South African Finance Minister Trevor Manuel hopes advanced economies will not act with arrogance when finance ministers from the Group of 20 developed and developing nations meet this weekend to discuss the world economy out of crisis.
“I just hope that this arrogance of ‘we are so much better than the emerging markets…’ isn’t going to find resonance,” Manuel told Reuters after an IMF conference this week devoted to Africa in the Tanzanian capital.
Emerging market countries are fuming over the failure by developed countries, which have long preached to them about sound economic practices, to properly regulate their banks and prevent the reckless lending in the U.S. housing sector that led to the crisis.
Manuel said while rich nations have moved quickly to shore up their economies and banks with big rescue packages, their responses have so far been too nationalistic.
“The question though is whether the impulse for their movement is not too nationalist because you need a high level of coordination and you need a global effort,” he said.
Manuel said effectively addressing the crisis will require a bigger joint effort.
“If you want the world to work in a way where you can maximize the benefits of this global economy, then you give a little bit and you can manage these kinds of things.
“It’s not like burning the flag and no longer singing your national anthem. But in the same way as any relationship it requires a bit of give,” he said.
The finance ministers and central bankers from the 20 biggest economic powers will meet on Friday in Britain to pave the way for a leaders’ summit next month.
But so far only a deal to increase resources for the International Monetary Fund to help countries facing balance of payments crisis looks likely with countries still divided over how to regulate markets and deal with toxic assets on banks’ balance sheets.
South Africa is the only African country represented in the G20 and Manuel said there was a sense of despair across the region as countries watch traditional export markets disappear, access to credit and investment financing dry up, and nearly a decade of strong growth rates fizzle to a weak 3 percent this year.
Poorer countries, which could be the biggest casualties of the crisis, also face the possibility of reduced aid flows as Western donors face budget pressures of their own. African leaders have called on the donors ahead of the G20 to honor their promises made in 2005 of doubling aid to Africa by 2010.
“Here you have the large countries being able to go into markets and raise finance if they want to, and small poor countries don’t have the same access. There is a sense of deep inequity about that,” Manuel said.
“People in South Africa ask me but if US can run a deficit of 11.5 percent, why don’t you do the same? What price do they think would be worth paying to borrow 11.5 percent?”
“Because the risk premium will increase very quickly and do we have sufficient to spend all of that money on?”
South Africa together with Australia are chairing a G20 committee on the IMF, while Manuel is separately chairing a panel of experts looking at reforming the IMF to make it a more effective global financial supervisor.
Emerging market economies, including China, have long complained about the IMF’s lack of evenhandedness when it comes to dishing out advice to advanced economies, which all too often have ignored its advice. They want the IMF to be just as assertive in pointing out policy shortcomings in rich nations as they are in emerging economies.
Manuel said a United States’ veto power, which it has jealously guarded, over decisions in the IMF had “created perhaps a sense of paralysis.”
“If you ask the U.S., or if you independently evaluate the decisions taken over a very long period, you’d probably find that it was never used but its existence has shaped the culture of the institution,” Manuel added.