Will G-20 Success Be a Big Blow to China,India & Other Developing Nations?

“I believe in the golden rule — the man with the gold… rules!”— The simplest reason for G20 summit.

Before I come to conclusion, let me take a note on wat are G8, G20 and what are these summits for?

What are G-8 & G-20? 

[caption id="attachment_65" align="alignright" width="300" caption="G-8 Nations, which are facing severe Financial Crisis"][/caption]

             G8 is Group of 8 nations.Members of it are: Canada, France, Germany, Italy, Japan, Russia, UK and US. EU is represented within G8 but can't host the chair. G8 was founded in 1974. These countries ruled world economy till 1990's. Meanwhile, some other countries especially BRIC were getting energised both economically and politically. These emerging economies made G20 established, in 1999. G20 is a group of 20 nations, members include above 9, Mexico, Brazil, Argentina, India, China, Indonesia, South Korea, Australia, Saudi Arabia, South Africa, and Turkey.  G20 was founded in 1999 as this group represents 90% of world GDP  and 85% of world's population.

What was G-8 summit on 7th july for? , wat is G-20 summit on 14th Nov for?

[caption id="attachment_66" align="alignleft" width="300" caption="G-20 Nations"][/caption]

                    There is a broad consensus about present financial crisis. This crisis erupted because of lax of monetary regulations on financial tools used by Developed countries especially by US. Several companies, in finance and banking sector, rapidly expanded their use of leveraged financial instruments to gain more and more profits. This was happened for a certain period of time to diffuse the debts over developed nations. This resulted series of bubbles that bursted ultimately. The notorious one among those bubbles was Mortgage/Sub-prime crises. The debts/loans given by finance institutions were sliced, diced and parcelled out to an extent that companies couldn't even trace their origin of the debts. This fuelled the lack of confidence among investors, credit markets. This led to frozen financial institutions, slumping markets. This incident raised the issue of "Monetary Regulations" .

            Apart from this, for so many years, US federal reserve has given the debts at low interests as possible, sometimes at lowest of 0.5%. In general, US citizens have a nature of over-consumption. The same is the case with Bush administration too. US gov has been facing deficit budget. This was not big problem earlier as there were so many banks(like IMF) are there to lend money. But the present crisis demands more money what the banks like IMF, world bank can lend US. So, United States has to gather money not only to overcome domestic financial crisis but also to finance his domestic expenditure. So, Bush had called for G8 thinking that money can be raised from other G8 nations. It was happened on 7th of July'08, which was not successful as other nations had a fear of global economic recession. But, still Washington got support from few countries like UK, France. But, that helping hand was not enough. Now, the only option, Bush was having was: "developing nations", especially China and of course India. We can observe the same analysis in the following figure:

[caption id="attachment_60" align="aligncenter" width="520" caption="US, EU ran out of funds"][/caption]

 

Agenda of G-20:

From the foregoing analysis, we can summarize the agenda of G-20 as follows:

1. 
   
   Next move to reflate the global economy


2. 
   
   Reforming the regulation that govern financial markets


3. 
   
   Reforming and Repositioning the IMF (this is tactic to get 1st and 2nd things done)

All G-8 nations will discuss the rest of the nations in G-20 to raise the bail-out packages to give helping handto financial, mfg companies. But, here we have a point to observe i.e. the US market has been destroyed almost all with this crises. The same recession has touched EU market, by 15th November, news unveiled that GDP  of 15 euoropian countries that made EU-zone had dipped by 0.2% in 2nd and 3rd quarters. But Chinese and Indian econamies' GDP hasn't been dipped. These markets especially China market is insulated from international market. If china comes to act against financial crisis then US will be in safe hands. But it will be done at the cost of its own economy. So china gov will show some reluctance not to enter into this scenario.  The same will happen to other developing countries like India.

So, how to get helping hand from developing nations? this question may arise. May be, US will show IMF as a trap. because, all Asian countries like china, India are trying to get proper representation in IMF. For so many years, EU countries and US are over-represented and Asian countries are under-represented. The extent of representation in IMF is decided by 'quota' of a country. IMF will assign the quota to each of its member depending upon its relative size in world economy. This quota determines country's maximum contribution to IMF's financial resources. The same quota is a measure of taking the debts, loans from IMF. If a particular country has more quota, it will have chance to get more loans, debts from IMF. By august ending, IMF has $201billions loanable amounts with total resources of $365 billion.

As per the regulations, Asian countries should have more quota than the members of EU like Bulgaria, Netherlands.  So, china and other Asian countries will get a chance to increase their quota/representation in IMF provided they give helping hand to western countries.

At the end, i can say that US and EU don't have enough funds to escape out of present economical crisis. So they, especially Washington, is organizing G-20 summit to gather some billions of dollars money from developing nations like china, India and others. Even if they are ready to give, they should ask for enough advantages from rich countries. Otherwise, G-20 will become conduit to the policies cooked up in G-8 summit, i.e. rubber stamp. Whenever a developing nation doesn't think that having seat in G-20 is better than not having it and keeps in mind that they are representing other developing countries and under-developed countries, then the purpose of G20 comes true. Otherwise G-20 again becomes another group like G-8 which has neglected other countries welfare.