Business

Saturday October 10, 2009

The world under G-Force

By CECILIA KOK


THE new action comedy film from Disney, now showing in the local cinemas, is sure entertaining. It features a squad of specially trained animal spies involved in a high-level government mission to save the world from being destroyed by an army of robotic household appliances.

These talking animals call themselves the “G-Force”, which is effectively the title of the movie. But as in any other superhero story, the animated film is obviously an extreme diversion from real life.

Nonetheless, the concept of it brings to mind a certain “force” that governs the affairs of the real world. And this “force” has taken upon itself the superhero role to save the world from the current economic quandary.

The G-20, which represents only 10% of the countries in the world, collectively accounts for around 85% to 90% of the world’s GDP! – Reuters

But no, this force is not one that is made up of animals (no pun intended), but governments from a group of wealthy nations.

It used to be known as the G-6, or Group of Six, comprising industrialised nations France, Germany, Italy, Japan, the United Kingdom and the United States, in 1975. When Canada joined the exclusive club in 1976, the elite group became what it is known today as the G-7, or the Group of Seven.

Following the entry of Russia as its new member in 1997, the Group of Eight, or G-8, was formed. Still, the G-7 nations were the “big brothers” or the core members of the “G-Force” who call the shots and control – directly and indirectly – the world economic affairs.

Collectively representing around 65% of the world’s gross domestic product (GDP), the G-7 used to cast a heavy influence in terms of global economic policy making through its annual summit meeting. But that has changed recently, as the G-7 nations see their economic prowess gradually dissipating due to the onslaught of the global financial crisis.

With the growing importance of emerging economies, countries such as China, India, Indonesia, South Korea, Australia, Saudi Arabia and Brazil have effectively joined the ranks of being movers and shakers of the global economy. These countries are among the 12 major emerging economies that, together with the G-8 nations, form the Group of 20, or G-20.

Now, this is noteworthy: The G-20, which represents only 10% of the countries in the world, collectively accounts for around 85% to 90% of the world’s GDP!

The endorsement for this group to be the “premier forum for international economic cooperation” in the place of G-7 was sealed at the recent gathering of leaders from the G-20 nations in the US city of Pittsburgh.

A local economist tells StarBizWeek that such change is a welcomed development and that it has to happen to reflect the new economic reality; otherwise any major decision made with regards to the global economy would not be taken well by other developing countries.

The leaders of the G-20 nations are scheduled to meet again early next month in Scotland. They are expected to continue their discussions about the global economic crisis and exit strategies, and outline proper procedures to work together to build a sustainable recovery for the global economy.

At the previous meeting at Pittsburgh, among the things that they had agreed on were a tighter regime for bankers’ bonuses, and a system for peer-reviewing each other’s policies.

The objective is to rebalance the global economy by prompting export-dependent countries such as China and Germany to boost domestic demand, and to encourage over-consuming countries such as the United States to save more and reduce their long-term debts.

The general view is that it is critical for these leaders to meet regularly to maintain the momentum of the current economic rebound, so that we can get out of the woods as soon as possible.

Over the week, the International Monetary Fund (IMF) managing director Dominique Strauss-Kahn hailed the rise of G-20 to the global centre stage for economic decision-making.

And it seemed that the evolution of the world’s financial structure just kept gathering pace, when Strauss-Kahn made a proposal for the IMF to be turned into a global central bank of sorts with a lending fund of at least US$1 trillion.

He argued that by making the IMF a global lender of last resort, countries would have less incentive to build up foreign currency reserves as back up, and this would help in terms of fixing the global imbalances.

It remains to be seen whether that proposal would become a reality.

However, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz already noted that even if the IMF were to be a global central bank, it would not have any significant impact on Malaysia, particularly in terms of the country’s foreign currency reserves.

If one keeps track of events taking place in the global economy (from the call for a new reserve currency to the possibility of the World Bank running out of money by the middle of next year), one would easily realise that we have indeed entered a period of intensifying structural changes. Truly, we are ushering in a new world order.

  • E-mail this story
  • Print this story