“The Architecture of Global Cooperation”

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On Wednesday July 15th, Secretary of State, Hillary Clinton gave a major speech at the Council for Foreign Relations – a major foreign policy think-tank in the United States.  It was an opportune moment for a major speech on the course of American foreign policy.  President Obama had just returned from his 4th major leadership Summit since assuming the Presidency.  And as I pointed out in a recent blog post, “Speaking of Architecture – A Concluding Obama Comment at  L’Aquila” – the President began to openly comment on the current global governance structure – in particular the Gx process – in his last news conference at the G8 L’Aquila Summit in Italy.  And, Hillary herself was preparing to undertake a trip to India – a major emerging great power in the G5 constellation of powers -China, India, Brazil, South Africa and Mexico.

In her speech, Secretary Clinton, declared that the US was determined to build this, “Architecture of Global Cooperation,” which she stated required the US to, “devise the right policies and use the right tools.”  Now what is this “Architecture ofGlobal Cooperation.”  The speech provided some hints yet remains frustratingly vague.

Clinton signaled that the new American foreign policy is going to be made up of the following approaches:

  • updating and or creating new institutions for international cooperation with partners;
  • proceeding to engage those who disagree with the US – read that immediately as North Korea and Iran;
  • ‘development’ will be elevated to a major aspect of American foreign policy action;
  • the US will better integrate military and civilian action in conflict areas – read that as Iraq and Afghanistan;
  • better leveraging of key aspects of American power  – economic power and power generally – in the service of American foreign policy.

It is evident that this Administration is promoting a new multilateral action – one which they see as multipartner rather than multipolar.  Officials have begun to use this phrase – multipartner in many speeches.  As Clinton sees it the multipartner approach :

“… will lead by inducing greater cooperation among a greater number of actors and reducing competition, tilting the balance away from a multi-polar world and toward a multi-partner world.”

Now the Secretary of State recognizes that not all countries will accept this approach and in some cases the coalition will remain a power coalition designed to constrain or deter adversaries.  But to the extent she can, she and the Administration will bring the right tools and policies in a principled but pragmatic approach to create a common-sense policy. Somehow, this vision seems an awful lot like working with ‘friend and foe’ to advance the global governance agenda.  Good to find the US willing to extend the cooperation agenda but unclear that the conflicts of interest – Russia, Iran, North Korea – are likely to remain unresolved.

What then of the architecture of global cooperation?  On the substance side it is evident that the Secretary of State opens the agenda up – she pointedly notes that the China-US bilateral – meeting later in the month in Washington is  both an economic and strategic security one with a key rising power. This is potentially a serious effort to engage the Chinese but a small suspicion remains that this is more of an inter agency battle with Treasury to reengage State in the economic arena.  We need to watch the meeting closely later this month.

Like President Obama, Secretary of State Clinton, acknowledges that the global and regional institutions built most formidably after the World War II are no longer adequate and they must be, “transformed and reformed.”   And like Obama, Clinton suggests – repeating Obama – what is needed are institutions that:

“… combine the efficiency and capacity for action with inclusiveness from the U.N. to the World Bank, from the IMF to the G-8 and the G-20, from the OAS and the Summit of the Americas to the ASEAN and APEC, all these and other institutions have a role to play.  But their continued vitality and relevance depend on their legitimacy and representativeness and the ability of their members to act swiftly and responsibly when problems arise.”

But what is that?  It can’t be all these organizations – or can it? And if it is how does the agenda move forward?  And what of the critical dimensions – effectiveness, legitimacy and representativeness.  Yet other critical dimensions –  if leaders are to be believed – include also “equality and informality”.  The vessel of the “Architecture of Global Cooperation”  has been declared but the structure and contact remain maddeningly unclear.  The time to clarify is fast approaching.

Speaking of Architecture – A Concluding Obama Comment at L’Aquila

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One of the continuing issues of this G8 L’Aquila Summit is how, or if, the structure of the G8, G8+G5 and G20 process is about to be transformed. With the appearance in November last year of the G20 Leaders Summit followed by the London April G20 Leaders Summit and now with the announced September 25th Pittsburgh G20 Leaders Summit, experts and the media especially have been waiting for both the demise of the G8 and the presumed crowning of the G20 as the sole Gx forum for global leaders.

CIGI Colleagues – Andrew Cooper, Gregory Chin with the assistance of Andrew Schrumm and Chatham House colleagues Paola Subacchi with the assistance of Ruth Davis have just completed an excellent stay and fine reportage at the L’Aquila Summit at: “Tracking the G8 L’Aquila Summit” – a visit well worth taking.  But the question of architecture remains top-of the-mind question for global governance.

