By JC Collins
“It is important that the Brisbane G20 Summit on Nov. 15–16 is a success. In an increasingly integrated global economy, effective forums for economic cooperation are needed.” – From the CFR Memo
The upcoming G20 Summit in Brisbane, Australia will bring closure to that countries leadership and hosting responsibilities. In 2015 this will shift to Turkey as they assume the G20 Presidency. But before that happens this years summit commitments must be addressed and implemented in Australia on November 15th and 16th.
With the American congressional elections now over, and the expected Republican windfall completed, it is expected that the International Monetary Fund’s 2010 Quota and Governance Reforms will be passed and the multilateral framework for the financial world can move forward.
These reforms were agreed upon by all G20 member countries back in 2010 and all countries have implemented supporting legislation except the United States. Congresses failure to support the reforms has forced the hand of the rest of the G20 countries.
Earlier in the year at a previous summit, the G20 countries gave the US until the end of this year to pass the required supporting legislation or the group would take specific measures to implement reforms to the Fund’s executive board and quota metrics.
With last nights Republican victory and consolidation of Congress, it can be expected that the US will finally pass the supporting reform legislation between now and the Brisbane Summit on the 15th. As discussed in the post A Time to Harvest, the Republicans will likely allow the reforms to pass in exchange for the approval of the Keystone XL Pipeline.
Both would be symbolic wins for the Democrats and the Republicans. The GOP get the pipeline approved while still under a Democratic senate, and the Democrats finally get the IMF Reforms passed in time for Obama to deliver on his commitments to the G20 at the Brisbane Summit, his last opportunity to do so before the G20 implement specific measures to bypass American dis-function.
If congress does not pass the reforms we are likely to see aggressive and dramatic measures to implement the Fund’s reforms without American consent. How this will look is not easy to discern but will not end well for American business interests. Because of this, and the overall pressure exerted by the G20 and IMF, as well as the US Treasury, on congress to pass the reforms, it’s hard to imagine a situation where the legislation isn’t passed.
Either way, it is increasingly clear that the reforms to the IMF will take place and the movement to SDR bond liquidity will continue as the deflation and growing liquidity crisis around the world broadens.
Once the reforms are implemented the Fund will be looking at opening the SDR basket composition for adjustments by July, 2015. This adjustment will represent the inclusion of the Chinese renminbi and possibly gold. If the reforms are forced upon the US than we could potentially see a situation where the US dollar is removed from the SDR basket.
That outcome is obviously extremely detrimental to the international interests of the American business and banking factions which desire to remain viable and competitive in a multilateral business world. As such, leverage will be exerted upon both the Democrats and the Republicans to get the reforms done, just with less special interest garbage attached to the bill.
Returning to the G20 Summit next week, it’s important to briefly review the full scope of items on the agenda. This agenda represents the commitments of participating members, including the United States, and as we will see below, these commitments, which are the blueprint for the multilateral financial system, have already been implemented in many countries around the world, including Turkey, who holds the G20 Presidency next year.
The commitments are as follows:
- IMF Reforms – as discussed above, these reforms are mandatory and will be implemented with or without US approval. The reforms alter the quota amounts of member countries and alters the executive board to more accurately reflect the reality of the international monetary system. With the increase in participation by the emerging markets, including the BRICS countries, the IMF reforms will ensure that the systems of governance and quota issuance, are not biased to any one group or country. This is the bedrock of the multilateral financial system, or MFS.
Growth Strategies – a commitment to increase global growth by 2% over 5 years.
Infrastructure Investment – the focus is on investment from the private sector, which has worked extremely well in other countries, like Turkey.
Trade Liberalization – the focus of this commitment is on the implementation of a multilateral trading system, as represented by the Agreement on Trade Facilitation, or ATF.
Ending Tax Evasion – the commitment to adapt the automatic exchange of tax information, which in turn is proposed to help end bank secrecy. Ending bank secrecy is mandatory for the implementation of BEPS, or Base Erosion of Profit Shifting, which is intended to prevent the shifting of corporate and bank profits to low or no tax jurisdictions. The other component of ending tax evasion is formalizing a broader participation of the BRICS countries in the OECD, or Organization for Economic Co-Operation and Development.
Financial Regulation – this commitment is to strengthen the governance and operations of the FSB, or Financial Stability Board.
Development – the purpose here is to more fully recognize the infrastructure needs of the developing countries.
Employment – boost labor market participation globally and increase mutual recognition of qualifications between multilateral members.
Anti-Corruption Efforts – this will be the broader realization and implementation of the G20 Anti-Corruption Plan for 2015 to 2016.
Energy – to design and implement changes to the global energy markets in the realization that global energy governance is fragmented. This commitment is directly related to the removal of energy being priced in US dollars.
From the list of commitments being discussed by the G20, which included the BRICS countries, it is very clear to see that some of the above matters are already playing out in the world. From the arrests and deaths of numerous high level bankers around the world, to charges being laid against large financial institutions, the efforts to clear up the financial world and further the commitments of the G20 are everywhere and becoming more obvious.
Using Turkey as our example, we can see that they have moved from being a borrower nation, to the IMF, to being now a lender nation. That is the terminology that westerns will become more familiar with in the coming years. As the power to expand liquidity is shifted away from the central banks and treasuries of each individual country and consolidated, or centralized, within the institution of the International Monetary Fund, nations will be defined as lender or borrower.
Any nations that are borrowers will have austerity measures imposed upon them and will have to work towards becoming a lender nation. The sovereign debt load and the liquidity crisis, not to mention the inability of central banks to increase liquidity further, ensures that the countries of the world are being herded into the multilateral structure of SDR denominated bonds.
Turkey had been in debt to the IMF for 52 years before just recently making their final payment to the Fund. Some of the measures taken to achieve the status change to lender are the G20 commitments detailed above. The privatization of infrastructure investment, tax reform, and reducing military spending as a percentage of GDP, have all contributed to helping Turkey now become a lender nation.
See article on Turkey Reforms and IMF Payments at Al Arabiya News for a more detailed breakdown of what has taken place.
We can already see that some of these broader reforms are taking place within the US, especially the reduction in military spending and the beginning of anti-corruption legislation. We can consider that these commitments and reforms are a part of the self-limiting of the rent seeking elite which we have discussed on this site many times before.
But we have also discussed how all things eventually corrupt and we will likely see the SDR liquidity system turn into a monster of what we have experienced over the last 5 years. A debt based liquidity system is fundamentally flawed in that the purpose of liquidity is to service debt and not promote production.
Perhaps the world can maintain a level of multilateral functionality for decades, bringing purpose and inclusion to all the cultures and peoples on the planet. And perhaps even the self-limiting of the rent seeking elite can be maintained. But it’s difficult to imagine how this can be sustained for the long term. Eventually someone or group of interests will find away to create imbalances in the bi-directional wealth transfer. And perhaps even the austerity and broader mandates of the system are meant to create a deeper imbalance than what exists today.
What is for certain is that the world is becoming smaller and more multilateral. Beautiful architecture and structures around the world, like the Blue Mosque of the Ottoman’s in Turkey, attest to the wonderfully diversity of people and culture. The unipolar world of US dollar hegemony is over and a new multilateral model is unfolding in real time. Don’t blink, because we are on the verge of a “fall of the Berlin Wall” moment. – JC