rights.
A cynic might view the infrastructure section of their nine-pillar action plan, for example, as a bid by South Korean President Lee Myung-bak for new contracts for the multinational construction firm he founded, or as a reflection of Chinese desire for access to the minerals of Africa, given its focus on scaling up public investment to facilitate private business.
But the plan also takes up key issues of global concern: Food price volatility, which recently drove the number of chronically hungry people up over a billion, and land-grabbing by multinational companies in poor countries, which has grown ten-fold over the last two years. Though the action plan is fairly bereft of action, some in the G20 want to see coordinated regulation to limit speculation in food commodities, moves toward global and regional food reserves, and agreed guidelines on regulating large-scale land purchases. France’s Nicholas Sarkozy signaled that these issues will be given high priority when the French chair the G20 in 2011.
The development plan also stresses what the group calls “financial inclusion,” ensuring that small and medium-sized enterprises can access credit, and “domestic resource mobilization,” which means improving tax collection in the poorest countries – two issues crucial to emerging countries’ success and on which the Washington Consensus failed miserably.
Whether Brazil, India, China, or others choose to do anything with the G20 action plan (the only actions taken in Seoul were to name the issues and agree to talk about them next year), or their slightly increased influence at the IMF, are certainly open questions. But these outcomes of the Seoul G20 show a trend toward more breathing room for Latin America in the global political battle, and perhaps more freedom to pursue policies that work, rather than Washington’s favored orthodoxies.
Mark Fried was in Seoul to cover the G20 for NACLA.