And it would appear to be a ‘decision not yet made’.  Notwithstanding the almost universal view that the G20 will emerge as the successor to the the now ‘illegitimate’ G8 process there remains ‘no decision.’

A number of threads remain.  The Heiligendamm Process – what was defined by the Germans as a structured dialogue – has been continued for two more years by the G8 plus G5 Leaders.  This process – now renamed the HAP (Heiligendamm L’Aquila Process) will continue a policy dialogue with a number of Working Groups with the leaders of the G8 + G5 (Brazil, China, India, South Africa and Mexico) announcing that they:

 

…. will review progress at the end of the first year on the basis of a substantive report to Leaders for guidance at the Summit in Muskoka in 2010. A concluding report will be presented at the French Summit in 2011. This Process, which is a policy dialogue aiming at strengthening mutual understanding in the spirit of the work already undertaken, will focus on areas of common interest to the Partners, be forward-looking and produce tangible results.

Quietly supported by the OECD Support Unit led by its director, Ulrich Benterbusch, this policy dialogue has provided a setting where these countries have worked to, “enhance trust and confidence among the dialogue partners as well as develop common understanding on global issues.” A final Report of the HDP was issued at this Summit.

But the ‘final’ architecture remains unclear.  It is evident that the Italians sought to extend the reach of the G8 core by including the G5 on day two (the Italians even added 1 – Egypt to this G5 group).  On day three an even wider network of leaders including many from Africa were included.  The Italians called this a ‘variable geometry’ calling together those countries – and their leaders – that could best address the problem – whether climate change, development or food safety.  But variable geometry or not, the core G8 remained.

Evident or not, it’s not inevitable that the G8 will be subsumed by the G20.  It may just be the accidental consequence of the sequence of the current G8 Presidency but those who have recently held that annual rotating post have generally not been enthusiastic over the prospect of G8 enlargement.  Japan has favored the informality and influence of the smaller G8 and has been concerned that enlargement will inevitably include China ending Japan’s sole Asia representation role.  Italy has favored variable geometry but retaining the G8 core.  Canada has now assumed the Presidency of the G8 and has just initiated planning for the 2010 G8 Muskoka Summit. Canada too has been cool recently to expansion.  A loss of influence is inevitably arise for Canada and other ‘smaller’ G8 countries with the expansion of the G8 to a G13 or G20.

The key to architectural change is the United States.  It would seem that a clear statement from the Obama Administration favoring one structure or the other would likely influence members of the G8 – especially those less enthusiastic over expansion.  Early in the Administration’s life, it appeared that it would review and express a view on the current global governance architecture even as early as the G8.  But following the G20 London Summit, the Administration signaled that it’s priority for the G8 and the newly announced G20 Pittsburgh Summit was outcome and collective decisions and that the Administration would take no position on the future Gx process until after Pittsburgh.

Yet the tea leaves have been stirred – if only a little – in the concluding press conference by President Obama on Friday.  Take in what the President had to say to a question clearly focused on the Gx process and future architecture:

 

Q President, it seems that yesterday morning you had a very spirited and lively discussion within — with the G8-plus-5-plus-1, ignited by President Lula objection to the format, to the adequacy of the G8 as a forum. And, well, I would like — what was your argument in this discussion and whether or not you have the feeling that the days of the G8 are over? And a very — a second question, but very light, after six months wheeling and dealing with these international forums — G20, NATO, and G8 — do you find it more complicated or less complicated to deal with that than with the American Congress? (Laughter.)

THE PRESIDENT: Well, the — on the second question it’s not even close. I mean, Congress is always tougher. But in terms of the issue of the Gasoline and what’s the appropriate international structure and framework, I have to tell you in the discussions I listened more than I spoke, although what I said privately was the same thing that I’ve said publicly, which is that there is no doubt that we have to update and refresh and renew the international institutions that were set up in a different time and place. Some — the United Nations — date back to post-World War II. Others, like the G8, are 30 years old.
And so there’s no sense that those institutions can adequately capture the enormous changes that have taken place during those intervening decades. What, exactly, is the right format is a question that I think will be debated.
One point I did make in the meeting is that what I’ve noticed is everybody wants the smallest possible group, smallest possible organization that includes them (emphasis added).  So if they’re the 21st-largest nation in the world, then they want the G21, and think it’s highly unfair if they’ve been cut out.
What’s also true is that part of the challenge here is revitalizing the United Nations, because a lot of energy is going into these various summits and these organizations in part because there’s a sense that when it comes to big, tough problems the U.N. General Assembly is not always working as effectively and rapidly as it needs to. So I’m a strong supporter of the U.N. — and I said so in this meeting — but it has to be reformed and revitalized, and this is something that I’ve said to the Secretary General.
One thing I think is absolutely true is, is that for us to think we can somehow deal with some of these global challenges in the absence of major powers — like China, India, and Brazil — seems to me wrongheaded (emphasis added). So they are going to have to be included in these conversations. To have entire continents like Africa or Latin America not adequately represented in these major international forums and decision-making bodies is not going to work.

