The Group of Twenty industrialized and emerging market economies (G-20) has broken new ground over the past year or two. It has embraced the type of collaborative approach to policy design and review that is well suited to today's interdependent world, where policies in one country can often have far-reaching effects on others.
Collective action by the G-20 in response to the recent crisis was critical in avoiding a catastrophic financial meltdown and a potential second Great Depression. Exceptional policy responses around the globe--including macroeconomic stimulus and financial sector intervention--indeed helped avoid the worst. These actions were notable, both for their scale and force, but also for their consistency and coherence.
Keen to build on this success, G-20 Leaders pledged at their 2009 Pittsburgh Summit to adopt policies that would ensure a lasting recovery and a brighter economic future. To meet this goal, they launched the "Framework for Strong, Sustainable, and Balanced Growth." The backbone of this framework is a multilateral process, where G-20 countries together set out objectives and the policies needed to get there. And, most importantly, they undertake a "mutual assessment" of their progress toward meeting those shared objectives. With this, the G-20 Mutual Assessment Process or the "MAP" was born.
But, what exactly will the G-20 Framework imply in terms of prospective actions? And what have we learned so far from the MAP?
The MAP--led and owned by the G-20
The MAP is a new approach to policy collaboration, entirely conceived and owned by G-20 members. Leaders have set the tone and substance for the initiative. The aim is to ensure that the collective policy action will benefit all. Like any new initiative, the MAP will be fully fleshed out over time, in large part through learning by doing. In the meantime, however, all G-20 members have signaled their "buy-in" to the process through their full cooperation in providing the information required for the analysis and assessments.
When the G-20 initiated the MAP, they asked the International Monetary Fund (IMF) to provide supporting technical analysis. In carrying out this task, the Fund was asked to seek help from other international institutions such as the World Bank, the OECD, the ILO and the WTO. Moreover, a G-20 Working Group (co-Chaired by Canada and India), which was established to substantively add value to each stage of the mutual assessment, has assisted the G-20 Deputies in providing guidance to the Fund and other organizations on the analysis.
The initial assessment was based on three key steps.
Providing the foundation--the G-20 "base case"
The G-20 base case collectively implied "strong" growth. This enabled a decline in unemployment, which would, nevertheless, still remain quite high for several years. Growth was projected to be "balanced", since it was broad-based across the G-20 countries. Finally, growth was expected to be "sustainable," since it was led by private demand.
The analysis, however, pointed to some shortcomings and risks.
Budget balances in the base case were projected to improve noticeably, helped by strong growth. But deficits and debt levels would still remain high in the large advanced economies. Moreover, there is a risk that if strong growth projected in the submissions by the large advanced economies did not materialize, fiscal positions in these economies could worsen significantly and even trigger another crisis.
The forecasts were also associated with only a modest rebalancing of global demand. Countries with large current account deficits before the crisis did not expect a significant boost to growth from exports. And countries with large surpluses did not expect a significant boost from domestic demand.
Alternative policy scenarios--benefits of collective action
Based on the findings of the "base case" assessment, the G-20 asked IMF staff to explore two alternative policy scenarios. First, an "upside scenario" and associated policy requirements that would help improve the outlook. Second, a "downside scenario" aimed at assessing the implications of the risks identified in the base case, if they were to materialize.
Prior to carrying out the scenario analysis, Fund staff made technical refinements to the G-20 base case. This was made for two reasons. First, to ensure greater multilateral consistency in assessing the impact of the crisis and the estimation of output gaps; and Second, to update the macroeconomic frameworks for economic and market developments since the submission of G-20 inputs.
The "upside" scenario assessed--in a layered approach--the cumulative benefits of three sets of policy actions for groups of countries with similar circumstances.
The key takeaway from this exercise is that well-designed, collaborative policy actions by the G-20 economies can produce outcomes that will make everyone better off. For instance, considered in isolation, fiscal consolidation in advanced economies would dampen growth in the next year or two. And it would have a lasting adverse impact on partners in emerging Asia, given their high export dependence. But all G-20 countries stand to gain when fiscal consolidation in advanced economies is accompanied by key reforms in emerging economies. Benefits to all countries increase further when all three sets of policies noted above are undertaken together. Indeed, our simulations suggested that the payoff for collective policy action by G-20 countries could be high, raising global GDP by an estimated 2½ percent over the medium-term. This would also be good news for job creation and poverty reduction.
The "downside" scenario assessed the implications of the risks identified in the G-20 base case. What if growth in major advanced economies was lower than projected or what if market concerns about fiscal sustainability led to a sharp increase in sovereign risk premia? Not surprisingly, the outcome could be quite scary. There would be significant output and employment losses, with a large number of people falling into poverty. At the same time, it is clear that the implementation of the policies needed to reach the upside scenario would likely reduce the probability of such a downside scenario occurring.
So, where to next?
Reflecting on this assessment, G-20 Leaders agreed at the Toronto Summit in June 2010 that they could do a better job of achieving the objective of strong, balanced and sustainable growth by working together and pursuing reforms along those lines. Leaders committed to taking stronger policy actions that would get the world economy closer to the "upside" scenario in the staff's report.
