Indian Prime Minister Manmohan Singh Friday put his grand proposal before the G20, calling for a new global rebalance in which funds from surplus nations can go to bridging the infrastructure gap in poor and emerging economies to avoid destabilisation.
He also warned against protectionism in the wake of unemployment in rich nations, while asking the G20 leadership to agree to what is called the mutual assessment process to determine what level of deficit or surplus is good or bad for each country.
"Problems facing us in rebalancing the global economy is well known," the prime minister told a plenary session of the G20 Summit here, making a point that deficits of some countries need to be offset by investments elsewhere by surplus countries so as not to cause a contraction of the global economy.
"Even as we try to avoid destabilising surge of volatile capital flows to developing countries, there is a strong case for supporting long term flows to these countries to stimulus investment, especially in infrastructure," he said.
His reference was to the huge deficits that countries like the US are accumulating, which needs to be reduced, and the large surpluses in some others like China that has to be contracted so as not to impact on the global financial system.
The prime minister said economic performance of emerging markets including several in sub-Saharan Africa had improved vastly in recent years, as was the case with emerging market countries like India that can attract more investment.
"These countries are now in a position to absorb capital flows aimed at an expansion in investment, which would inject mush needed demand into the global economy," he said.
"Recycling surplus savings into investment in developing countries will not only address the immediate demand imbalance, it will also help to address developmental imbalances. In other words, we should leverage imbalances of one kind to redress imbalances of other."
On mutual assessment process, which was adopted in Pittsburgh last year at the level of groupings to assess systemic policy imbalances, the prime minister hoped the Seoul summit would see a movement toward country-specific reviews.
"I recognise this is not going to be easy and we must allow considerable flexibility to accommodate learning by doing. However, it we actually do this, we will have made a lasting contribution to a new style of global governance."
Manmohan Singh, whose views on global economic and other international issues have been appreciated at the previous four G20 Summits in Washington, London, Pittsburgh and Toronto, said even as there were differences, there was agreement on four areas:
- Competitive devaluation must be avoided at all cost and resurgence of protectionism must be resisted;
- Advanced deficit countries must follow fiscal consolidation policies;
- Structural reforms must increase efficiency and competitiveness in deficit countries and expand internal demand in surplus nations;
- Countries must be flexible with exchange rates without destabilising capital flows.
The prime minister congratulated his host, South Korean President Lee Myung-bak, for his initiative in seeking to bring about a consensus among the leaders, as also for putting the development agenda on the G20 table for the first time.
The G20, originally formed at the level of finance ministers and central bank governors in 1999 after the East Asian economic crisis, has assumed significance after it was elevated to a summit-level forum in 2008 after the ongoing global financial crisis.
Besides India, South Korea, the G20 comprises Brazil, US and Canada, Argentina, Australia, China, France, Germany, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, Britain, and the European Union.