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What President Obama and Other Leaders Should Focus On at the G20

SOURCE: AP/Anthony Devlin

Britain's Prime Minister Gordon Brown and US President Barack Obama talk during a press conference at the Foreign and Commonwealth Office in London April 1, 2009.

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See also: The Case for Leadership: Strengthening the G20 to Tackle Key Global Crises by Will Straw, Matt Browne, Sabina Dewan, and Nina Hachigian

The second meeting of the G20 leaders in London on Thursday provides an opportunity for key global leaders to agree on a set of tangible measures to break the downward economic spiral of shrinking growth, falling trade, rising unemployment, and declining wages. For President Barack Obama, who represents the world’s largest economy, the upcoming summit allows him to lead America toward a more cooperative, multilateral, and effective approach to addressing global economic challenges causing real pain for people around the world.

In London, much of the focus will be on measures—some of which were outlined earlier this month by finance ministers and central bankers—to address the stasis in financial markets and the causes of the current crisis. But Obama and other leaders must not shy away from three additional critical challenges: (1) ensuring a green recovery; (2) assisting the developing world; and (3) preventing a further slide toward protectionism.

Several countries have announced recovery plans and some have effective automatic stabilizers such as progressive taxation and welfare state provisions—including programs such as unemployment insurance—that contribute to consumption smoothing, stimulating their economies and providing security to their citizens. Some nations are doing less than they can afford while others are emphasizing short-term tax cuts over long-term investment. Unfortunately, this means that these countries are leaving out climate change in their recovery efforts. Taking steps toward a clean-energy future can offer opportunities for innovation, economic growth, and job creation for decades to come and can help reinvigorate the sagging world economy.

Ahead of the Major Economies Forum on Energy and Climate Change in Washington, D.C. in late April, President Obama should therefore ensure that measures to address global warming are not decoupled from the wider conversation at the G20 about restoring the global economy to a path of equitable expansion.

Along the same lines, the world’s poorest countries have a right to development in a carbon-constrained world, and as the main contributors to global warming wealthier countries have a moral responsibility to assist in such development. The G20 is the right place to design and resource a global fund for the transfer of technology related to combating global warming, and oblige relevant institutions to work together to implement it. This kind of global fund has emerged as one of the biggest hurdles to a post-Kyoto agreement. Developing countries are resistant to accepting differentiated caps on greenhouse gas emissions without such support for a transition to a low-carbon energy infrastructure.

But in addition to long-term investments in low-carbon energy infrastructure, there is also a pressing need to assist developing countries which are hurt in the short term by the economic downturn.

The International Monetary Fund notes that the economic outlook for low-income countries has deteriorated dramatically in recent months and that many of the world’s poorest countries are likely to see incomes stagnate or even contract this year. The World Bank predicts that in addition to the 130 million to 155 million people pushed into poverty in 2008, as many as 53 million more people could become trapped in poverty as global economic growth slows over the course of the downturn.

Leaders from the developed world therefore have a chance at the upcoming London Summit to find a way to assist these adversely affected developing countries—and in doing so help promote global stability. There is consensus that poverty, underdevelopment, and fragile states serve as fertile grounds for pollution, disease, lawlessness, and violent conflict, as well as international crime and terrorism. As such, there remains little doubt that harnessing economic development as a tool in pursuit of national security objectives is imperative to sustainable security for the United States and other developed nations.

Assistance to developing countries is also in our economic interest. Raising living standards in developing countries creates a virtuous circle of development and growth by creating new markets for our own products and services, as well as by moving countries away from an export-led growth model toward greater reliance on domestic consumption.

The World Bank has issued a call for developed countries to pledge 0.7 percent of their stimulus packages—or as much as they can afford—to a fund to help the most vulnerable countries that do not have the fiscal space for bailouts or deficits. The United States, Japan, and Europe have each proposed an additional $100 billion for the IMF to assist developing countries. European leaders must also implement their agreement to make available $68 billion to assist Eastern European countries.

In addition to pledging money, however, the London Summit must lay out a pathway to avoid protectionism that will exacerbate the economic recession and will especially hurt developing countries.

From 2000 to 2007, world trade flows grew at an annual rate of 5.5 percent, while world gross domestic product grew by 3.0 percent. The World Trade Organization now forecasts that global exports are likely to decline by approximately 9 percent in volume terms in 2009. This is the biggest such contraction since World War II.

As global trade declines due to collapsing global demand, it becomes even more important to prevent countries from adopting measures that further fuel this downward trend that especially affects the poor countries that depend on trade for development. Thus, the G20 nations should show they are serious about commitments made at last year’s meeting and not yield to domestic pressures to constrain trade. Protectionist measures may appear to make sense in the short term, but they will rebound to hurt everyone and have a devastating impact on the populations of poor countries.

One way to combat this wave of protectionism is to allow for a free and frank discussion on trade at the London Summit. This would then lead to a World Trade Organization agreement on the broad parameters of a trade deal in the now-stalled Doha Round of negotiations, with the details to be worked out in subsequent months.

The run up to this week’s meeting has been punctuated by protests on the streets of London and negative press reports about failed global deals. These can be avoided ahead of the next G20 leaders’ meeting in July in Sardinia if a genuine step forward is achieved this week. Getting credit markets moving again is critical, but so too is ensuring that a green recovery is entrenched, developing countries are not forgotten, and a slide toward protectionism is prevented.

See also: The Case for Leadership: Strengthening the G20 to Tackle Key Global Crises by Will Straw, Matt Browne, Sabina Dewan, and Nina Hachigian

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