Our colleague Arvind Subramanian argues in a Peterson Institute blog post that the biggest achievement of the London Summit may have been just the agreement that the G-20 would meet again. Here’s why I find the Summit cup half-full not as he suggests half-empty.
On the $1 trillion for developing countries being “only” financing and not spending: Let’s count in the next 24 months how many countries exploit their new SDR allocation and their additional access to IMF and multilateral bank lending: Candidates include Uruguay, Argentina, Peru, Turkey, Morocco, Kenya, Ghana, Tanzania and more. True: This will not constitute stimulus at the global level, but it is likely to help countries manage some countercyclical policy, sustaining lower interest rates than otherwise, avoiding fiscal cutbacks in school meals, pre-natal programs, and maybe even increasing spending on emergency work programs and other forms of social insurance.
And the $250 billion in trade financing for developing countries is hefty and literally stimulating. By keeping trade flows flowing, it will help avoid the fear that fuels protectionism.
On the Chinese and governance reform at the IMF: My guess is the Chinese, in return for their $40 billion loan to the IMF, got a promise of a substantial increase in their voting power at the IMF, and/or a promise that the next Managing Director at the Fund will not be a European. (I am still not sure what country or countries – the U.S. or the Europeans? – is resisting the words “without regard to nationality”. Anyway if the Europeans promised on the IMF, the U.S. probably did on the World Bank.) China’s $40 billion should be thought of as a down payment – and a signal they are ready to begin assuming their seat at the table of shared stewardship of the global economy. By the way, the SDR issuance may also have been a nod to their (China’s) Central Bank Governor’s call for more attention to a new global reserve currency – or perhaps it was a nod to UN Secretary General Ban Ki-moon’s recommendations based on the Stiglitz report.
And on stigma and the Flexible Credit Line at the IMF, I am more optimistic too. I think the Brazilians will request access soon – on a precautionary basis. Yes, it will take longer for Asian economies still resentful of the IMF approach during their late 1990s crisis to come around. But if I am right about Brazil and about the Chinese down payment on more votes and influence at the IMF, the stigma problem may soon seem like yesterday’s worry.