This set the stage for the second phase of the process, where the mutual assessment will be conducted at the country and regional level. During this phase, each G-20 member will identify policy actions that could help achieve an ambitious outcome of stronger growth than in the base case. These "country-level" policy plans will form the basis for a comprehensive plan that will be articulated by Leaders at the Seoul Summit this November.
As the G-20 moves forward with this shared approach to tackling today's policy challenges, they have a unique opportunity to deliver a better outcome for all.
Cross-posted from imfDirect.
How so? In a single word: Ponzinuity.
Great tips! Great organization and ideas. Thanks!
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"".... or what if market concerns about fiscal sustainability led to a sharp increase in sovereign risk premia? Not surprisingly, the outcome could be quite scary."
OK, another clue.
Send this one back to the IMF for clarification.
Sovereign debt risk?
Is that supposed to mean the risk that a sovereign nation could or would default on its issuances of securities payable in its own currency?
A little definitional explanation is in order.
A sovereign nation that issues public debts in its own currency can never default - unless it wants to, as 1 of the G20 knows.
The European Union nations that have given their monetary sovereignty over to the European central bank are the only ones that are capable of defaulting on their sovereign debts. Sorry for them, but any suggestion for a policy change based on the G-20s perception of the market's perception of the risk associated with the possibility of default by monetarily-sovereign nations is fallacious, and a travesty upon our sovereignty.
We should demand an analysis by the G-20 and IMF on the market's perception of its right to rate the risk of a monetarily-sovereign default.
Then, maybe we'll get the right policy proposals.
The extended period of debt-funded austerity envisioned by the monied interests is as unnecessary as their feigned fear of government insolvency.
It's the money system.
The G20 has avoided neither the financial catastrophe, nor the second Great Depression.
The G20 really just agreed that we would borrow our way along for a while, living by some unprecedented political-accounting rules, while we figure out what to do next.
As such, any policy discussions really ought to begin with - What The F*$# Just Happened?".
Rather than self-serving congratulation, we should be assessing the nature of the global debt problem, the underlying cause to the so-called financial crisis.
The IMF has highlighted the "pro-cyclicality" of the system as one of the major contributors to financial instability. But, what system?
Economic ?
Financial ?
Monetary ?
So. here's a clue for the G-20.
The answer is the pro-cyclicality of the debt-based, fractionally-reserved(?) money system.
We can't afford out debt-service.
Without monetary increases, the second Great Depression will yet arise.
ALL money is created as a debt.
Con-friggin-undrum, G-20 .
And just in case any of you Ambassadorial-types give a shit.
The solution is here:
http://www.economicstability.org/history/a-program-for-monetary-reform-the-1939-document
Government-issuance of debt-free money.
Because money is not debt.
Geithner, Benranke and Summers know this, as do Krugman, Stiglitz, Batra, etc. But for obvious reasons they will not give the President a comprehensive briefing on the benefits of zero interest on money. They encourage the Fed to issue zero rate funds to member banks and foreign banks, yet will scream "hyperinflation" when anyone suggests doing the same for main street.
Since Geithner, Bernanke and Summers have signed off on the G-20's elimination of sovereign governments, is that not treason: allowing foreign entities to usurp the sovereign rights articulated in Article I, Section 8 of our Consititution. I wonder if they really explained the MAP to Joe Biden and the President with all the costs and benefits fully detailed?
FYI, under the AMI proposal, ALL money is created without debt by the federal government, and paid into existence for budgeted items of public purpose. A portion of the monies created and budgeted public improvements are based on the priorities of the states and their sub-jurisdictions. That money would be issued for those state-defined projects not only without interest, but without any debt attached at all.
It is debt-free money, at issuance - like Lincoln did wiith th Greenbacks, as the Greenback Party advocated for thirty years thereafter.
Undone and replaced by the private debt-money scheme via passage of the 1913 Federal Reserve Act, the system was globalized by the IMF under the Bretton Woods Agreement and just about every trade and commerce agreement thereafter.
IMF economists searching for the cause of the "financial instability" crisis have identified the pro-cyclical aspects of the financialization of the economy, always fearful of identifying the gigantic pro-cyclical elephant in the room - creating money as debt repayable with interest, yet never creating the interest money.
The only way to save the free-enterprise system is with a transformation of the money-systems from the aristocracy to the people.
The Money System Common.
http://www.shadowstats.com/alternate_data/unemployment-charts
The government does not include Americans who have been unemployed for 12 months or longer.
True unemployment is about 22% or 35-40 million Americans suffering the ravages of a do nothing Treasury Sec, afraid of supporting a Public Works Program. He and Summers have been the main opponents, convincing Emanuel who whispers to the President that it would be political suicide to admit failure of existing programs even when that is exactly what is happening.
Geithner, et. al., incl. Wall St., don't want to restore the Middle Class. They want what the bankers want and that's the complete subjugation and impoverishment of a class of people who have the education and courage to fight plutocracy.
Share the Wealth!
:http://uk.reuters.com/article/idUKTRE59D1NJ20091014?sp=true