So I think we’re in a transition period. We’re trying to find the right shape that combines the efficiency and capacity for action with inclusiveness. And my expectation is, is that over the next several years you’ll see an evolution and we’ll be able to find the right combination. (emphasis added)

The one thing I will be looking forward to is fewer summit meetings, because, as you said, I’ve only been in office six months now and there have been a lot of these. And I think that there’s a possibility of streamlining them and making them more effective. The United States obviously is an absolutely committed partner to concerted international action, but we need to I think make sure that they’re as productive as possible.

While the reference to UN revitalization comes as something as a surprise, and given the last effort to revise the governance structures in 2005, I would think even more frustrating – and unlikely – than the Gx reform process, it is evident that the President and the Administration is giving thought to the future shape of global governance.  Look for expansion – and possibly soon.

Building Identity?

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Following the end of the Shanghai Cooperation Organization Summit (SCO), the leaders of the BRICs – Brazil, Russia, India and China met formally for the first time on June 16th.  This leaders meeting caps a series of ministerial gatherings of either the BRICs or the G5 (Brazil, Russia, India, China, South Africa and Mexico).

In the run up to the Leaders meeting there was much speculation over the Leaders’ possible statements or actions in reducing the reserve currency role of the US dollar.  But as noted by ‘Dr. Doom,’ Nouriel Roubini, Professor of Economics at the Stern School of Business at NYU, in an online piece on Forbes.com, “the inaugural summit focused primarily on forging common positions on financial regulatory reform and climate change, rather than foreign exchange rate management.”  Still the fact that these Leaders met at all is slightly stunning and adds to the overall momentum for large emerging economies collaborative efforts.  But we need to be realistic about such collaborative action.

The large emerging market powers, whether in the G5 or the BRIC gatherings, are making their collective presence known.  However, much of their focus is on the global financial crisis and the Leaders club – the G20.  The G5 and BRIC gatherings have called for coordination and have identified the G20 as the appropriate forum for such collaboration. In the Sapporo Declaration of July 8, 2008 the G5 declared:

Given current global macroeconomic imbalances, it is essential to enhance policy coordination not only among advanced economies but also with emerging market economies, including by reinforcing existing multilateral mechanism for Coordination.  The Financial G-20 is an appropriate forum for this endeavor.

And the BRIC Finance Ministers just prior the G20 Leaders meeting in London expressed their support for the G20:

We consider that the G20’s position as the focal point to coordinate with global economic and financial challenges and to lead international efforts responding to the current crisis should be consolidated.

Finally,  in their joint statement following the historic Leaders meeting, the BRIC leaders declared:

1. We stress the central role played by the G20 Summits in dealing with the financial crisis. They have fostered cooperation, policy coordination and political dialogue regarding international economic and financial matters.

2. We call upon all states and relevant international bodies to act vigorously to implement the decisions adopted at the G20 Summit in London on April 2, 2009. We shall cooperate closely among ourselves and with other partners to ensure further progress of collective action at the next G20 Summit to be held in Pittsburgh in September 2009. We look forward to a successful outcome of the United Nations Conference on the World Financial and Economic Crisis and its Impact on Development to be held in New York on June 24-26, 2009.

Too many commentators have been quick to declare the successful collective leadership either for the BRICs or the G5.  It is evident that these countries are exploring collective action but there is a long way to go before declaring these clubs a permanent presence.  Meanwhile that leadership of the emerging market countries is focused on the G20 and its attention on the global financial crisis.

‘G2’ and the Expectations Game

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While designed to build consensus among a broad group of countries, a significant aspect of the G20 has been a consolidated discussion between the leaders of China and the United States. US President, Barack Obama and China’s President, Hu Jintao have used these informal talks for relationship building.  These informal discussions have until now complemented the G20 leaders’ process. But if these US-China leaders’ talks take hold, it may also prove to be a principal rival to the G20 dialogue.

A new game of expectation-raising has begun to swirl over what has been dubbed the “G2” in anticipation of renewed strategic dialogue and the home-and-home state visits announced for 2009, with President Hu visiting Washington in late-summer and President Obama visiting Beijing in late-fall. While the US-China bilaterals will not lack for issues, indeed there are already a series of bilaterals between China-US officials, it remains to be seen how in-depth the two leaders will want to harmonize global economic strategies. Will these encounters survive expectations? Will the G2 serve as distraction to the G20 process?

