During the summer of 2010, it would be understandable if interested observers of global affairs are swept up in summit fever. The twin G8/G20 summits in Canada late June and the meeting of the G20 proper which is to commence in South Korea in November 2010 have understandably turned the attention of international analysts to global summitry.

But what should we expect from these 'G' Leaders' summits? Can we expect big decisions to change 'the architecture' that will allow for greater international economic and financial cooperation?

Having seen the results that the G20 achieved prior to the Toronto Summit, in the height of the global crisis (from late 2008 to mid 2009), do we need to be alarmed that in Toronto, the basic outcome was that the G20 members 'agreed to disagree' on bank taxes and on exit strategies from their domestic fiscal stimulus packages?

Or if in Korea, 'the 20' do not reach consensus on how to 'enhance' or expand the G20 agenda, and turn the G20 from a crisis committee into a global steering committee? Should we be concerned if we do not see dramatic breakthroughs on global macro-imbalances or on the future exchange rate regime in the summit communiqué?

The experience of previous international financial crises suggests that although we can hope for more, we should not expect too much from the upcoming summits -- especially in the absence of the pressure of a global financial system in freefall.

That it would be useful to recast our attention on new de facto breakthroughs and consensus that is emerging on inter-'national' best practices and lessons learned on financial regulatory reform, and on preferred future growth trajectories (including industrial policy), and on new means for tackling global imbalances that are emerging between the key states in the system, including those involving new South-South investment and trade coordination measures.

At the same time, it would be useful to begin mapping new forms of system-wide coordination that are emerging in the shift to what appears to be a more diverse international governance scenario, of overlapping institutional arrangements, that operate at different levels in the global order (national, regional and global), rather than a 'one size fits all' approach of all-encompassing G summits.

Such a shift in perspective may serve more useful in managing the transition to a multi-polar global order than one that is focused on one silver bullet.

WHERE THE KEY DECISIONS COME FROM

In an article written for the IMF's policy magazine, Finance & Development (March 2009), Brad Sester has argued that the most important lesson from the previous financial crises of the 1990s is that the post-crisis reshaping of the international financial system is defined more by decisions that key countries make during and after a crisis than by the carefully chosen communiqué language of international summits.

In defining the post-crisis order that emerges, more important than 'getting the right mix at the table' is that a broad consensus on international lessons-learned and best practices among the 'relevant countries' is actually reached, or emerges de facto through an often less systemically-coordinated process of bilateral and multilateral consensus building, through both formal and informal processes.

It is one thing to suggest that such systemic-level collective action is needed, versus predicting whether it will actually come about. If history is any guide to the current scenario, the making of post-crises international financial orders is the result of a process of broad consensus formation among key states; consensus that tends to emerge de facto from the cumulative decisions taken by key national authorities rather than de jure from international summits.

One exception was the formation of Bretton Woods, which did launch a new international monetary and financial order. However, for a number of reasons that are explained in a recent article by Eric Helleiner, the current historical moment is more like a period of interregnum, at the start of a longer phase of systemic change, which has started with the breakdown of the old order, where the reconstitution of the new order is still a ways off.

In a recently published article in the journal International Affairs (May 2010), I examine the propensity for self-insuring and national reserve accumulation by emerging countries during the past decade.

This shared decision did not come from the G7 or the G20 finance grouping, nor was it prescribed in the 'new international financial architecture'. Far from it.

Real change happened when a broad consensus emerged among the relevant countries on the nature of the needed reforms – that is, when emerging countries reached a similar conclusion, more or less simultaneously, that they could reduce their vulnerability to financial and balance-of-payment crises by holding more reserves and replacing debt denominated in foreign currencies (namely U.S. dollars) with debt denominated in local currency.

Having proven themselves more adept at realizing this decision than many had expected, most importantly it meant that the major emerging countries went into the global financial crisis with strong external balance sheets (China, India, Brazil and Russia).

The massive reserve accumulation and domestication of debt of the emerging countries has been important in redefining the international financial order. The global financial order that emerged after the financial crises of the 1990s was fundamentally different from the one which existed before.

A world economy where the massive foreign assets of emerging countries help finance a large U.S. deficit is fundamentally different from a world economy where private investors in the United States finance the deficits of the emerging world. In the wake of the 1997-98 Asian financial crisis, an important role-reversal took place.

However, 'the system' -- the institutional structure, the main decision-makers, and the basic Club-like processes for decision-making -- did not change. Neither the IMF nor the G7 changed all that much; even after admitting Russia partially into the G8 Club. But the world around them did change.

As another defining example, it was NOT the G7 Cologne Communiqué (June 1999), which explicitly outlined the G7's vision of an "appropriate" exchange rate regime for the world, and called for more flexibility in exchange rates where it was lacking, that determined the de facto 'non-system' that actually emerged after the 1990s.

