Emerging economies key to lifting financial gloom

Quite apart from the decisions the world economic summit of 20 nations took or did not take, the meeting represented a power shift that was impossible to miss. After knocking at the door of rich nations for years and lately being invited for "coffee breaks", as suggested by one, the so-called emerging economies were invited in as legitimate participants in resolving the most serious economic crisis the world has faced since the Great Depression.

The real decisions have been left for later - the next summit is set 101 days after Barack Obama takes office - but the principles of a more transparent and rigorous regulatory regime and overhaul of the two Bretton Woods institutions - the World Bank and the International Monetary Fund - have been laid. There was even an oblique criticism of the United States for lighting the first match leading to the worldwide conflagration although Washington included the mantra of free markets in the final communiqué.

The truth is that emerging countries and oil-rich nations with bulging cash reserves hold the key to a global economic revival, with Bric - Brazil, Russia, India and China - along with Saudi Arabia, occupying a special place. Inviting them to the Washington summit was an important first step, but giving them proportionate weight in the world's economic management and oversight has still to be effected.

One does not have to be a Marxist to divine the connection between economic and political developments. Obviously, the new economic clout Bric and some other countries are in the process of achieving will be reflected in their political weight. Mr Obama fought the US presidential election on the platform of change, and he will have more than his fair share of change in the economic and political problems that are piling up in his in tray.

In what ways then will the precursor of economic change manifest itself in the political sphere? In the first place, the cliché of globalisation might be trite, but it is true, and given the increasing weight of emerging countries, it must affect the political pecking order. Everyone agrees that despite being embroiled in the worst economic crisis in modern times and two wars largely of it own making, the United remains the pre-eminent power.

The immediate future of the world will depend, in a large measure, on how the Obama administration will resolve the contradiction between its desire to retain its position and a changing world order. President Bush Sr had prematurely proclaimed a New World Order on the demise of the Soviet Union even as the Clinton and Bush Jr presidencies sought to relegate the successor state to the Soviet Union to the ranks of insignificant powers. After eight years of the Putin era, Washington does not have that luxury and the Obama administration will have to wrestle with accommodating Russia's legitimate national and security interests if it wants to build a new equilibrium.

Unlike his somewhat belligerent earlier address, President Dmitry Medvedev offered President-elect Obama an olive branch in Washington, which could mark the beginning of a new strategic dialogue. Here there is a contradiction between Russia the giant in the security field and a country taking on the attributes of an emerging economy with its energy-fuelled prosperity being threatened by the world's economic meltdown and falling prices of oil and gas.

Russia therefore wears two hats, as a major power in its own right and as a member of Bric seeking a more equitable world order. The original G-7 of rich industrial economies became the G-8 after Russia was invited in to the political, not the economic, discussions. Now Brazil's President Lula da Silva has announced the irrelevance of the G-8 by virtue of the G-20 phenomenon.

Apart from the great importance of America's new moves on the world's chessboard, the emerging order will also depend upon how Bric in particular will make its counter-moves. Politically, Russia is already in the big league, China is on its way and India and Brazil aspire to major power status. China's economic clout will help it graduate sooner, and to the extent India and Brazil can help take the world out of the economic hole, they will win plaudits.

President-elect Obama's problems with Russia are apparent and up front, but we do not quite know how he sees China's role in Asia and the world or whether he shares President George W. Bush's concept of India's importance as a counterweight to China, which will play an increasing role in the economic crisis. But a greater say in the world's economic problems for India will translate into more room for manoeuvre for New Delhi.

Is the world then destined to live for a time at two levels: a new economic order and an old political order struggling to catch up with economic realities? A time lag seems inevitable as the new US administration tries to sort out its own priorities and problems. Admittedly, the neoconservatives are in bad odour at present, but in the US the difference between unilateralism and multilateralism is short. It is more a question of instinct and style than substance because all Americans agree that they are the greatest, or should be by casting aside some weaknesses and errors.

Europe, meanwhile, is seeking to find its place in the changing world. For all of President Nicolas Sarkozy's activism and some success at the Washington summit, the European Union (EU) is divided. Partly, it is the luck of the alphabet that determines the clout of the rotating president - the proposal for a more permanent presidency is languishing with the un-ratified Lisbon Treaty. Besides, the gap between Old Europe and the New - composed mostly of former Communist states - is growing. The EU has notched many impressive achievements, but its common currency, the euro zone, is in recession for the first time and the New Europeans are so attuned to promoting their interests by identifying with the US that the cohesion of the grouping is being called into question.

Can Europe break free of American dominance to chart its own course in its most important relationship on the Continent with Russia even as the emergent economies are taking their first confident steps on the world stage? The European Union, together with Mr Obama, has to prove itself.

S. Nihal Singh

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