The G-20 Seoul Summit: Much ado about nothing

WHAT ARE WE TO DO BY TAN SRI LIN SEE-YAN

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THE recent G-20 Seoul Summit was a disappointment. Because expectations were carefully managed down, most were really not surprised to be disappointed.

When all is said and done, nothing really happened. The G-20 succeeded in assisting the traditional and emerging powers to agree to disagree.

Pretty much more of the same; each country will continue doing whatever it was already doing. Much ado about nothing really except the willingness to keep talking and worrying.

US President Barack Obama puts it best: The work that we do here is not always going to seem dramatic. It's not always going to be immediately world changing. But step-by-step what we are doing is building stronger international mechanisms and institutions that will help stabilise the economy, ensure economic growth and reduce some tensions.

British Prime Minister David Cameron added: The key thing is (the global trade imbalance) is being discussed in a proper multilateral way without resort to tit-for-tat measures and selfish policies. Let's hope it was not a multilateral monologue.

The communiqu reflected re-warmed pronouncements of good intensions. While understandably short of actionable solutions, it did at least seem to acknowledge the difficulties of the situation.

Not surprisingly, the G-20 reiterated its commitment to work together towards strong, sustainable and balanced (SSB) growth and to take additional measures to achieve shared objectives.

After dramatically forging a sense of unity during the crisis, the G-20 has now splintered with competitive policies and rancour taking place instead of taking on coordinated policy actions.

While the leaders were side-tracked from making strong decisions, a new report from the International Monetary Fund (IMF) suggested that much more forceful action on imbalances is likely to be needed, and soon, with prospects of deficits in the advanced nations likely to double by 2014 if nothing is done now.

All the G-20 Summit managed to produce was a final document in which leaders agreed on various measures to achieve economic stability, none of them specific enough to act upon, or enforceable.

The Seoul Action Plan (SAP)

The G-20 launched the SAP, shaped with unity of purpose to ensure unwavering commitment to cooperation, with each member making concrete policy commitments to deliver all three objectives of SSB growth. Specifically, commitments were made to act in five policy areas:

• Monetary and exchange rate policies: The G-20 Group will move toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals which China claims it's already doing and refrain from competitive devaluation of currencies which the United States denies its QE2 (second round of quantitative easing) is engaged in and help mitigate the risk of excessive volatility in capital flows facing some emerging market economies by allowing the use of carefully designed macro-prudential measures sanctioning for the first time capital controls which are increasingly being imposed by the likes of South Korea, China, Brazil, the Philippines and Thailand flooded with foreign capital (arriving mostly from cheap excess dollars from QE2 in search of higher yields), thus avoiding being considered global scofflaws.

• Structural reforms: The G-20 Group will implement a range of structural reforms to boost and sustain global demand, contribute to global re-balancing and strengthen multilateral cooperation to promote external sustainability, and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels.

Since the last summit in 2009, commitments like these ran into insurmountable problems of not being able to simultaneously agree on specific policies to achieve their ambitions, nor a timetable or an enforceable mechanism to ensure everyone plays ball.

Leaders in Seoul expressed the conviction that this time would be different. They promised to assess imbalances by nebulous-sounding indicative guidelines, to be developed by the Framework Working Group (assisted by the IMF) and discussed by finance ministers in the first half of 2011. This time, the G-20 talks of a shared responsibility (where) members with sustained, significant external deficits pledge to undertake policies to support private savings and where appropriate undertake fiscal consolidation, while maintaining open markets and strengthening export sectors. Members with sustained significant external surpluses pledge to strengthen domestic sources of growth.

But without effective coordinated cooperative action, unsustainable imbalances will eventually be adjusted by market forces with the inevitable result of making things harder all round.

The risk now is for adjustment to be messier than it needs be. Where market forces are not allowed to prevail (as in China), the temptation for politicians (in the United States and Europe) to try to force adjustment through tariffs and import barriers can only grow.

I now sense a pervasiveness that the G-20 has reached the limit of cooperative efforts towards global rebalancing. With advanced economies barely plodding along while emerging nations are enjoying robust growth, reconnecting the different approaches to policies required will become increasingly more difficult.
Bear in mind the Germans are still growing after rejecting US advances in 2009 to join the US spending stimulus. China is growing smartly having rejected counsel from three US Administrations to abandon its currency discipline.

Even the UK and France are pursuing more fiscal restraint. Only the United States is determined to keep both the fiscal (hopefully) and monetary spigots open, while blaming everyone else for its jobless recovery.

