Fiscal Stimulus. Obama initially wanted developed nations to commit to a coordinated Keynesian "global stimulus" in order to boost demand. (The Treasury Department asked each nation to spend two percent of its GDP, in line with the recommendations of the IMF.) Led by Germany, the European countries pounced on the idea for a host of reasons--leading Obama to signal "flexibility" on the issue just hours before the summit. His proposal went nowhere. Instead, the G20 communique touts money that developed countries are already spending as if it is new fiscal stimulus.
Grade: D // Obama didn't get anything he wanted here, but at least he reduced expectations before the summit.
International Financial Regulation. On the flip side, European countries insisted that the G20 create a new supranational regulatory authority to scrutinize financial institutions everywhere. Obama was not interested, instead proposing a voluntary approach in which individual countries develop their own regulatory regimes. In order to promote those efforts (and partially as a sop to the Europeans), he proposed elevating the Financial Stability Forum--a consultative council of the G7 countries that has existed since April 1999--to status equal with the IMF and the World Bank, renaming it the Financial Stability Board. The Board would be expanded to involve all of the G20 countries and empowered to develop regulatory “best practices” for financial institutions worldwide.
Obama won this one. France and Germany abandoned their threat to walk out of the G20 if their demands were not met, and the conference adopted the basic outlines of Obama's proposal. An action plan commits each country to regulate all of its financial products, eliminate tax havens, endorse common principles regarding executive compensation, and adopt uniform valuation measures in coordination with the Financial Stability Board. (Countries who do not cooperate can be "named and shamed" using the Financial Action Task Force--an organization that has coordinated global efforts to prevent terrorist finance.) The president also won some diplomatic kudos for personally brokering a compromise between France and China, who were feuding over whether to target tax havens.
Grade: A // Obama got exactly what he came for, while managing to convince Nicolas Sarkozy that "France and Germany's priority" had been achieved. The president gets a plus for creating buzz about his international mediation skills.
IMF Contributions. In order to prevent the collapse of developing economies everywhere, but especially in Eastern Europe, President Obama asked G20 countries to contribute up to $500 billion to finance New Arrangements to Borrow (NAB), an IMF emergency lending program that was created in the wake of Larry Summers and Tim Geithner's successful bailout of the Mexican economy in 1995. Europe, Japan, and the United States had already promised several hundred billion towards this goal, so Obama's task was to convince China--as well as other major developing countries known by the acronym BRIC, or Brazil, Russia, India, and China--to contribute large sums on top of that. (Obama supports other major funding increases for the IMF, but the NAB is the only program for which his negotiating team publicly suggested a dollar amount.)
As of Thursday afternoon, it's not completely clear how this negotiation will turn out. While sources tell The Wall Street Journal and Reuters that new funding for the IMF may reach $1 trillion, it's not clear that China wants to contribute specifically to the NAB program. They say they might prefer to deliver about $100 billion to the IMF by issuing bonds denominated in Special Drawing Rights (SDRs), which are the international currency that China views as an alternative to the dollar. (Read on to find out what China wants in return.)
Grade: Provisionally, B // We're still waiting for the final word on this negotiation, but it looks as if Obama got mixed results.
IMF Voting Rights. China has long clamored for more voting rights at the IMF. Now, sitting on massive cash reserves while the rest of the world is paralyzed by deficits, China sees its chance. Along with the BRIC countries, Beijing has been agitating for a “roadmap” to increased IMF representation and it wants to move the date of the next IMF “quota review”--which is essentially a form of redistricting--from 2013 to 2011. It wants the World Bank to reallocate votes on a similar schedule. Since European countries stand to lose the most seats from any reallocation, they have pushed back against changes. Obama, for his part, supports China's position. In return, he hopes to convince China to contribute funds to the IMF, stop talking about replacing dollars as the global reserve currency, and cooperate over the long term on fiscal stimulus and global warming.
On Thursday, China and Obama persuaded the IMF and World Bank to accelerate their vote reallocations by 2011. After the conference, the U.S. plans to introduce formal plans for a "roadmap" to further integrate the BRIC countries into global financial institutions.
Grade: A- // Obama got what he wanted. But what did China do for him in return?
Global Trade. One major goal of the summit was to reassure the world that the G20 are committed to open trade. Obama wanted a strong statement to this effect, along with a "global trade finance initiative" to re-start lending to small countries that have been unable to finance their mercantile activities since money from private banks has dried up.
The G20 saw little disagreement on this front. They agreed to a twelve month freeze on new trade barriers and, eye-catchingly, pledged to "name and shame" countries who erect barriers to global commerce. They also said they will deliver $250 billion in trade credit guarantees for countries looking to finance trade.
Grade: A- // Obama certainly didn't do anything wrong here, but it wasn't that hard to succeed on this issue either.
While he was officially in London to talk economics, Obama pushed forward with several important diplomatic initiatives on the summit's sidelines. Here’s how we’d rank his reach-out efforts to some of the world’s thorniest regimes.
China. In addition to his immediate economic agenda, Obama wanted to lay the groundwork for long-term cooperation with China on a host of issues. That, he seems to have achieved--meeting with premier Hu Jintao, scheduling a trip to Beijing for later this year, and establishing a high-level Strategic Economic Dialogue between China and the United States. (The U.S. negotiating team will be led by both Hillary Clinton and Tim Geithner.) If China doesn't end up contributing to the NAB, it may mean that Obama's team backed off a little during the negotiations.
Russia. Obama's opening to Russia was perhaps as important to him as his financial initiatives. He hoped to develop a strong rapport with President Medvedev--even though he tried to remain aloof in the eyes of the press--and jumpstart efforts on a follow-up to the START treaty. He also hoped to make progress towards U.S.-Russian cooperation on Iran and North Korea.
By all accounts, Obama got along well with Medvedev and achieved more progress than expected on START. We don’t know exactly what was said about North Korea and Iran, but one Obama aide says that Russia was less adamant than usual about denying that Iran is building nuclear arms.
Iran. Obama’s diplomatic opening to Iran progressed in two ways yesterday. First, Richard Holbrooke lunged across a long table separating himself from Iranian Deputy Foreign Minister Mohammad Mehdi Akhundzadeh and shook his hand. They spoke for a moment and vowed “to keep in touch.” Separately, Hillary Clinton sent Akhundzadeh an unusually direct note calling for "humanitarian assistance" with the return of two Americans who are being held in Iran, and one whose whereabouts are unknown. The Iranians churlishly denied that the meeting with Holbrooke ever happened--but the true measure of success will come later, when we see if the Iranians respond to Clinton’s letter.
Barron YoungSmith is a reporter-researcher for The New Republic.