HONG KONG — Symbols are at least as important as communiqués, so the seating plan for Gordon Brown’s dinner for the G-20 summit meeting told a story. China’s president, Hu Jintao, was seated on the host’s right, Indonesia’s president, Susilo Bambang Yudhoyono, on his left, with King Abdullah of Saudi Arabia opposite. President Barack Obama had South Korea’s president, Lee Myung-bak, on one side and India’s prime minister, Manmohan Singh, opposite. This was indeed a new world order — with Asia in the forefront.
The fact that a G-20 meeting has been given such prominence makes it rather more important than its specific achievements merit. The G-20 may be unwieldy, but it has shown the old powers that a wider world no longer wants to let trans-Atlantic designs and differences dominate global affairs. Indeed, the summit may have demonstrated, even to Germany and France, that finding solutions to the global economic meltdown is more important than assigning blame, and that the health of rising countries is critical to restoring the equilibrium of the wealthy old West and Japan.
Obama’s acknowledgment of this has helped the United States sustain a leadership role that was at risk from the global devastation caused by Wall Street. There is greater recognition that berating the United States will make it more difficult for Obama to resist protectionist pressures at home, from which others will suffer far more than America itself. Nevertheless, the lack of specific measures by G-20 leaders to counter protectionism was a disappointment.
The gathering faced two related issues: global stimulus and redesign of the financial architecture. Agreeing on an overall stimulus target was never likely. National needs, abilities and perceptions vary too much. But at least the focus on the International Monetary Fund addressed the urgent need of the developing world for additional convertible currency liquidity to sustain growth and avoid currency runs — which have even hit countries with large reserves and modest borrowing needs like South Korea and Indonesia.
However, the pledge by world leaders to earmark $1.1 trillion toward resolving the crisis is misleading. Most of that money had been promised already, with Japan announcing a $100 billion contribution in February and the European Union $100 billion more recently.
The United States is lending $100 billion. Another $250 billion should come from an increase in special drawing rights issued by the IMF, but most of that will go to developed countries.
China is providing $40 billion but clearly wants more say if it is to give more. So if the promise of the G-20 is to be fulfilled, the way must soon be cleared so that China, India, Brazil and others are sure of a huge redistribution of votes by 2011 and to make the financial architecture reflect the new global balance. It is far from clear whether Europe in particular accepts this.
China has signaled its determination to influence events by insisting that the role of the dollar be reduced, and by agreeing to currency swap deals with the central banks of several countries. Given that China’s own currency is not convertible, it is unclear how this would work in practice. Though China can use both its own currency and its huge dollar reserves to get what it wants, Beijing may not yet recognize the corollary: that trade imbalances have been a cause of financial mayhem and that, for China, export-led growth and constant accumulation of savings surpluses is self-defeating.
Efforts to improve bank capitalization and monitor derivatives and hedge funds have been boosted by the monitoring role now given to the Financial Stability Board, which will be expanded to include all G-20 members. Cracking down on tax havens is more difficult — without greater transparency it is hard to see how international banking stability can be monitored effectively.
However, these are minor issues in the context of the tectonic shift implicitly accepted in London. Whatever the G-20’s eventual contribution to the global economy, Asia is happy that the crisis has pushed the West to acknowledge its key role in stabilizing the world economy.