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Rising power of the G20
  Written By:  Gabriel Elizondo in Sao Paulo
  Article Date:
November 17
, 2008 


Leaders from the world's Group of 20 most powerful economies are meeting in Washington DC amid what they say is a desire to forge a common response to what could be the worst global economic crisis for nearly a century.

But with relative newcomers - such as Brazil, India, China, Mexico, South Africa and Saudi Arabia to name a few - now part of the global economic club, there are signs all is not well within the relatively new economic family.

Not too long along, the newly arrived countries were only bit players on the edge of the world economic stage.

But today developing and emerging-market countries account for nearly three-quarters of all the world's new economic growth.

Brazil is Latin America's showcase example of this growth.

Take, for example, these economic statistics: it has increased its foreign reserves to $208 billion, up from $60 billion in 2006.

Unemployment in the 180m-strong population has dropped to single digits (seven per cent compared to eleven per cent in 2004) and, for the first time in its history, the government brags that half the population can be classified as "middle class".

There has also been a little luck along the way, as this year the country found vast oil reserves off its coastline that could make this country a global petro-power for generations to come.

Seizing the future

But Brazil and many of the other emerging giants are angry.

They believe the global economic meltdown was started by the wealthy elite countries who, for years, have been dictating to "developing countries" what they said was "sound world economic policy".

Many countries in the G20 club, such as Brazil, now see this as their moment to seize the future of the global economy.

They feel that, as they are doing fairly well as newcomers, it is the rich, established countries who face the greatest economic turmoil - and have few safety nets available.

Many developing countries blame the crisis on the G7 consisting of Canada, France, Germany, Italy, Japan, UK and the US.

They also put equal blame on the International Monetary Fund (IMF) and World Bank, key allies in what is often called the "Washington Consensus" the shared values of institutions from the rich "north" who have, for more than 50 years, dictated global economic policy from a clear Western perspective.

"We want a reorganisation of the international financial institutions with new rules and clearer rules," said Guido Mantega, Brazil's finance minister, after November's first formal meeting of BRIC (Brazil, Russia, India and China) countries in Sao Paulo.

"We want also a reformulation of the institutions that control the international financial system. We consider that those institutions have failed.

"They are not efficient, they did not know how to prevent the financial crisis, they did not detect on time and permitted that the worst happened," he said.

"So, we are talking about the IMF, World Bank and other institutions that could not detect on time those problems to stop the world crisis from happening.

"We are still directed and controlled by institutions that reflect the economic situation of the 1940s and 1950s. That is when the US and Europe represented the biggest portion of the world economy, but now the world has changed and the emerging countries have advanced and these are responsible now for 75 per cent of global growth."

Stern advice

There has been a long-held belief among many developing G20 countries that, while their economic influence has grown exponentially, their power to influence important decisions in the elite G7, World Bank and IMF has not, and that must change.

The BRIC countries are now proposing (some would say "demanding") the G7 expands to include emerging countries.

"We refuse to participate in a G7 as coffee drinkers, either in the first part of the meeting or in secondary parts of the discussions," Mantega said.

"We are either admitted in a broader discussion, or the G7 changes its organisation and becomes the G13 or G14 or whatever is necessary, or we will prefer to strengthen the G20 because it represents also the emerging countries that have a big participation and responsibility in the international community."

If the G7 fails to seriously take into account developing countries' opinions, Brazil and other nations have proposed broadening the power of the Group of 20, by holding more summits and also changing the leadership of the organisation to heads of state, rather than finance ministers, to give it more power.

What seems to bother G20 countries the most is that the global meltdown was started in the US, a country with its hand on the tiller of the "Washington Consensus" - dishing out stern advice to other countries on how to manage their economies.

Now, the global meltdown is being felt in countries that had nothing to do with it, and that fact is not lost on many members of the G20.

Brazil has to date got through the global economic crisis relatively unscathed.

'Gambling mentality'

President Luiz Inacio Lula da Silva - a former labour leader with powerful rhetorical skills - has compared the credit collapse in the US to a casino that ultimately fell like a deck of cards, and accused its leaders of having a gambling mentality rooted in irresponsibility.

Mantega said that, ironically during these turbulent economic times, investors are pulling out of safe, emerging markets and putting their money back in developed countries, thus hurting the very countries that are the creators of prosperity.

"Investment funds are withdrawing capital from the economies of emerging markets to cover the holes and the problems that they have in advanced countries," Mantega said.

"There is something called "escape to quality" which is the reduction of the risk that could carry investment in emerging countries.

"But the major risk is actually in advanced countries - they are the ones that have the problems."

Scathing condemnation

To fully appreciate what is at stake at the G20 meeting in Washington DC, one should look back a week to when the group's finance ministers and central bank presidents met at the Hilton Hotel in Sao Paulo.

There, the developing countries laid the groundwork for initiatives that could change the world financial order.

The Brazilian president, da Silva, opened the summit with a scathing condemnation of the world economic order as it stands now and urged the G7 to offer new solutions that included greater power for developing countries.

Lula was firing the first salvo in a battle that may continue in Washington DC.

Mantega, speaking on behalf of Russia, India and China also used harsh language and called rich countries to task for their actions.

Everyone agreed that developing countries needed more say in the global economy, but there were no hard proposals from the rich nations, who appear content to let the G20 try and forge ahead on its own.

Last Sunday, on the final day of the Sao Paulo meeting China announced its jaw-dropping $586 billion stimulus package, which immediately had everyone talking.

As one analyst in Sao Paulo said: "China was not waiting for the G7 to invite it to the party, it was taking action into its own hands."

Although nobody has yet said it openly, China and the G20 could be laying the groundwork for something new, a new paradigm that replaces the "Washington Consensus" with a "Developing Country Consensus".

Source: Al Jazeera