China’s global status can hardly be ignored. While the economic fires rage on in New York, London and Tokyo, Beijing has demonstrated a cool confidence and continued growth. In the lead-up to the London Summit, People’s Bank of China Governor, Zhou Xiaochuan made very public declarations on the perils of over-reliance on a single currency for global reserves, advocating instead for a standardized, SDR-type currency valuation less prone to volatility. In London, Paola Subacchi of Chatham House commented that, “China graduated from regional to global power. It showed political and financial muscles and the appetite to be involved in the global dialogue – with also an interest in developing a closer relationship with Washington.”

A leading voice in support of an informal G2 “leadership conclave” has been C. Fred Bergsten of the Peterson Institute. As early as 2006, he advocated bilateral diplomacy to support China’s and America’s “joint responsibility” to ensure global financial stability. Recent events have revived proposals for such a format.  These advocates have stressed the need for the two countries to resolve currency disputes and jointly enforce IFI reforms.

In his analysis, CIGI Senior Fellow Gregory Chin suggests that failure or frustration in a divergent G20 process may feed a “Great Power withdrawal into the bilateral track to deal with matters of highest strategic importance. This could mean confining the multilateral track to implementing the decisions made by the Big 2.” This should not immediately be considered a negative outcome. While the G20 scores high on legitimacy, its efficiency and compliance have waned. Resolution of the multitude of issues on the US-China bilateral agenda alone (from trade to currency valuation to intellectual property) could ease gridlock in many international negotiations. However, expectations for a lean and authoritative G2 assume that the two leader countries can abstain from squabbles over human rights, the proverbial ‘third rail’ of US-China relations.

While certainly there are larger strategic factors at play, the success of a G2 would heavily depend on ability of the leaders themselves to get along and work constructively. Can the ever technocratic Hu find common ground with the always affable Obama? The new American President shows an understanding of the importance of the bilateral relationship. Following their first meeting, President Obama noted that, “I continue to believe that the relationship between China and the United States is not only important for the citizens of both our countries but will help to set the stage for how the world deals with a whole host of challenges in the years to come.”

Indications from inside China, however, seem to downplay any expectations of a G2. In the days before the London Summit, leading scholar Huang Ping of the Chinese Academy of Social Sciences (CASS) asserted that “the so-called G2 is both unrealistic and problematic to fit in with the traditional Chinese value of a harmonious world.” By pushing other regional and global developing economies out of key international decision-making, China could risk alienating its like-minded allies in the global South. Continued success of the G20 fits in much better with this approach, and Dr. Huang suggests that China should promote this larger steering group.

Whether formalized or not, a G2 appears to be inevitable, if in nothing but name only. As the two leaders meet, the US-China forum will be cast in this light with enormous scrutiny. ‘G2’ will become the favored term of pundits, perhaps to its detriment.

A major stumbling block for the G2 may end up being the two nations’ cultural differences in their fiscal behaviors. Arguably, the US propensity to spend and the Chinese need to save drove the world into crisis and offered recovery, respectively. However, this balance has proven unsustainable and the macro-economic structure must be fixed. Recovery relies on the two governments providing their citizens with the correct incentives towards long-term restorative fiscal behavior. Yet, to appear successful, a G2 will need instantaneous results.

In his column, “What the G2 Must Discuss Now that the G20 is Over” (7 April 2009), the Financial Times’ Martin Wolf suggests that while China’s desire to engage the US may be self-motivated – to stabilize its US currency reserve, deflect exchange rate reform, and rebalance spending-saving – it is a “necessary condition for serious discussion of global reforms.” If arranged properly, a collaborative G2 would have the potential to remove policy obstacles and pave the way for general agreement across the board. However, if used as another opportunity to name and shame each other, it could heighten tensions in an already delicate relationship.

The most likely outcome is a mediocre G2, one that cannot live-up to the overblown expectations. Here, enters again the G20, this time with a strong dose of modesty and a previously excluded group of leaders more committed than ever to be a part of the process. If however the G20 can forgo this chain of events by harnessing leadership from within and boosting national compliance and effectiveness, plurilateral consensus may trump dyadic centralism.

The BRICs work on lending to nations in distress

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Since January the IMF has been working on the issuing of a first bond issue.  The bonds would be denominated in SDRs, with a maturity of 1 year and offered to Central Banks. Speculation has been rife for some time that the BRIC countries would be the principal purchasers of such bonds. The BRIC countries – Brazil, Russia, India and China met together just several days ago to work on possible terms of the bonds.  It is noteworthy that the BRICs again are seen as a self actualizing group and it appears that all are prepared to lend to the IMF in this way though it appears that the BRICs would prefer that their be a secondary market for the bonds to improve their liquidity.

