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  G-20 Summit in London – an important step towards recovery of global economy

Aivaras Bagdonas, VU TSPMI doktorantas
2009 05 18

The G-20 Economic Summit, which took place on 2 April in London, demonstrated that  the international community has finally started joining the effort for struggle against the global economic crisis.

On the eve of the G-20 Summit the weekly „Newsweek“ wrote that „if the G-20 fails to produce practical measures to fix the global economy, it will be every nation for itself“.  This scenario could be considered as rejected since the Summit made very serious economic decisions.

Issues considered during the G-20 Economic Summit - coordination of measures for recovery of economy, regulation of financial system and international trade – are reflected in the Communiqué adopted during the event. This document is to be considered as a common plan of economic actions for global solution of global crisis. Its key tasks include:

To restore economic growth and jobs. It is anticipated to apply a wide spectrum of fiscal and monetary measures providing for retention of current jobs, and create millions of new jobs.

To repair the financial system to restore lending.  Credit flows are to be restored by providing assistance to banks and other financial institutions.

To strengthen supervision of the international financial system and restrictions applied to the system. It is envisaged to establish the Financial Stability Board, which, together with International Monetary Fund should supervise the international economic system with a view to providing early warning, reform the system of buffers applied to capital flows, and review schemes of financial aid to economy subjects etc.

To strengthen international financial institutions to overcome the crisis and prevent future ones. The decision was made to allocate USD 1,1 trillion to IMF and other institutions for the recovery of economy, to increase the resources available to the IMF through immediate financing of USD 250 billion; to continue reforms in the World Bank, and to take other relevant measures.

To promote investment and global trade and reject protectionism.It was agreed to avoid economic barriers which could prevent from the recovery of international trade. WTO was committed to warn the ones practicing protectionism.

To promote the recovery of global economy. Beside the above measures, third world countries would get assistance for the development of trade, including debt write-off procedures, as well as financial assistance amounting to USD 50 billion to the poorest states for implementation of social security and economic development programs.

According to the U.S. President B.Obama, agreements of the G-20 Summit could be referred to as „a turning point in our pursuit of global economic recovery“, since, first of all, the world leaders have responded with the unprecedented effort. Secondly, the content of the decisions confirms the desire of the world leaders to fix the situation and to take relevant steps in the nearest future. Thirdly, the decisions made are implementable and comply with the realia of the international economic system.

The impact of the G-20 Economic Summit on different global markets could already be appreciable on 3rd April. According to the data of portal uk.reuters.com, the turnover of the U.S. stock exchange has significantly increased after investors positively evaluated the London decisions. A similar situation was observed in the stock exchange of Western Europe, Asia, Latin America and Australia. Banks’ share prices jumped up considerably, share prices of car manufacturers etc. also increased.

According to the data of portal marketnews.lt, on 3 April the price of Brent oil in the London Stock Exchange increased up to USD 50,84/barrel, and on 10 April it reached USD 53,12/barrel. Such a response of shares and oil markets could be considered as the investors’ trust in the decisions made during the G-20 Summit.

However, it wouldn‘t be right to treat decisions of the G-20 group of 2 April as „a rapid response panacea“ for global economy.  Considering a complex nature of the international economic system, these decisions could be referred to as  an important step in the medium or even long-term process.

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