G20 : Crisis What Crisis?

Here's another comment on the G20 summit from Imim finance professor, Dr Roberto Santillan. Based in Mexico, Roberto was over early April and alongside Marjorie Van Halteren, he provided us with a clear insight into the challenges facing Obama and his administration. This is his view on the summit and the likeliness of a global economic recovery.

On April 2, 2009, at the end of a three day meeting, the G20 leaders made public a communiqué in which they draw the broad lines of action that will be followed to create the necessary conditions to avoid a more serious global depression and reinitiate growth.
The meeting was unprecedented in more than one way, but maybe the most dramatic was that the world’s largest economies, independently of their ideological affiliation, agreed to work together towards a common goal. One should also pay attention to the sheer size of the financial resources that the G20 members pledged to the cause, in the order of 1.1 trillion dollars; to the explicit intention to reform regulation and supervision in order to eliminate perverse incentives, moral hazard and ratings misguidance; to the emphatic statement that there is no longer room for “bank secrecy”, thus no more “fiscal havens”; to the enhanced role to the IMF in delivering the resources needed to avoid a contagion effect among emerging countries, etc.
There is some hope that the G20 meeting will help rebuild confidence but the beneficial impact of the announced policies may take longer than many believe. Also, there are reasons to think that while the first signals that the recession is over may appear by the 4Q of 2009 or the 1Q of 2010, the more fundamental imbalances in the world economy may take many more years to be corrected.
At a country level, the most difficult challenges that need to be addressed by the Obama administration are: an excess consumption pattern among US citizens, in contrast to a much more frugal population in China, India, the EU and Japan that results in huge and permanent current account deficits for the former country; a large fiscal deficit aggravated by both the bailout of large sectors of the economy (banking, automakers, insurance, just to mention the most visible) and the war of Iraq and Afghanistan; but there are many more. The United States is at a crossroads and the choices are not easy; but the new leadership of the country and the pragmatic approach to the immediate problems it has adopted are favorable omens.
Europe and Asia must also take their share in the reconstruction effort because only a fine-tuned coordination of the major economies of the world will achieve a successful recovery. It is not only fiscal stimulus nor lax monetary policies that will be necessary. China can not permanently maintain an undervalued currency; Europe needs to modernize a number of sectors and move ahead towards integration of the 27 in a more comprehensive way, specifically in what refers to the financial industry, but in many other sectors as well. Japan needs to finally solve its banking sector problems and re-launch economic growth.
In the meantime, while the socially painful effects of the recession are already present in most industrialized countries and grow by the day among the emerging countries, the profound transformations that are expected to take place in response to this historical economic catastrophe will hopefully make the longer term evolution of the global economy more sustainable and less risky