China, India and other Asian economies fear that rather than spurring more growth in the US, QE2 is flooding the developing world with more dollars than they are able to efficiently absorb, producing uncertain exchange rate volatility to the detriment of their external trade and sending the world's dollar-denominated commodity prices climbing with serious impact on domestic inflation.

Agreeing to measurable targets for external imbalances is bound to prove difficult. Already, before the summit, China and Germany had rejected specific targets for current accounts (amounting to new controls on trade and capital flows which go against three decades of US policy against barriers to the free flow of money and goods) just as other groups of countries had refused in 2009 to sign up to specific stimulus targets.

As a compromise, the vague notion of indicative guidelines was set to usher in the year ahead of squabbling about the right indicators to use.

The underlying problem, as I see it, lies in forcing nations to agree when they have irreconcilable differences over their global economic approaches and domestic policy prescriptions.

In practice, no country is willing to cede sovereignty of its basic economic policies to a multilateral agency. The follow-through is bound to raise serious problems.

• Fiscal policies: Advanced economies will formulate and implement clear, credible, ambitious and growth friendly medium-term fiscal consolidation plans. Like it nor not, the conflict between the new world approach (essentially Keynesian, involving continuing stimulus with fiscal adjustments over the medium term when economic recovery is entrenched) and the old world approach (largely Hayekian, i.e. fiscal consolidation to address the deficit and debt problems now because it is good for confidence, consumption and investment today according to European Central Bank President Jean-Claude Trichet) is real and here to stay. Its resolution, in my view, heightens the urgent need for serious global coordination of polices, especially monetary policy.

• Financial reforms: The G-20 Group is committed to take action to raise standards and ensure national authorities implement global standards developed to deter, consistently, in a way that ensures a level playing field and avoids fragmentation of markets, protectionism and regulatory arbitrage (and) will implement fully the new bank capital and liquidity standards and address too-big-to-fail problems. As I understand it, officials will finalise a package of capital surcharges and other safety measures next year.

IMF reform: the G-20 made a historic breakthrough in granting a greater voice to developing nations at the governance of the IMF at the expense of Europe. This ensures that quotas and management composition at the IMF are more reflective of new global economic realities.

China will become the third largest member of the 187-strong institution. Horse-trading is still on-going on the final re-composition of the boards and to pursue all outstanding governance reform issues at the World Bank and IMF.

• Trade and development policies: The G-20 Group reaffirms its commitment to free trade and investment (and) will refrain from introducing, and oppose protectionist actions in all forms and recognise the importance of a prompt conclusion of the Doha negotiations.

However, it offered no sense on how to resolve serious tensions between rich and poor nations that tank the talks in the first place.

Shared growth

The Seoul Development Consensus (SDC) is intended to steer international development away from financial handouts to broaden the factors that promote economic growth, especially in infrastructure.

It stands in contrast to the 1989 Washington Consensus, which focussed on fiscal discipline, privatisation and trade liberalisation.

The SDC envisages rich countries to engage poor nations as equal partners and allow them to set their own strategic course; no one-size-fits-all formula for development success i.e. leaves nations to design and implement development strategies tailored to individual needs and circumstances; and a multi-year action plan focusing on infrastructure, private investment, jobs and food security for poor countries.

In an unprecedented step, a panel of 12 nations was created to work in 2011 on measures to mobilise infrastructure financing. On these, the G-20 promised to deliver. As I see it, SDC's pragmatic and pluralistic view of development is appealing enough. But it avoided setting numerical targets that can hold richer nations to account in areas such as opening up markets to exports from the developing world.

It's a pity the G-20 lacked leadership this time around. No doubt faltering US influence will produce a vacuum. But the fact remains the United States is still the world's largest economy, the issuer of its sole reserve currency, and its lone military superpower.

Future leadership is now tied to US policies and priorities to lead the global economy. To begin with, US primacy and credibility can be regained only with robust all-round economic performance.

As someone just remarked: the US needs to start punching above its weight rather than below it. It is also a fact that on current trends, emerging markets and developing nations will account for 60% of global gross domestic product within six years. It's a different world ahead. This heightens the need to find a new normal whereby US relationship with China and the new world remains central in the challenges going forward.

As prof L. Summers puts it this week: Our wisdom, their wisdom, the way in which we interact is going to be of the utmost importance. Leaderless, the G-20 now shapes up as the least ineffective global forum not enough to keep another crisis away, or deal with one when it arrives. We just have to wait and see.

