The announcement by finance ministers of the G-20 in Washington earlier this month of an ambitious surveillance system to spot imbalances in the economies of member states that are of ?systemic importance? can be interpreted either as a milestone or as a millstone.
Multilateral institutions grow robust by agreeing upon monitoring and verification schemes to ensure that members are playing by the agreed norms and rules. For a disparate group like the G-20, the new intrusive-sounding mechanism is an achievement of no mean diplomatic value.
The seven major economies coming under the scanner of rigorous scrutiny for their domestic policies are believed to include not all the advanced G-7 countries. Bloomberg quoted the Canadian finance minister that China and India will be hauled up for their domestic economic decisions as well, a warning shot that cannot be taken lightly in Beijing and Delhi. For long, these two Asian powerhouses have donned the developing country mantle in multilateral trade and environmental negotiating forums, claiming exemption from obligations binding rich countries.
But the mantra of ?special and differential treatment? does not cut ice at the G-20 level. Despite China?s strong reservations that the surveillance system would become a crude instrument of the US and Europe to ?name and shame? Beijing over its undervalued currency, a consensus emerged in Washington that the collective goal of identifying and rectifying unhealthy macroeconomic trends in specific countries had to be implemented in the form of a formal inspection procedure. The fact that China eventually acquiesced to a sovereignty-infringing mechanism, which will be operational before the next G-20 summit in November this year, bears testament to how reputation and image concerns mould the behaviour of even the most obstreperous actors in multilateral settings.
The other reason why the surveillance system?managed presumably by IMF-appointed economists to research and present dangerous trends in the fiscal health, monetary policies, investment flows and trade balances of seven ?too big to fail? states?seems to have been palatable to China and other large developing countries is because knowledge in economic analysis is always contestable.
Different causes have been attributed to the global economic meltdown since 2008, ranging from the excessive financial deregulation and indebtedness of western governments to abnormal savings and inadequate consumer spending in exporting juggernauts like Germany and China. The Chinese play the blame game as skillfully as the Americans on questions of who is a stumbling block and who is the Samaritan in reviving the global economy.
The unveiling of the surveillance system in Washington was accompanied by simultaneous protestations of Brazil?s foreign minister, Guido Mantega, that ?expansive monetary policies? of western countries were driving up inflation in emerging markets. Mantega?s critique of ?easy money? policies of western economies is a clear signal that the surveillance system?s pressure telescope can be turned as much on the renminbi?s exchange rate as on rock bottom interest rates still in place in advanced economies. If inflation of essential commodities is today one of the biggest threats to sustained and balanced recovery of the global economy, then the speculative externalities being generated by near-zero interest rates in the West has to be identified as a serious malady by the G-20?s surveillance system.
There is a peril of the new monitoring and reporting mission getting bogged down in arguments and counterpunches, especially since all states see themselves as answerable first to their own people and only then to a multilateral institution. To what extent the surveillance system?s reporting of flaws will be accepted by member states for corrective action is another unpredictable variable, presaging formation of blocks of like-minded countries to engage in a war of words with their accusers and to stymie enforcement. The experience of the UN Human Rights Council?s reporting mechanism in stemming abuses by member states is a sobering one.
A G-20 with teeth could well be paralysed in recriminatory noise. But then, a G-20 that only talked of fixing imbalances and never walked the extra mile risked the ?talking shop? label. The surveillance mechanism is a gamble that will hopefully pay off.
The author is vice-dean of the Jindal School of International Affairs