G-20, APEC Summits–Without Gusto

November 19, 2011


G-20, APEC Summits–Without Gusto

by Dr. Lin See Yan*

WHEN President Nicolas Sarkozy of France assumed the presidency of G-20 for 2011, I was delighted for alas, international monetary reform would take centre stage. That’s what he promised. I felt it’s high time leadership was put to bear on an issue of critical international concern, where the Americans had for years “ feared to tread,” for obvious reasons: to protect US national interest which is to preserve (as long as feasible) an archaic international monetary system with the US dollar as its centrepiece, one which has outlasted its usefulness.

But this was not to be. Political turmoil in Greece had added fuel to the European financial chaos, with the G-20 meeting scrambling to arrange (and rearrange) emergency measures aimed at preventing the eurozone sovereign debt crisis from contaminating the rest of Europe and the global economy. As they gathered in Cannes on November 3-4, leaders from G-20 faced high expectations to confront the festering European turmoil. Instead, the two-day summit in this Mediterranean resort largely resulted in more pressure on Europe to respond more forcefully.

The United States, China and others were worried that Europeans may fail to avert a collapse of the Greek economy, bringing with it sovereign default and corporate bankruptcies that would inevitably send shock waves through the global financial system. Priority was placed to quickly resolve the evolving European crisis. It was clear the weight of the crisis had overshadowed other policy goals of the summit.

G-20 and France

France’s President had hoped to use the G-20 to burnish his reputation as a global statesman. I gathered Sarkozy had intended to focus the G-20 agenda on French ideas for reducing global imbalances. Instead, he found himself in the midst of a gathering euro-storm, now focused on Greece’s sudden decision to call a referendum on its bailout.

Behind the scene, France was itself subject to growing economic stress. The market’s verdict on France’s finances had since grown increasingly harsh. The spread between the yields on German & French 10-year AAA government bonds widened to a euro-era record of 1.95%-age points. France is a triple-A rated nation in name only because its debt is in danger of spiralling out of control.

Forecast by Fitch Ratings at 86.8% of gross domestic product (GDP) in 2013, France’s debt is the highest among AAA-rated nations. Its recent sharp economic downturn has exposed an 8-billion-euro gap in France’s efforts to reduce its budget deficit to 4.5% of GDP in 2012 from 7.1% in 2010 more than twice the permissible limit of 3%.

At 45% of GDP, France is already among the most highly taxed in the Organisation for Economic Co-operation and Development or the OECD. The recent report by the Lisbon Council ranked France 13th out of 17 for its overall health, including growth potential, unemployment and consumption, and 15th for progress on economic adjustments, including reducing the budget deficit and unit labour cost.

G-20 and Italy

It’s quite clear G-20’s prime concern is Italy. The country is increasingly unable to raise debt at affordable cost, and its Prime Minister was struggling to push through austerity measures in the face of mounting labour unrest amid an unfriendly parliament. It was also clear the eurozone isn’t equipped to deal with the collapse of Italy.

At G-20, although they had indicated a willingness to co-operate, non-European leaders had made it clear they want the eurozone to first rely on its own resources to resolve the crisis. Nevertheless, Europeans did consider seeking outside help, in particular to boost their bailout fund, including asking the International Monetary Fund (IMF) for co-operative support. But no one bit. The very hint of boosting IMF’s role underscored deepening worries about the adequacy of Europe’s own response. In the end, G-20 leaders agreed only to explore options, including voluntary contributions and using its special drawing rights (SDR) in some fashion.

G-20 has little to show

As in the previous year, an all too familiar G-20 meeting ended with a long list of promises made, many of which reflected a rehash of old ones; with most promises made and then broken in the past; and still others, not known to be kept.

However, one key step did emerge: Italy, the focus of most worries in the European, and indeed the world, markets agreed to permit the IMF to monitor its progress with fiscal reforms. This is as drastic a step as can be expected, given the biggest fear among Europeans is that markets will cease financing Italy, causing a meltdown the eurozone would be quite powerless to stop.

European leaders had hoped G-20 would conclude with an endorsement of their plan announced a week before, that would boost confidence in the markets. It included new efforts to recapitalise European banks, an upgraded bailout scheme for Greece, and an increase in funding available to the eurozone’s bailout fund, the European Financial Stability Facility (EFSF).

There was also the hope to enhance EFSF’s capacity through parallel “investments” from non-European G-20 members. G-20 had noted the European Central Bank’s (ECB) refusal to act as lender of last resort and to provide financing to help leverage the EFSF’s 440 billion euro into something much larger, which had led the Europeans to pursue the non-Europeans with large surpluses, such as China.

