Two years after the global financial and economic crisis devastated the bastion of capitalism, the United States, a new economic configuration is shaping up. Power over the world economy is moving away from the US, Europe, and Japan that are struggling against high unemployment and slack, uncertain recovery.
On the other hand, the so-called emerging markets in Asia (led by China, India, South Korea) and Latin America (mainly Brazil and Argentina), having survived and even thrived during the crisis, are gaining new clout.
From the standpoint of the US and its cohorts in the Group of 7 or G-7 (UK, Germany, France, Italy, Canada and Japan) this trend is creating global trade imbalance and must be checked.
On the contrary, this is a positive development: a shift from imbalance to relative balance. What is happening may lead to ending the long domination by the G-7 over global trade and finance that has continually impoverished the populous nations of Asia, Latin America, and Africa.
Let’s look at some facts.
1. A book written by 40 World Bank economists, The Day After Tomorrow forecasts that GDP growth in the emerging markets would be at 6.1 percent in 2010, 5.9 percent in 2011, and 6.1 percent in 2012, whereas growth in the G-7 states would range at 2.3-2.6 percent in the same period. At these growth rates, Reuters analyst James Saft notes, the combined GDP of the emerging markets would outpace that of the developed states by 2015.
2. China and Germany are now the world’s biggest lenders, while the US, Britain, and Japan are the biggest borrowers. The public debts of the US and Japan are almost equal to their GDP (US GDP: $14.25 trillion).
3. Rich-state investors poured US$11.5B into the stock markets of India, Indonesia, South Korea, the Philippines, Taiwan, Thailand and Vietnam in April-June 2010, five times bigger than in the same period last year. In January-September 2010, US$8.6B went into buying bonds issued by these Asian countries, dramatically up from US$94M in the same period last year. (Figures from Standard Charter Bank of Hong Kong).
4. The foreign-investments influx has boosted the value of Asian currencies vis-a-vis the US dollar. Exporters whose incomes are adversely affected have been pressuring their governments to impose currency controls. Thailand has taken such a step.
5. China has adroitly kept low the value of its currency, the renminbi, to maintain its production costs and export prices low and employment high. It has resisted US pressure to let the renminbi rise higher than two percent as a show of cooperation “to redress trade imbalance.”
5. At the International Monetary Fund annual meeting last October 9, the US tried, in vain, to get the European Union, Japan and Canada to persuade China to let the renminbi rise faster. The US partners were reluctant to go along, because they know that the greed of Wall Street spawned the financial crisis, and because Federal Reserve actions to spur recovery tend to push down the dollar’s value, adversely affecting their currencies. In effect, the US is doing as China does.
“Other countries are no longer willing to buy into the idea that the US knows best on economic policy, while at the same time the emerging markets have become increasingly influential and independent,” as former IMF chief economist Kenneth S. Rogoff has aptly observed.
6. Last year, the Group of 20 developing countries (which include China, India, South Korea and Brazil) moved to reduce the overwhelming control of the rich states in the IMF governing board by shifting at least five percent of their quota shares to the G-20. The G-7 agreed, yet at the Oct. 9 IMF annual meeting no such action was taken. The US and the EU do not wish to cut their shares.
Under the IMF quota sharing (capital contributions among 187 member-states), the US holds the largest share, 17 percent. This gives US veto power because decisions can be made only by the votes representing 85 percent shares. The EU states hold one-third of the quota shares and 9 of the 24 seats in the board, although they account for only one-fifth of the world economy.
Through this unfair power set-up in the IMF, the G-7 has dictated policies and programs pushing for “free capital markets” over the past 65 years. Such policies have caused recurrent financial and economic crises, including the current one that began in 2008. The IMF policies and programs, and the power setup that fosters them, have become untenable, even obsolete. They must be changed to reflect the changing conditions in the world.#
FEEDBACK: After reading my column on Oct. 2 about the Philippine Army denying that the two accused in the murder of activist Benjamin Bayles in Himamaylan City are PA soldiers, AFP chief Gen. Ricardo David ordered an investigation. Subsequently the PA admitted, even certified in writing, that the two are Pfc Rafael C. Cordova and Pfc Reygine G. Laus, both of the 61st IB, 3rd ID. They had given false names to the police.