Praise for international financial institutions

In their joint declaration after the summit, the heads of the 20 largest national economies (G-20) underscored the relevance of the International Monetary Fund and multilateral development banks in the fight against the global economic crisis. Accordingly, they pledged to strengthen the “legitimacy, credibility, and effectiveness” of these international financial instituttions (IFIs).

Last fall, the G-20 summit in Pittsburgh had adopted capital increases, which allowed the IFIs to make more loans available and, at the same time, increased the voting rights of emerging-market nations. It is thus obvious that the emerging-market governments are increasingly assuming an ownership role in IFI governance.

In Toronto, the leaders also agreed to cut their national budget deficits in half by 2013. The target is not binding, however, and the final declaration states that policies must be tailored to national conditions and needs. It also points out that
– austerity policies, if pursued by many countries at the same time, may endanger the global economic upswing on the one hand, whereas
– high government debts are prone to undermining trust in the economy on the other hand.

Behind this ambiguous statement lie diverging philosophies. Before the summit, German Chancellor Angela Merkel had stressed the importance of consolidating budgets, while US president Barack Obama had argued for deficit spending to stimulate economies.
Observers had expected the pressure to be on Germany and China, both of which run huge export surpluses. Before the summit, China announced it would relax its highly controversial exchange rate policy, which makes exports cheaper. The summit declaration states that countries with export surpluses will ramp up domestic consumption, but does not indicate details.

The declaration emphasises the relevance of free trade for a global recovery, and participants pledged not to adopt protectionist policies for another three years. Trade experts, however, noted that, for the first time, a document of this kind did not foresee the conclusion of the WTO's Doha Round by the end of the year. In their view, the omission indicates a growing interest in bilateral trade agreements, not only among the established economic powers but also the emerging-market nations.

The summit postponed decisions about financial-market regulations until November, when the G-20 will meet again in Seoul. There was no consensus on introducing a financial transaction tax, a reform promoted by Germany and France.

Ahead of the G-20 summit, the G-8 met in Muskoka, a resort town north of Toronto. The declaration from that meeting promised more transparency in aid matters. But critics from civil society complained that the G-8 has failed to live up to the promise made in Gleneagles five years ago to boost development aid by an annual $ 50 billion by 2010. Only around 60 % of that money was made available, and the G8 declaration does not even mention the old pledge.

The G-8 summit praised progress towards the UN Millennium Development Goals. It also noted, however, that figures for maternal mortality have not changed much. The G-8 started a Muskoka Initiative to accellerate progress in terms of child and maternal mortality. This initiative involves players from civil society and the private sector. The G-8 declaration states that G-8 support is supposed to be “catalytic” in this context. (dem)