Volume 44, Number 175,
October-December 2013
The G20 in Los Cabos:
A Lost Opportunity for Much-Needed Change
Carlos Rozo and Aleida Azamar
THE PRIMACY OF FINANCIAL STABILIZATION

The results of the rescue plans designed up to now have demonstrated that merely injecting liquidity into the system is not enough, but nor is it sufficient to merely recapitalize the banks. These teachings are factors that made the central topic of the Los Cabos summit economic stabilization and global recovery. The European financial and monetary crisis has become the focal point of debates and the main interest of the most powerful countries, as nearly one-third of the final declaration was dedicated to these issues, and there was even a certain disdain for other topics that the Mexican presidency tried to put on the table, such as the green economy and climate change. Of course, the European leaders committed to preserving the integrity of the euro, and in this way contribute to global stability.

It would appear that there is no doubt regarding the serious urgency of a new international financial architecture, a topic that has generated a great deal of discussion and debate over the last three decades. In the long-term realm, at the G20 summit in Washington in 2008, central banks and regulatory bodies committed to designing a work plan focused on: 1) modifying rules on capitalization so that banks would accumulate greater reserves in times of prosperity, 2) dealing with international banks facing difficulties and3) reforming the compensation structure for the managers of financial institutions in favor of remuneration for long-term performance. The purpose of these measures was to strengthen national regulatory systems and impose enormous restrictions on tax havens that did not meet transparency standards. Some of these proposals have already been prepared and approved, such as Basel III and those of systematically important banks, but they will take effect in 2019.

The coordination of the executive task of this new logic of regulation and financial system oversight was assigned to the Financial Stability Board (FSB), which until 2008 operated as the Forum for Financial Stability, a space where the central banks of the G7 debated topics such as international financial stability, but lacked executive capacity. It was not until now, in Los Cabos, that the FSB was strengthened to improve its governance and institutional base, granting it legal personality, autonomy in the management of its financial resources and greater capacity to coordinate and follow up on compliance with international standards. The board was granted the power to take on a more active role in preventing and resolving crises with its investiture as the coordinating body of national financial authorities, responsible for setting global standards, promoting these standards and ensuring compliance. This is a positive step, but it is still not enough. A new global financial architecture will require designing new institutions. In addition, the decoupling of the real economy and the monetary economy must be eliminated. The Great Recession has imposed the need to rethink the way in which financial innovation has permanently and systematically transformed, divided and diversified risk to create the impression that risk fades with the securitization of credit. Eliminating the decoupling between real and monetary economics must be the point of departure for institutional restructuring if the goal is truly to emulate the objective, if not the scope, of Bretton Woods. The task proposed is centered on relinking the real and monetary economies so that commercial banks once again take up the task of financing the growth of the product and central banks regain control over the channels by which monetary policy is transmitted.

The crisis has shown that the current financial system, or at least a good part of, no longer fulfills the purpose for which it exists, which is to create, manage and trade assets on future cash flows to support activities in the production of goods and services. Financial activities have become a gamble on commissions and speculation, while its favorite activity is to defeat regulators.

In financial terms, the greatest achievement of the summit was the recapitalization of the imf, as 39 countries will provide resources to this body for a sum total of 456 billion dollars, through loans that can be exercised in the next two years but extended over time.

In Los Cabos, the G20 members made it clear that there is no will to establish a new Bretton Woods Agreement that might give some order to the financial sector and lay the groundwork to prevent a relapse of the current crisis. In reality, the summits have become negotiations to achieve the minimum objectives possible rather than the maximum desirable goals. There have been promises of more regulation but no efficient mechanisms created to allow governments to take on the banks, high-risk investment funds, ratings agencies and private capital funds. The facts show that there is no aspiration to achieve new institutions that would prevent the excesses of market fundamentalism.

Moreover, the hypothesis that the German Primer Minister Angela Merkel made in the first summit, saying that each country only comes to these meetings to defend their own interests, has been confirmed. She is even an example of this type of behavior. The dispute between the Europeans and the Anglo-Saxons to impose their versions of the financial market – the former want a more regulated market while the latter insist on minimizing regulation – has become the sword of Damocles for the future of humanity (Frank, 2011). In this dispute, the G20 should be the center of greater activism among developing countries against traditional proposals that emanate from market fundamentalism, which has proved incapable of resolving its own issues and those that have brought the world to its knees since 2007.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Nov 13th, 2017.
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