Terror trumps economy

Print edition : December 11, 2015

At the G20 summit, French (left) and European Union flags show black ribbons fitted in memory of the victims of the Paris attacks. Photo: FAITH AKTAS/POOL/REUTERS

World leaders at the summit on November 15 in Antalya. In the communique released at the summit, there is no effort at ensuring the policy coordination needed for a recovery that has eluded the global economy since the onset of the Great Recession in late 2007. Photo: AFP/AYKUT UNLUPINAR/POOL

MEETING over November 15-16 at Antalya, Turkey, just 500 kilometres from the Syrian border, the leaders of the G20 summit found their agenda derailed by the horrendous events in Paris on November 13. The tasks of combating terror, of identifying and blocking terrorist financing and of preventing the flow of terrorists (including those moving as refugees) replaced the challenge of ensuring a global recovery from a seven-year long recession as their principal concern. This despite the fact that the summit chaired by host Turkey’s President, Recep Tayyip Erdogan, was expected to “focus on the current state of the global economy, sustainable growth, development and climate change, investment, trade and energy.”

From its inception the G20 was a formation that was motivated by and focussed on economic issues. It was established in 1999, in the aftermath of the Asian financial crisis, as a meeting of Finance Ministers and graduated to being a Summit of Leaders in 2008 after the global financial crisis. According to the factsheet on the G20 website: “G20 leaders have met nine times since 2008, continuing to focus on achieving strong, sustainable and balanced growth, promoting job creation and financial regulations that reduce risks and prevent future financial crises and modernising international financial architecture.”

However, on occasion in recent years, political issues have widened the agenda of G20 summits. As Ibrahim Kalin, the spokesperson for the Turkish presidency of the G20, put it before the event, “At the 2013 summit in St. Petersburg, Russia, the leaders discussed the Syrian crisis and the measures to be taken to prevent the use of chemical weapons. Last year’s summit in Brisbane, Australia, focussed on the Ukrainian crisis and the Crimean issue. This year, the Syrian conflict and the accompanying refugee crisis will be addressed in a separate session as part of the Antalya summit. In a world where economic and political problems are intertwined, it is certainly not possible to think of war, terror, refugees, justice and economic depression separately.”

But still, until November 13, the expectation was that economics would dominate the discussions, especially since the world economy is yet to register a convincing recovery, seven years after the global recession began. As preparations for the 2015 summit were under way, it was announced that the same set of issues that have in one form or other dominated G20 discussions since 2008 would remain the main areas of concern: global economic growth and income generation; and sustainable development and climate change. An unusual item on the agenda was a call for discussing a coordinated response to the “refugee crisis”.

To provide some novelty to the discussion on economic issues, the Turkish secretariat decided to segregate it into three themes: Implementation of past commitments to deliver on promises; boosting investment to spur growth; and making growth inclusive so that its benefits are shared by all. The choice of these three “pillars” was not without justification. On the one hand, more than a third of the goal of raising collective gross domestic product (GDP) by 2 per cent by 2018, which the G20 had set for itself in Brisbane last year, has indeed been achieved. On the other, whatever growth has occurred has been distributed unevenly across countries and is clearly inadequate to make the recovery look robust or make any difference to unemployment, especially youth unemployment, in many countries. That did require a step-up in investment and some attention to “inclusiveness”.

But with their attention diverted by the terror attacks in Paris, G20 leaders had little time to focus on these aspects of their essential agenda. The communique released at the end of the summit appears to be a relatively unrevised version of a draft that, besides being filled with empty talk that pays lip service to all concerns, accommodates everybody’s inclinations irrespective of whether they are contradictory or not. At the level of ambition, the leaders have declared that they will “continue reviewing and adjusting… growth strategies to ensure that they remain relevant to evolving economic conditions, policy priorities and structural challenges, in particular slow productivity growth, and that they remain consistent with (their) collective growth ambition”. What that really means is not all too clear. They also promise to adopt “a comprehensive and balanced set of economic, financial, labour, education and social policies”, which will contribute to reducing inequalities. To anyone used to reading international declarations, such statements mean nothing.

