World leaders will be tested on whether their resolve at the
G-20 summit is true through their future actions

The financial summit of the leaders of the Group of 20 major industrialised and developing economies, including Japan, China, India, the United States and several European nations as well as the European Union, ended in Washington on November 15 after adopting a declaration and plan of action to tackle the ongoing financial turmoil.

Talks that include only the major industrialised countries will never conquer the global financial crisis. The two-day meeting was historically significant in that leaders from emerging countries also took part in discussions.

The focus of attention at the meeting was whether the leaders could present a clear course of action to curb the excesses of US-style laissez-faire free market capitalism and build a new order for the global financial system. The leaders there managed to come together and eventually announced to the world their plans to overcome the current ordeal.

A second financial summit to be held by the end of April will be tasked with compiling concrete measures for financial regulations stated in the declaration.

The declaration sets out principles to promote financial market reform and also stipulates steps to be taken, including reform of the International Monetary Fund and fiscal stimulus measures.

It is worth noting that the action plan comprises both measures to be implemented by the end of March and tasks to address longer term goals.

The G-20 plan adopts a two-track approach in which it places high priority on halting the spread of the immediate crisis but also deals with longer term themes. The leaders will be tested on whether their resolve at the summit is true through their future actions.

It is also worth noting that the G-20 leaders stressed fiscal stimulus measures among those to be taken in the short term.

Although Japanese, European and US central banks carried out coordinated interest rate cuts, there is now less room to maneuver in terms of further use of financial policies to alleviate the crisis.

Given the circumstances, Japan, Europe and the US mapped out measures to turn around the global economy, and China, for its part, also decided to implement large-scale economic stimulus measures just before the summit.

However, the leaders at the G-20 meeting all recognised the importance of taking further fiscal measures to prevent the global economy from sinking even further and a worsening of the simultaneous recession.

Japan, which apparently has entered a recession, decided to move ahead with an additional stimulus package totaling about 27 trillion yen ($280 billion), but there is a possibility that the country may be pressed to implement further measures.

Although the participating countries agreed in principle on strengthening the IMF’s functions and financial market reform, they had to postpone drafting universal concrete measures.

This is because the interests of each country differ widely and therefore further arrangements need to be made.

As for the IMF’s capital reinforcement, Japan’s proposal served to sew up discussions. Japan proposed doubling capital contributions by all IMF member countries from the current total of $320 billion, and outlined its plan to lend up to $100 billion to the financial watchdog.

Together with the World Bank, the IMF is a central body under the Bretton Woods system, which built a global economic order after World War II. Its operation has long been dominated by the US and Europe. However, demands have been increasing for emerging countries with growing economic power to have a greater voice. The question is how the capital contribution ratio among the IMF member countries and the organisation itself should be reviewed to solve this kind of issue and bolster its function. Discussions to create a so-called Bretton Woods 2 will be difficult. 

Meanwhile, the summit did little to address the dollar-centred currency system, which has supported the post-war global economic system. France and some other countries insist on a significant overhaul of the system, while the US is backing a strong dollar and calling for maintaining the status quo. This will definitely be an issue in future discussions.