By Alister Bull – Analysis
WASHINGTON (Reuters) – Bretton Woods II it was not, but world leaders achieved a crucial show of unity at their summit to confront recession, promising to revamp the global economic order and remain firmly wedded to free trade.
Old Cold War rivals from the West and former Communist East publicly tied their economic fates together on Saturday and gave themselves until April to hammer out concrete reforms.
“The real value of getting these countries together is to say that they won’t do any harm, rather than they will do something for the collective good,” said Raghuram Rajan, a former chief economist at the International Monetary Fund.
Leaders vowed to use fiscal policy, as well as interest rate cuts in countries that still had room to ease, to offset the steepest global economic slowdown in decades.
Their gathering, which brought the 20 leaders together for the first time, evoked the 1944 meeting in Bretton Woods, New Hampshire, that created the IMF, World Bank and a foreign exchange rate system closely tied to the dollar.
Host President George W. Bush told reporters he was not sure if the summit would earn a similar place in history, but stressed that it had more modest ambitions as a hastily convened first step toward achieving lasting change.
Among the few solid commitments was a ban on raising protectionist trade barriers for 12 months, and to agree to the long-running Doha round of trade talks by end-December.
There was also a timetable of tasks, focused heavily on tackling accounting and regulatory issues, which the leaders pledged to complete by the end of March.
They plan another summit in April, by which time President-elect Barack Obama will have been inaugurated, replacing Bush in the White House.
Critics inevitably seized on the lack of concrete proposals for evidence that nothing of substance was achieved.
“There is no coordination in the fiscal arena, the promises made to emerging markets are vague, and even though there is a clear statement on protection and export subsidization, there is no monitoring or enforcement mechanism,” wrote Dani Rodrik, a professor at the Kennedy School of Government at Harvard.
Others said they had only ever held low expectations for the event, but still voiced frustration that it had not measured up to the severity of task at hand.
“The G20 is such an unwieldy body that anything not agreed in advance is never going to happen,” said Kenneth Rogoff, an economics professor at Harvard University.
“The global economy is tumbling … this didn’t really push the ball very far down the field,” said Rogoff, who proceeded Rajan as IMF chief economist.
Leaders did own up in general to policy mistakes that had contributed to the crisis, but refrained from pointing fingers at the United States, where a housing market collapse was the trigger for an ensuing global credit crunch.
There was also a call to reform the IMF and Financial Stability Forum (FSF) to give emerging economies a bigger voice and the institution more clout in policing the world financial system. Time will tell if this will yield results.
“How the G20 countries collaborate with the IMF, FSF or BIS (Bank for International Settlements) in the next three or four months is very critical, very important (in determining) whether the G20 succeeds or fails,” said South Korean Deputy Finance Minister Shin Je-yoon.
Nor was there any fresh money for the IMF beyond a unilateral Japanese offer for a $100 billion loan. Saudi Arabia, intensely lobbied by British Prime Minister Gordon Brown to use its oil wealth to augment the Fund, pointedly said that it had not come to Washington to pay the bill.
Yet Rajan was determined to look on the bright side and said the G20 had strongly signaled its intentions.
“I am extremely hopeful that they will be able to find a way to put together more capacity for the IMF,” he said.
IMF Managing Director Dominique Strauss-Kahn was also upbeat and said the summit proved leaders understood the gravity of the situation and were ready to make sacrifices.
“I think it’s a real renewal in the governance of the world economy and the world financial sector,” he said.
(Additional reporting by Paul Eckert in Washington, Editing by Maureen Bavdek)