As the eurozone crisis deepened, much of the wider G-20 agenda to encourage “strong, stable & balanced” global growth fell by the wayside at this time. As I understand it, it would appear the stronger economies, including China, Germany, Canada & Brazil, did agree to limit efforts at fiscal tightening and possibly do more to boost demand at home. This marked a reversal from last year’s summit which centred on fiscal deficit reduction.

The G-20 pact

The more important conclusions reached at the Summit included the following:

● Commitment to take decisions to reinvigorate economic growth, create jobs, ensure financial stability and promote social inclusion; and to coordinate their actions and policies.

● An action plan for growth and jobs to address short-term vulnerabilities and strengthen foundations for growth. Advanced economies committed to adopt policies to build confidence and support growth, and implement clear & credible measures at fiscal consolidation.

● Commitment by (i) countries whose public finances remain strong to take discretionary measures to support domestic demand; (ii) countries with large current surpluses commit to reforms to raise domestic demand; and (iii) all commit to further structural reforms to raise output in their countries.

● Commitment to strengthen the social dimension of globalisation.

● Set-up a taskforce to work with priority on youth unemployment.

● Agreement to (i) ensure the SDR basket composition continues to reflect the global role of currencies; (ii) review the composition of the SDR basket in 2015, or earlier; and (iii) make progress towards a more integrated, even-handed and effective IMF surveillance.

● Commitment to move rapidly toward more market-determined exchange rate systems, avoid persistent exchange rate misalignments, and refrain from competitive devaluation.

Despite the cheering about Europe’s debt deal and G-20’s role in pressuring Europe to act swiftly, worries continue to mount that the world can’t succeed without stronger growth. Europe and the United States are virtually at a standstill. At the present pace of muted expansion, unemployment will stay high and incomes stall. Debt saddled nations will have an even tougher time generating enough revenue to pay bills & service debt. This would spark more default fears or even higher borrowing rates in Italy, Greece and others under pressure.

Latest projections point to the eurozone flirting with recession in 2012. Even in Asia, a critical engine of recovery, prospects are dimming. Yet, nations remain divided on enacting new measures to boost growth or continue focus on deficit reduction. Weak nations like Italy and Greece are under intense pressure to adopt very severe austerity schemes in the face of enormous suffering by their people who fall victim to weakened social safety nets and reduced cashflows.

Towards this end, the G-20 commitments fall far short. Markets worldwide have since responded; their verdict: continuing sell-off of bonds and shares, and continuing high cost of borrowing by Italy and Spain.

Honolulu Declaration

Following the goings-on at G-20, the 21-member Asia-Pacific Economic Cooperation (Apec) economic leaders met in Honolulu on November 12-13 to bolster their economies and lower trade barriers as they seek to prop up global growth and shield themselves against fallout from Europe’s debt crisis.

They adopted the Honolulu Declaration in which leaders agreed to take concrete steps towards building a “seamless regional economy” to generate growth and create jobs in “three priority areas”: (i) strengthening regional economic integration & expanding trade, (ii) promoting green growth, and (iii) advancing regulatory convergence and co-operation. Apec leaders gathered at a time when “growth and job creation have weakened and significant downside risks remain, including those arising from the financial challenges in Europe and a succession of natural disasters in the region.”

Against this uncertain backdrop, the forum had something more concrete to focus on than the usual bromides about extending free trade. This reflected in part frustration with the long-running (entering its 11th year with no end in sight) world trade talks, and in part, a desire to snap out of the poor global economic outlook. There is also a broader influence from concern about how best to grow and create jobs.

The Trans-Pacific Partnership (TPP), a proposed free trade pact covering nine Apec members (the United States, Australia, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Chile and Peru) account for 35% of the world economy, is unique, making it the blueprint for future global trade agreements since it had taken on new issues including green technologies & the digital economy. An agreement was reached on the broad outline of a deal with a final agreement in sight for 2012.

Since then, three more Apec members (Japan, Canada and Mexico) have expressed interest to join. Together, this would create a market of 800 million, the largest trade deal for the United States. The aim is to eventually cover all 21 members of Apec which accounts for more than one-half of the world’s economic output. Apec says: “We recognise that further trade liberalisation is essential to achieving a sustainable global recovery in the aftermath of the global recession of 2008-09.” An expanded TPP would provide the much needed boost.

