While George W. Bush, the outgoing American president, tried to dampen the expectations from the summit of the leaders of the world’s largest 20 economies, some of those who attended the meeting in Washington on November 15 pressed for real change in the global economic system.

In a speech in New York two days before the summit was held, President Bush took issue with two positions many world leaders had adopted since the global economy came under great stress He did not think that it would be prudent to quickly change the structure of global finance and he didn’t believe that American capitalism had failed.

Echoing what Ronald Regan, one of his predecessors had once said about the government’s role in economic matters, Bush said that governments had a very limited role to play in economic management. The private sector should be generally left to its own devices. This was an extraordinary position to hold when even Alan Greenspan who had chaired the US Federal Reserve System for nearly two decades had openly admitted that he was wrong to believe that some of the more important parts of financial system need not be regulated by the government. Greenspan had supported self-regulation as the best way to oversee the working of such institutions as investment banks and hedge funds.

President Bush had some support in suggesting that the reform of the global economic system should proceed slowly. In an interview with the editors of The Washington Post on the eve of the G-20 summit, this was what Taro Aso, Japan’s prime minister, had to say about the need for greater sharing of authority in the management of global institutions such as the IMF and the World Bank. “I think it is true that the Asian voice is somewhat limited The economic role of emerging economies is far different today than when the Britton Woods system was established in 1944 or when the United Nations was established. So not just the Chinese, but it is quite understandable that other Asian countries also would express that sort of view. [However] I don’t think that is something that should be achieved today or tomorrow.”

The slow pace of reform that was being advocated by such status quo powers as the United States and Japan did not have the support of the large European countries. That was surprising since Europe had more to lose from the redistribution of authority than America and Japan. The continent was grossly over-represented in the major international institutions. For instance Belgium, a small European economy, had a larger voting share in the IMF than India.

Realism pointed towards significant changes in the global system on the eve of the G-20 meeting. Two economic facts underscored the rapidly changing distribution of economic power in the world. It was accepted that both the US and Europe – and possibly also Japan – will be in recession in 2009. That meant that 100 per cent of the growth in the global economy would come from emerging economies. Overall, developed economies are projected to see a contraction of 0.1 per cent in their combined output in 2009. Officials in the 15 eurozone countries – the countries that have the euro as their currency – announced on November 14 that the region had officially fallen into recession. On the other hand, the developing world was likely to see its combined GDP grow by 4.5 per cent in 2009. This will happen in spite of the reduction in the rates of GDP growth in Brazil, China and India.

On the eve of the summit President Luiz Inácio Lula da Silva of Brazil echoed the sentiment shared by other large developing nations. “We must use the crisis as an opportunity to correct things that were wrong before the crisis and strengthen multilateral bodies, because in a globalised world we need serious and representative forums to take global decisions,” he said in a meeting with newspaper reporters. ”We need to have other countries and other continents included in more democratic and plural decisions.”

Establishing a forum for the leaders of the large world economies to meet on a regular basis was the easier part of the solution to take more democratic and inclusive decisions on global economic issues. Some leaders suggested formalising the G-20 and have the group meet once every year to discuss international economic issues. Some other suggested a smaller group – perhaps a G-12 – that brought Brazil, China, India and South Africa into the G-8. The G-8 had all the large industrial countries as well as Russia. In the end the summit declaration opted for the continuation of G-20.

The other development that galvanised the developing world to press for change in the existing structure of the global system was the economic price it had paid for the mistakes made by economic agents in the West, mostly in the United States. The crisis that began in America went on to do damage in Europe and has now spread to the developing world. Even countries such as Pakistan that are not well integrated in the global economy have been affected. The loss of confidence in the economic future of developing countries has caused capital flight. Most emerging economies have seen sharp declines in their capital markets as portfolio investments were liquidated and funds were transferred out.

While the G-20 leaders put on a slow moving track the reform of the financial system they were able to agree on a few measures some of which would benefit Pakistan. Among them was the recognition that the IMF needed much more resources than were available to it. At this point the Fund has $200 billion of capital available, far less than the amounts needed if all countries that require the infusion of fresh money were to come knocking on its door.

The Japanese prime minister announced that his country would be prepared to provide the IMF $100 billion of additional resources. He called upon other capital–surplus countries such as China and the oil exporters in the Middle East to lend similar support to the Fund. The European leaders indicated support for a plan for augmenting IMF resources by as much as $1 trillion. They were looking mostly towards the East Asian and the Middle Eastern countries to come to the aid of the developing world by adding to the funds available to the IMF.

The day the leaders met in Washington a press release issued by Dominique Strauss-Kahn, Managing Director of the IMF, indicated that his institution had agreed in principle with the Pakistani authorities to provide $7.6 billion support under its Stand By Arrangement. This amount would be made available over a 23-month period with a significant proportion disbursing after the IMF board had given its approval. The amount of funding was more generous than provided normally.

The normal dispensation was three times a country’s quota. In Pakistan’s case the quota (the contribution by the country to the institution’s capital was $1.5 billion). The Fund was prepared to provide five times the amount. In addition the IMF issued a strong plea to other donors to join in this effort. “I would like to call on the donor community to work together and act quickly to support Pakistan’s programme in order to mitigate the impact of the current economic difficulties on the poor and ensure an adequate level of spending on development programmes,” said the statement by the IMF management director.

With the Pakistan programme, the Fund was departing from its normal practice in three ways, reflecting already the changing role it was likely to play in addressing the global economic melt-down. It was providing a larger amount than usual, giving some further substance to the need for augmenting quickly its own resources. Second, it was taking the lead in assembling a community of donors to come to the aid of a country in great economic distress. And, third, it was signalling that it would pay special attention to the needs of the poor.The Managing Director’s statement said that his institution’s programme would “protect the poor and preserve social stability through a well-targeted and adequately funded social safeguards.”

Seen in the context of the global economic crisis and the G-20 meeting, the Fund’s action concerning Pakistan seemed to signal to the world that no radical departures were required from the institutions that currently supported the global economic order. The existing institutions with appropriate amount of funding and with some changes in the way they operated were up to the task of handling economic crises even if they affected all parts of the globe. Whether this incremental approach would work will depend upon how the international economic situation develops. It will also depend upon how the administration of President-elect Barack Obama, which at the time of the G-20 meeting, was a government- in -wanting would act once it takes office on January 20, 2009.