Why is the current global economic downturn causing such widespread anxiety? We are worried because the crisis has gone global. It has spread beyond a financial crisis and is now affecting incomes and employment in households -- kitchen tables -- the world over. The other reason is that the crisis has fully revealed the limitations of the existing system of international organization, born after the Second World War.
In an interview with the BBC, the day after the G20 summit in London, Brazilian President Luiz Inacio Lula da Silva stated that we are seeing the rise of a new world economic order. What gives force to Lula da Silva's message is that he is not alone. At public meetings across London the day before the summit, senior economists from major international investment firms were delivering the same message to European and U.K. audiences, a message they did not want to hear: "Even if the current free fall is stabilized, we are not going back to the same old world, to the way things used to be." More important is that the leaders of Brazil, Russia, India and China -- known by the acronym BRIC -- are delivering the same message.
The current global crisis is giving rise to a collective voice among the major emerging economies, the so-called BRICs, rather than their fragmentation as in previous calls for a new international economic order. The drastic fall in demand in the major consuming markets has revealed to the BRICs that they face common threats in the existing structure of world trade. And they are taking action to exert collective pressure to stave off rising protectionism in the Organization for Economic Co-operation and Development (OECD) countries. They are even exploring alternative options for financing international trade. Amid the crisis, they are seeing new shared opportunities to exercise collective leverage as a group to reform the system of international economic governance.
In the lead up to the London summit, the finance ministers of the BRIC group issued for the first time ever a joint statement, which called on the world's leading economies to rebuild confidence, maintain and support credit flow to help restore growth. They called for restabilizing the international financial system through recapitalization, liquidity support and cleaning bank balance sheets with government action. However, their strongest demand was that developed and development institutions strengthen their support to the hardest hit developing countries.
The BRICs followed up in London by ensuring three gains: First, they secured a joint commitment that the flow of financial resources would be increased to the developing world in order to offset, where possible, decreases in private capital flows caused by the financial crisis. The announced figure was $1.1 trillion US in commitments. Second, they helped secure commitments to improve regulation and rebalance the macroeconomic surveillance function of the International Monetary Fund (IMF) to be more focused and even-handed across all IMF members, especially on the advanced economies with major international financial centres and large cross-border capital flows. This would mean greater transparency and accountability in decision-making in the developed countries to the developing world. Third, they secured a commitment from the G20 to review the issue of representation inside the international financial institutions with the intention of advancing reform proposals. Since the onset of the crisis, the emerging powers have consistently requested a rebalancing of representation in the governance and operations of the international financial institutions to better reflect real economic weights, and more equitable representation of the membership.
What has been missed in media coverage since London is that the BRICs basically got what they wanted on each item, at least in writing. China and Russia played key roles in setting the terrain for the negotiations in the week prior to the summit by issuing statements calling for reforms to the international monetary system, especially alternative international reserve currency options. China has also moved large amounts of capital to different international recipients to strengthen the sway of the demands. Brazil and India helped to set the stage for the reform proposals back at the G20 finance ministers meeting in Sao Paolo in November 2008, boldly calling for fundamental reforms to the global financial architecture.
What has been missed is how the emerging powers have effectively leveraged the G20 forum to gain influence over the traditional powers, such as the G7. The BRICs made sure that the G20 came out of the London summit with a concrete road map and substantive deliverables, formalized in the joint communiqué. This now requires followup. Try to imagine yourself as the host of the next G7/8 meeting this July. Would it not be hard now for the G7 members to reinstate themselves as the core group for agenda and priority setting for the global economy? Would they not be seen as overriding or diverting efforts from the economic agreements reached among the G20? It will take far-sighted manoeuvring from the G7 to avoid being seen as lesser than the G20 or worse, the latter's implementation agency.
The big winners at the London G20 were not only the Chinese and the IMF, as some are suggesting. The other big winner was the BRIC group. It is difficult to tell whether the BRICs will be able to sustain their continued rise if it turns out that we are facing a prolonged slump. However, it is important to note that those economies that went into the crisis with stronger macroeconomic fundamentals are showing remarkable resiliency. As Lula da Silva explained, the emerging economies are not asking for bailouts from the United States or anyone else. They ask only that the OECD countries get their own houses back in order and start producing and trading again. At the same time, the emerging economies are themselves diversifying from their trade dependency on the established consumer markets -- with an eye to the future.
What we are seeing is a new confidence from the emerging economies, born of their abilities to compete in a demanding global economy. China is just the most obvious example of this new BRIC confidence.
At the level of international politics, whether the G20 can deliver on all of the goods is almost a moot point. Of course, the more results, the better, for all involved. Beyond the details negotiated, the fact that this Group of 20 met was symbolically important because of how they came together. As Indian Prime Minister Manmohan Singh emphasized in his news conference, "We came together as equals." The fact that U.S. President Barack Obama met first with the presidents of Russia and China for bilateral side meetings the day before the summit, and had key exchanges with the leaders of India and Brazil on the day of the summit, suggests that the BRICs are more than mere equals with the rest -- a new balance of power is slowly emerging.
For Canadians, the take-home message is that we also need to recognize that we are not going back to the same old world, back to life as normal. The world was already changing before the onset of the global crisis. The current crisis is only adding momentum to the shifting global order. It would be good for decision-makers in Canada to give due consideration to how we should respond to this shifting global order, now that these changes are being brought home to our kitchen tables.
Gregory Chin is a senior fellow at The Centre for International Governance Innovation in Waterloo.