>Former banker Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting the public interest. Feedback is most welcome at starbiz@thestar.com.my.

WB official charts challenges for world economy, calls for more coordination

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World Band senior vice president Vinod Thomas Friday called for more coordination between governments to ensure global economic recovery, and warned against quantitative easing (QE), currency wars and fiscal deficit expansion.

In an interview with Xinhua, Thomas said deficit and debt-laden countries, especially OECD industrial sates, had little room to expand fiscally.

Thomas said QE had limits because it created a lot of money that tried to move to other countries for better interest rates, including Brazil and China.

"You cannot use it as a way to increasing growth," he said.

Earlier this month, the U.S. Federal Reserve started a controversial plan to buy 600 billion U.S. dollars in Treasury bonds, known as the QE2 monetary policy, to jumpstart the sluggish U.S. economic growth.

Thomas, also director general of the WB's Independent Evaluation Group, told Xinhua that if all countries tried to make their exchange rates lower, the effect would be canceled.

He said the growth of emerging economies was critical to reestablish global economic prosperity and for that purpose trade openness is important.

He said the recovery of growth in the United States, Europe and Japan, depended on not only trade remaining open, but improvements in domestic demand.

He also warned about a possible food and agriculture crisis, which would be major concern for emerging and low-income countries amid global climate change.

He said the world needed to find a way to generate more productivity, reduce energy waste, improve infrastructure or improve quality education.

"Policies to generate productivity and growth would seem to be the best way," he said.

Thomas said China's macroeconomic picture had tightened, but it was still robust compared with other countries.

He said the fundamental question for China was the quality of growth and it was critical to keep the growth inclusive and to avoid increasing wealth gaps.

Source: Xinhua
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Avoiding Depression: Sleeping in Dark Room May Help

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Exposure to a dim light at night, such as the glow of a TV screen, may prompt changes in the brain that lead to mood disorders, including depression, according to a new study in hamsters.

While more work is needed to see if the results are true of humans, the findings might explain why night-shift workers and others constantly exposed to light at night are at increased risk for mood disorders, the researchers said.

The findings are being presented today (Nov. 17) at the annual meeting of the Society for Neuroscience in San Diego.

Over the last century, artificial nighttime lights have become ubiquitous in industrialized countries, but it's not clear whether exposure to illuminated darkness affects the brain.

To find out, Tracy Bedrosian, a doctoral student in neuroscience at Ohio State University, and colleagues placed hamsters in two environments. In one, hamsters were exposed to 16 hours of daylight and eight hours of complete darkness each day. In the other, the animals experienced 16 hours of daylight, but at nighttime, a dim light was kept on, about the intensity of a TV screen lighting up a dark room, the researchers said.

After eight weeks, the researchers tested the hamsters for behaviors that would suggest they were depressed. For example, they looked to see whether the hamsters still engaged in activities they normally enjoy, such as drinking sugar water.

In people, loss of enjoyment is known as anhedonia and is a major symptom of depression.

Hamsters in both groups were given a choice between drinking tap water or sugar water. The hamsters exposed to light at night drank similar amounts of tap and sugar water — they'd lost their preference for the sweet treat.

"That suggests to us that they are not getting the same pleasurable and rewarding feeling from drinking their sugar water, and that it may be interpreted as a depression-like response," Bedrosian said.

These changes in behavior were associated with changes in the brain region known as the hippocampus. The hamsters exposed to night light had a reduced number of so-called dendritic spines on the surface of cells in this region. Dendritic spines are hair-like protrusions that brain cells use to communicate with one another.

The findings agree with studies on humans that have found the hippocampus to be involved in depression. A patient with major depression has a smaller hippocampus, Bedrosian said.

The brain changes in the hamsters might arise from fluctuations in the production of the hormone melatonin, Bedrosian said. Melatonin signals to the body that it's nighttime, but a light at night dampens its production. The hormone has been shown to have some antidepressant effects, and so a decrease in melatonin might spur depression symptoms, Bedrosian said.

If the same mechanism is at work in people, then "people might want to try to avoid falling asleep with their TVs on all night, or they might want to try to minimize light exposure during the night," Bedrosian said.

• Leaving Night Light On Could Cause Weight Gain
• Depression: Causes, Symptoms and Treatments
• 11 Surprising Things That Can Make Us Gain Weight

This article was provided by MyHealthNewsDaily, a sister site to LiveScience.
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