Demand for a Say on a Way Out of Crisis

The New York Times
By ALEXEI BARRIONUEVO
Published: November 9, 2008
SÃO PAULO, Brazil — The Group of 20 finance ministers and central bankers met over the weekend here with the intent of laying the groundwork for a critical meeting of world leaders in Washington next Saturday to tackle the global financial crisis.
But the three-day gathering of the Group of 20 also revealed a deep longing among developing countries, including the host, Brazil, to gain a greater voice in helping the world navigate its way out of the crisis.
The group said it would work together to support economic growth and promote financial stability, and praised countries that had taken “bold and decisive” action, like China, which said Sunday that it would invest 4 trillion yuan, about $586 billion, in an economic stimulus plan. The group declared in a statement that “considerable” volatility remained in global financial markets, but vowed that its members would continue to take “all necessary actions” to restore stability.
Despite a spirit of cooperation at the event, an air of bitterness also pervaded. Luiz Inácio Lula da Silva, Brazil’s president, and his finance minister, Guido Mantega, blamed the United States and other developed countries for spreading financial gloom to all corners of the globe.
“No country is safe from the financial crisis,” Mr. da Silva said in a speech opening the event on Saturday. “They are all being infected by problems that originated in the advanced countries.”
Mr. da Silva was no longer trying to say that Brazil, Latin America’s biggest economy, was immune from the housing and banking crisis afflicting the United States, as he did in the first days of the banking crisis, when he had boasted that the financial contagion would “not cross the ocean.”
Instead, Mr. da Silva and Mr. Mantega sought to assert the role of the Group of 20 in discussions typically dominated by the Group of 7 organization of advanced economies — Britain, Canada, France, Germany, Italy, Japan and the United States. The Group of 20, formed in the aftermath of the Asian financial crisis of the late 1990s, is composed of the Group of 7 and 13 developing countries.
Those 13 include the “BRIC” countries, a grouping of the world’s fastest-developing nations — Brazil, Russia, India and China — which sought to assert their heftier role in the global economy.
The Asian crisis forced painful devaluations in Brazil and Argentina that led millions of people to fall below the poverty line. But officials from Brazil and other developing countries stressed that this crisis would be different, that this time the major developing countries would — and should — play a greater role in shaping, as Mr. da Silva put it, a “new global financial architecture.”
The finance ministers of the BRIC countries met here Friday, their first meeting ever. Their own statement stressed the “significant resilience” shown by the BRIC countries, the need to “restore the real economy’s access to credit” and the importance of preventing protectionism in the face of the current financial turmoil.
“This is a group of countries that clearly wields some influence in the international economy,” said Robert B. Zoellick, the World Bank’s president, who applauded the BRIC statement. The prospect for them to become part of the solution — and not the problem, as in the wake of the Asian crisis — is “a real opportunity,” he said. “I think it will happen. A lot of the discussion in question is how it will happen.”
Mr. Zoellick also said the BRIC communiqué showed the need for what he has termed a flexible “steering group” of countries including the BRIC countries and oil giants like Mexico and Saudi Arabia to better reflect today’s global economy.
Dominique Strauss-Kahn, the chief of the International Monetary Fund, put it more bluntly. Next year’s global economic forecast, he said, calls for all the growth in the world to come from emerging countries and some low-income countries. “So it is just fair to look at this growth coming from emerging countries and to try to support it because it is the only growth that we will have,” he said.
As a consequence, “the say of the emerging countries will be bigger than in other situations.”
For Mr. da Silva, the Brazilian president, the meeting was also a chance to pick at a still healing scab. Mr. da Silva has openly expressed his bitterness over how the financial crisis has upended the region’s greatest economic prosperity in three decades. The global shocks have been particularly frustrating for Brazil given how much it did to reform its financial system, diversify its trade and save wisely during the global commodities boom. Mr. da Silva has lashed out at Wall Street and its “excessive profits,” and noted bitterly how Brazil had followed the strict loan conditions for economic reform demanded by the multilateral lenders like the I.M.F., only to see its economy threatened by financial problems in the advanced countries that dominate the group.
“We all recognize that despite a lot of talk over the last 6 to 12 months about decoupling, that our countries are very interdependent, both in terms of capital markets but also in terms of the real economy,” said David H. McCormick, the American under secretary of Treasury for international affairs. “So when the U.S. or Europe or major emerging economies like China slow down, that has implications for all other countries.”
Beyond the jockeying for position within the multilateral financial institutions, the finance ministers and central bankers noted in a statement that the slowdown in world economic growth and falling commodity prices had reduced inflationary pressures, especially for developed countries.
Participants in the meetings underscored the enormity of the task that they will confront again in Washington. Trevor Manuel, South Africa’s finance minister, said the world faced the challenge of smoothing the boom-and-bust from the business cycle. “We have this unregulated exuberance, if you wish, led by the financial sector, that led to a huge increase in commodity prices,” he said.
Mr. Zoellick noted “a stunning drop” in world trade that could bring in 2009 the first global decline since 1982. The credit crunch is playing just as much of a role as the drop in demand for products, he said.
The Group of 20, in its communiqué, called for increased regulation, common accounting standards and the need to explore ways to restore access to credit for emerging and developing countries. The group also called for the I.M.F. to enhance its early-warning capabilities, surveillance and policy advice.
Mr. da Silva said the need for concerted effort had never been greater. “This is not the time for strict nationalism, for individual solutions,” he said.