Contradictions

But what is particularly disconcerting are the contradictions involved in spelling out the direction policy will take. The statement commits itself to “sound macroeconomic policies” to achieve growth, even though that phrase has come to represent the kind of austerity that only intensifies the global recession. It promises that monetary authorities will ensure both “price stability” and “support economic activity”, without mentioning which of these needs to take precedence in the current environment. It recognises the need to “implement fiscal policies flexibly”, which will call for enhanced government spending to revive demand and growth, but also commits government to “putting debt as a share of GDP on a sustainable path”. While promising to address “the risks arising from large and volatile capital flows”, it also underlines that governments will seek to reap “the benefits of financial globalisation”.

Thus, the text of the communique points to a complete lack of clarity, let alone consensus, on what needs to be done. Hence, if policy matters, the still persistent recession is unlikely to go away. There is no effort here at ensuring some degree of policy coordination needed for a recovery that has eluded the global economy since the onset of the Great Recession in late 2007, and to pull countries such as Japan and those in the European periphery out of the economic mess they are stuck in.

Even if its numbers are still optimistic, the October edition of the International Monetary Fund’s (IMF) World Economic Outlook (WEO) summed up the challenge facing the world’s leading decision makers. To quote the IMF: “Global growth declined in the first half of 2015, reflecting a further slowdown in emerging markets and a weaker recovery in advanced economies. It is now projected at 3.1 per cent for 2015 as a whole, slightly lower than in 2014, and 0.2 percentage point below the forecasts in the July 2015 WEO Update. Prospects across the main countries and regions remain uneven. Relative to last year, growth in advanced economies is expected to pick up slightly, while it is projected to decline in emerging market and developing economies.”

Underlying this assessment is a peculiar turn in the institution’s assessment. When the Great Recession began, it was expected that the emerging markets, especially China and India, which continued to register high rates of growth, would pull the world economy out of recession. Growth is now lower in India and slipping significantly in China. So the United States, where the recession originated, is now the saviour the IMF and mainstream commentators are looking to. Every monthly release of employment figures and quarterly release of GDP figures in the U.S. is scrutinised carefully to find evidence of the elusive recovery. But there are no clear signs of it.

As the IMF notes, in the first half of 2015, “growth in the United States was weaker than expected, despite a strong second quarter. This reflected setbacks to activity in the first quarter,” though it attributes it to “one-off factors, notably harsh winter weather and port closures, as well as much lower capital spending in the oil sector”. But it may be wishful thinking that the problem will just go away. The evidence suggests that a globally coordinated effort of government (that drops the austerity mindset) is a prerequisite for any recovery that may eventually be realised. Though there was no guarantee, it was hoped that global leaders would make one more effort in Antalya to find a way forward. But the events in Paris left them with little time for that.

There is a further twist to the story of the search for recovery that is related to West Asia. This is that the recession continues even though falling oil prices are offering governments an opportunity to pay less attention to inflation and more to investment and growth. Oil prices that had fallen significantly from their pre-crisis peak in early 2008, to a low in early 2009, subsequently recovered to return to near $100-a-barrel levels. But since mid-2014, prices have once more fallen sharply to below $50 a barrel. It now appears that they are likely to remain low for some time. According to the International Energy Agency (IEA), oil inventories are at record levels as crude producers seek to retain market share, and oil exporters flog their fields to maximise revenue at much lower prices. Iraq and Saudi Arabia, for example, have reportedly raised production to near record levels. The IEA estimates that stocks in developed countries are close to 3 billion barrels, which equals about a month’s global consumption. So prices are bound to head south in the foreseeable future.

If past assessments are right, this should have substantially enhanced the manoeuvrability of developed countries when dealing with their economic challenges. Among the reasons provided for U.S. and developed country intervention in West Asia (in multiple and often not too rational or humane forms) is the strategic importance for highly energy-dependent countries to ensure oil supplies at reasonable prices. Recent trends in the oil market suggest that for the time being at least that battle has been won. But the way in which the mess in West Asia, created in part by these interventions, has unravelled, it appears to be a case of having won the battle but lost the war. The consequences of those interventions are now being felt at home. As a result, the ability of the leaders of the world’s dominant countries to even sit down and discuss solutions to problems in their own backyards seems to have been undermined. This crisis seems to need solutions that are far more comprehensive than the G20 leaders could have imagined.

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