Rather the mixed exchange rate regime of the last decade was the result of, on the one hand, the benign neglect of the G7, and on the other hand, the collapse of Argentina's currency board, the success of Brazil's managed floating exchange rate, the currency boards in many Eastern European economies, the ongoing dollar peg of the Gulf states and arguably above all, China's decision to maintain its peg or quasi-peg to the dollar, and especially after the dollar depreciated from 2003 onwards.

THINGS TO COME

If the shape of things to come is not necessarily to be found at the upcoming G summits, where might we see glimpses of the defining features of the post-crisis international financial order? It may be fruitful to come down from the apex of global summitry, to drill-down to key decisions that the relevant countries have made during and after the recent global crisis to contain the crises and sustain their own growth -- especially the decisions and policy choices of the large emerging countries such as Brazil, India and China, and their de facto policy agreements reached with the leading power, the United States.

One such decision during the recent crisis, which has the potential to redefine the system, was the broad consensus that emerged across the governments of the leading economies to support the request from developing and low income countries for emergency financing to support countercyclical crisis prevention measures, which was formally announced at the G20 London.

What was crucial was not only that China, Brazil and India all supported the request, but also the U.S. and Britain, and even the IMF.

This was a de facto reversal of the U.S. and IMF positions following the 1997-98 Asian financial crisis when they pushed governments in East Asia to accept pro-cyclical medicine against their own judgment.

It would have been difficult for the American and UK governments not to support the request after they themselves had resorted to countercyclical measures for their own domestic stimulus packages. And it now remains to be seen whether the countercyclical shift will carry into the post-crisis period, beyond emergency financing measures, to become the new commonsense of economic development policy, including for the IMF.

Another defining decision among key states, amid the crisis, is the shared importance which Brazil, Russia, India and China attach to the relative stability of major reserve currencies and sustainable fiscal policies to achieving strong and balanced long-term growth. The four countries have also reached broad consensus on the needs for a reformed and more stable financial architecture, to help make the global economy less prone to future crises, and for a more stable, predictable and diversified international monetary system.

At the April 2010 'BRIC' meetings in Brasilia, the four governments instructed their finance ministers and central bank governors to develop modalities for regional monetary cooperation. To further promote stable international trade and investment, the group will also further develop plans for local currency trade settlement -- as a supplement to the U.S. dollar.

The major emerging countries have come to the common understanding that the financial crises of 2007-09 made it clear that emerging countries have a more important role to play in defining the shape of international finance.

Another defining decision among the four is their agreement to encourage cooperation among their national development banks. Joint investment projects can serve as a channel to alleviate their overflowing national reserves. For China in particular, such inter-national arrangements could prove useful to correct some of the financial imbalances that it currently enjoys via investment in other emerging or developing countries.

The flesh on the bones of the BRIC joint communiqué was worked out before the BRIC meetings, when, for example, China and Brazil agreed to a 5-year 'Action Plan' for trade and energy cooperation, including a $5 billion steel plant at the Acu port in Rio de Janeiro that would be China's largest investment ever in Latin America.

The largest Chinese foreign steel plant investment anywhere will be built by Wuhan Iron and Steel and Brazilian logistics firm LLX Logistica, controlled by billionaire Eike Batista. Brazilian President Luiz Inacio Lula da Silva also added that the possibility for Chinese companies to participate in Brazil's infrastructure modernization is 'exceptional', citing preparations for the 2014 football World Cup and the 2016 Olympics.

China's Sinopec and China Development Bank also signed a strategic development agreement with Brazil's state-run oil giant Petrobras that will cover the development of Brazilian oil resources trade with China.

The above decisions strengthen the leverage of these four key states in their ongoing negotiations with the traditional powers on the 'overdue reform' of the Bretton Woods institutions, and broader push for a multi-polar world, in which emerging countries have more say in major world decisions.

Without denying that there is also economic rivalry between the major emerging countries, it is suggested here that the U.S. will eventually need to work out a broader consensus with these key states.

We already saw indications of such a shift in geostrategy at the Copenhagen climate change talks. The significance of the aforementioned inter-national decisions is NOT that they pose an outright challenge to U.S. global leadership, as the Heritage Foundation (U.S.) has queried (April 16, 2009 webmemo), but that the United States and its most key allies will need to respond to these shared decisions by the relevant states.

In contrast, it is very difficult for global summitry -- for any singular silver bullet of G summitry -- to exceed the cumulative impact of inter-national decisions from the key states in influencing the contours and content of the post-crisis financial order, especially if the G summits are minus tangible and sizeable trade and investment agreements.

Dr. Gregory Chin is a senior fellow at The Centre for International Governance Innovation in Waterloo, Ontario, and assistant professor of political science at York University in Toronto.

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