But no trade agreement in the Pacific is complete without China. Looks like a power play between the United States and China is in the works. As such, optimism about its potential benefits needs to be tempered.

At the conclusion of Apec meeting, leaders agreed to: (i) address two key next generation trade and investment issues, viz. commitment to help the small and medium-sized enterprises grow and plug into global production chains; and to promote effective market-driven innovative policies; (ii) develop by 2012 a list of environmental goods (including solar panels, wind turbines and energy efficient light bulbs) that contribute to green growth on which members resolved to reduce tariffs to 5% or less by end 2015, and to also eliminate non-tariff barriers; and (iii) take steps by 2013 to implement good regulatory practices. In the end, the question remains how far leaders will be able to turn promises into action.

The biggest problem on the Asia-Pacific horizon remains Europe, where fiscal turmoil centred on Italy and Greece will continue to surprise and send shock waves worldwide.

As feared, both summits ended with a whimper, eclipsed by the Italian and Greek sovereign debt drama.

Former Deputy Governor, Bank Negara Malaysian and 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; email: starbizweek@thestar.com.my.

10 thoughts on “G-20, APEC Summits–Without Gusto

  1. Who can provide economic leadership to steer the world out an impending a debt driven crisis of unimaginable proportions. The US? The Eurozone? or the strong economics of China, Brazil, Germany and Canada?

    It is time for burden sharing with the heavily indebted nations bearing the main burden of restructuring their economies.This requires tough action by non-political leaders like what the Italians did by appointing a respected economist as interim Prime Minister to replace the flamboyant and scandal ridden democratically elected predecessor.

    Over the longer term, international cooperation via the IMF (Christine Legarde must move aggressively to convene a special meeting of finance ministers and central bankers with a specific agenda) is required since it is difficult to get the major powers like the US and China, among others, to agree on mutual policy adjustments with regard to exchange rates, capital and trade flows.It is time to get down to brass tags on these issues. WTO has failed us and should be disbanded.

    To me, geo-politics seems to be in the way of economic logic with the US determined to contain China with their proposed Trans-Pacific Partnership arrangement which Malaysia accepted without much debate at home. In the meantime, given a lack of leadership, we will drift deeper into financial turmoil with social unrest as a consequence. CLF and gang, your take please.–Din Merican

  2. Hmm.., can’t comment on the G-20 wingding Dato, ‘cuz nobody knows how, what and where things are headed. Dr Lin is right about the WTO mess with DOHA/Uruguay round of talking/jawing stagnating so long until it’s become rancid, just thinking about it. It mainly has to do with Agriculture protection (thus my repeated goading about ‘tanam jagung’).

    As i was having dinner just now, my missus reminded me to “ta pau” (canto-speak for ‘bungkus’ or ‘take out’) properly (tpp), the satay for the kids. Now that’s an apt acronym for this TPP thingy, and it’s not just about goods but also services.

    There seems to a lot of conditions wrt to this deal, much of which Malaysia will be hard put to fulfill – for instance, the pressure on our Palm Oil exports where we are the already most transparent in terms of source – but will still face problems with the US definition of ‘Green’ – if its use in bio-diesel is imputed. They want us to be transparent but there is a huge void, where they are not transparent at all. Solar panels and hi-tech energy saving devices are fine, and our imported technology and production is among the best (and most expensive) in the world, where we are at generation III-IV (in terms of efficiency), whereas PRC is still stuck at II-III. In fact a lot of the LED semiconductor elements are also sourced from the US. (Lynas, anyone?) The only good thing is that we are well positioned to take advantage of it in industrial, if not on agricultural, terms.

    Our foodstuff may also find easier penetration in their markets, but who in the USA will eat rendang and belacan except for semper, Bean n geng?

    In other words, TPP is not an easily ‘bungkus’ deal in the time frame given. It also impacts on NAFTA and Mercator.

    PRC’s CAFTA is a fairer shake, where there are no technical blind-spots. PRC has so far played by the rules. I think they are pushing very hard to implement the Asean+6 deal, even though AFTA itself is floundering.

  3. Our foodstuff may also find easier penetration in their markets, but who in the USA will eat rendang and belacan except for semper, Bean n geng? — C.L. Familiaris

    Don’t know about penetration but Rosmah (looking at that picture) is short enough to be able to nibble at Michelle’s nipples. She would do anything for a photo shoot with America’s First Lady. If asked.

  4. This is for President Obama and First Lady Michelle who are currently on a visit to Indonesia (by-passing Malaysia yet again) — and to Pak Semper who is busy packing for his trip to Jakarta, with a message.