While the BRIC targeting is noteworthy in and of itself, it would appear additionally that the bond issue is a means for the BRICs to contribute to nations in distress but also to avoid providing longer term commitments to the IMF.  Some, like Cornell’s Eswar Prasad, formerly the chief of the financial studies division in the research department of the IMF, see the bond issue as a means to put pressure on the IMF and leading members to increase the voting shares of countries Continue reading →

The Bad News Continues

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This week finance ministers are meeting at the International Monetary Fund (IMF) and the World Bank (WB).  In advance of the meeting the IMF release a Report yesterday that raised the total projected losses from the global financial crisis to banks and other financial institutions to $USD 4.05  trillion.  That’s a big number and few steps have been taken by the institutions to write down those amounts.

To date the IMF has loaned $55 billion to to countries such as Iceland, Ukraine, Hungary, Serbia, Romania, Belarus and Latvia. In a continuing effort to identify the impact on emerging countries in either the G5 or the N11 a November arrangement to loan funds to Pakistan was concluded.  Mexico has just concluded (March 24, 2009)  a flexible credit Continue reading →

‘From Architects to Gardeners’ with Joshua Cooper Ramo

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I first encountered (not literally mind you) Joshua Cooper Ramo in his description and analysis of what Ramo called the ‘Beijing Consensus’.  Difficult to unearth the consensus part of the story, but that’s for another post, still I was intrigued by his effort to describe a developmental approach that emerged from the ‘new’ China.  I was also interested in the fact that he lived – at least part time – in China (hat’s off to any ‘louwai’ (foreigner) for doing this) and that he was the Managing Director of Kissinger Associates though he’d previously been a journalist including a stint as foreign editor and assistant managing editor at Time Magazine.

So, with the recent publication of, The Age of the Unthinkable: Why the New World Disorder Constantly Surprise Us and What Can We do about It, I was drawn to it – not least because the book was focused on the failure of current Continue reading →

Prevailing Winds and India

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I had the great pleasure of attending a presentation at the C.D. Howe Institute here in Toronto by Montek Singh Ahluwalia, currently the Deputy Chairman Planning Commission of India.  Unfortunately these sessions, probably wisely, are undertaken as off-the-record discussions.  So, I cannot comment directly on what was said.

Mr. Ahluwalia has had a very distinguished public career spanning the World Bank, the IMF, the Ministry of Commerce and the Ministry of Finance in India as well as a special secretary to the Prime Minister in the latter eighties. His appointments, writings and research point to what can only be described as a thoroughly erudite public servant.

Not surprisingly the focus of questions centred on the state of India’s economy in the midst of the global financial Continue reading →

N-11 and the Global Financial Crisis

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 Late in 2005, Goldman Sachs (GS) introduced the concept of the N-11. As described by Dominic Wilson and Anna Stupnytska in the GS Global Economics Paper, No. 153  (March 28, 2007), “The N-11: More than an Acronym.”*

The N-11 appeared to be a GS effort to introduce a further tier of emerging economies and determine whether the next group of large developing countries with large populations had the potential to become ‘BRIC-like.’  Their summary conclusion:

 

“The diversity of the N-11 makes it difficult to generalise. But our projections confirm that many of them do have interesting potential growth stories, alongside reasonable scale, although their prospects vary widely and some face much greater challenges than others.  …Of the N-11, only Mexico, Korea and, to a lesser degree, Turkey and Vietnam have both the potential and the conditions to rival the current major economies or the BRICs themselves. Other N-11 economies – Indonesia and Nigeria in particular – have the scale to be important if they can deliver sustained growth. But while the rest of the N-11 may not have a BRIC-like impact any time soon, the Continue reading →

BRICSAM and the G20: A Week Later

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The London G20 summit turned to be an unanticipated success. In the weeks and days before the event, signs were gloomy of any positive outcome. The French and Germans were saying ‘no’ to any major collective stimulus package. Gordon Brown as host was losing his personal bounce amidst increasingly pessimism about the UK economy. And even the Barack Obama phenomenon, as directed towards his trip to the London G20, appeared to be more about style than substance.

On the day, however, the G20 turned sunny like the actual weather in London. Although the tensions between the ‘Anglo-Saxon” stimulators and the Continental regulators were still played up the real agenda was playing out in other ways. As predicted by CIGI blogs in the past the trans-Atlantic tensions should increasingly be seen as the side show. The Continue reading →