Economists Debate: What Should Be Accomplished at the G20? from RGE Monitor

Economists Debate: What Should Be Accomplished at the G20?

Nov 15 G20 meeting in Washington will be next of a series of summits to assess responses to the financial crisis and agree on a common set of principles for reform of the regulatory and institutional regimes - G20 includes developed and developing countries and is thus more representative than than G7/8. Discussion will likely focus on assessing short-term stabilization efforts, specific regulatory and capital market reforms, institutional structures (including the role of the IMF)
the advertised purpose is ambitious, heads of state and government are the wrong people to be fixing the international financial system, and five of the countries are misfits (Canada, Italy and South Korea, Australia, Argentina should withdraw to avoid over-representation of regions) (Rieffel)
A range of goals/priorities have been proposed:
focus on the immediate problem of stabilizing financial markets. Other pressing global problems, from climate change to poverty and underdevelopment, will only make deliberations less productive and may make concessions (especially from the U.S.) harder to achieve. Pragmatic reforms (in follow up finance official meetings) could include clamping down on regulatory arbitrage, raising capital requirements, procyclical regulatory regime, using taxes and regulation to drive transactions in credit default swaps and other derivative instruments into an organised exchange. (Eichengreen)
to redesign the institutions that supervise and regulate international capital flows and world financial markets, not to write new rules for these markets. Policies improve when politicians delegate technical decision, such as interest rate setting, or financial supervision, to independent bodies - and avoid punitive measures(Alesina/Giavazzi)
set a financial framework to achieve global goals in macroeconomic stability, economic development, environmental sustainability and trade for development. Financial priorities are capital adequacy standards, financial reporting, system-wide risk management, and new lender-of-last-resort capacities and empowering and funding the IMF through a Tobin tax on international transactions (Sachs)
country bankruptcy code to enable orderly sovereign debt restructuring, making the capital adequacy requirement counter-cyclical and stricter regulations of tax havens and private equity funds. Meanwhile a vastly strengthened IMF without a serious reform of its missions and its governance structure would be problematic(Chang)
“Basel III” making capital requirements on banks countercyclical not procyclical, replace the option of self-regulation of banks with external regulation and International guidelines for guaranteeing deposits should perhaps be coordinated (Frankel)

The objective should be to turn the IMF into a body where national authorities agree on the outlines of what each of them will legislate. An international agreement made in the IMF will lay down minimum standards that all countries will ensure.(Williamson)
after the last global crisis, in 1997-98, the only important reforms were national ones (Mallaby)
future of the financial system including the risk of entering into Smoot Hawley II (trade protectionism and capital controls) depends on political choices (King)
Nov 14, 2008