  5. CLF
    The Travel channel, Food Channel and Cooking channel all show chefs cooking and promoting belachan and fish sauce especially “The Best Thing I ever Ate” where they feature well known chef telling us their favorite dish and where they ate it. It’s just Malaysia that have not been agressive enough in promoting Malaysian food products. Of late there has been a feeble but expensive attempt to promote Malaysian dishes through Malaysia Kitchen ( a hit and run attempt). The last one in LA feature Malaysian food cooked and dished out of food truck (roach coach). The promotion was done with 4 restaurants each one taking a week to serve their Malaysian dishes. 3 out of the 4 restaurants are not even owned or operated by Malaysians and worst still they don’t feature Malaysian food on their restaurant menu.

    It’s like pouring salt into the sea or bringing coal to Newcastle. Another cowabunga project of the BN government

  6. There was another shot in Bali when she was starring daggers at SBY’s wife. What a stump! Certainly not gorgeous, but definitely a gorge.
    She probably represents what we shouldn’t eat. Bad for our Malaysian Kitchen and other attempts to draw attention to our local cuisine.
    Yup, she’s a danger to all First Ladies – if she doesn’t skewer ’em, she’ll suckle ’em!

  7. I am sure many have noticed how the once dreaded word “default” has suddenly almost disappeared from the screen. This should surprise nobody because it means precisely nothing in the context of the current crisis. The other word once used to put fear into everyone was “contagion”. Equally meaningless.

    Solution is simple… write off ALL Euro debt, allow banks to go bust, shrink the Euro zone to three or four countries (along the lines of the original European Union), throw out all current governments and elect new coalitions and let countries go back to the pre-Euro situations, announce a ten (better still, twenty) year moratorium.

    Any “debt” that can be packaged and re-packaged into a loan is criminal fraud and institutions that used such instruments to “lend” to countries that everyone knew could not repay deserve to go under.

    In the US this technique was used to destroy lives of millions (I believe five to six million homes have been foreclosed… a shameful situation). In Europe they have gone one better… instead of foreclosing homes they are trying to foreclose whole countries.

    Everyone who is interested that their children should not suffer like they are should support the “occupy” movement and make it global to sweep away the muck created by these vultures.

  8. What to do lah, semper? Sauces and Kueh-mueh also they lanyak..

    TDC for years, thru their most blinkered, inane Minister of Tourism, messed with it big time promoting things like (good grief!) Bakuteh (which was translated as Meaty-bone-soup) and other succulent morsels that a majority of Malaysians don’t dare touch. Monumental waste of promotion money. I believe it was quite a lot, but not up to NFC standards.
    Mockery and insult to our taste buds!

    The one at Trafalgar Square this Sept. was somewhat more successful, but i believe the trade for our cuisine and ingredients is thin at best. Need to be aggressive like the Koreans and their Kimchi or Japanese with their Sushi. But Tayang more important, until even Chef Wan’s son was caught lying the other day..

    Yup, The Malaysian Curry house in London also tastes like crap and no longer engages Malaysian chefs, like in the old days. The ones in Oz are OK though.

    With the diaspora numbering in the millions, perhaps we should do it ourselves. But i know nuts about ingredients – only know how to taste.

  9. CLF, Chef Wan is bloghost close friend. Yeah enhancing one’s resume is a no no. Just like you I only know how to eat and leave the cooking to someone else. But as a Malaysian I am embarrassed when an American is introduced to Malaysian food through a non Malaysian owned restaurant or through a restaurant that passes off their cooking as Malaysian with no Malaysian ingredients used. Taste not the same and even the presentation is not Malaysian. Never knew of a Malaysian Sloppy Joe sandwich, Egg Banjo maybe.

    Looking forward to some Malaysian food next week. Some classmates from Oz are joining me on a pig out in KL. A mini APEC or shall I call it an Apek meeting.

  10. the malaysian cuisine is well known and liked by visitors to malaysia. to promote the taste of malaysia you need some brain power.

    they can’t even govern the country properly, do you expect them to run a restaurant and promote malaysian food and make a profit? keep on dreaming lah.

    hell, this talk about malaysian food makes me hungry, there are no malaysian eateries around here. the closest is ‘Asia Wok’ where you get fried noodles and sorts but no way near what we have in KL.

    looking forward to eating genuine malaysian dishes next week.
    my God the next four weeks I’ll be also reading, the Star, NST, Putusan and watching TV3, God save me!

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