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: Law at the End of the Day

Castro and the G-20 Meeting Remaking Global Finance--Betrayal or Socialization in the Culture of Power?

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<div style="text-align: justify;">There is nothing like a little betrayal to sharpen the mind. . .and the pen. So Fidel Castro, working diligently for over a year to prepare his allies, principally Lula of Brazil, to serve as the Cuban proxy at the G-20 meeting, has found that money and power (and the allure of admission to the highest levels of inter-governmental political community) can trump ideology. And so it is with Cuba and its place among the community of nations. <blockquote>Algunos de los gobiernos que nos apoyan, a juzgar por declaraciones recientes, no dejan de incluir en las mismas que lo hacen para facilitar la transici n en Cuba. Transici n hacia d nde? Hacia el capitalismo, nico sistema en el que religiosamente creen. Ni una sola palabra expresan para reconocer el m rito de un pueblo que, sometido a casi medio siglo de crueles sanciones econ micas y agresiones, defendi una causa revolucionaria que, unida a su moral y patriotismo, le dio fuerzas para resistir.</blockquote>Fidel Castro Ruz, <a href="http://www.granma.cu/espanol/2008/noviembre/sabado15/REFLEXIONES-15nov.html">La reuni n de Washington</a>, Reflexiones de Fidel, Granma Internacional, Nov. 15, 2008 ("According to recent statements, some supportive governments do not cease to say they want to facilitate transition in <st1:country-region st="on"> <st1:place st="on">Cuba</st1:place></st1:country-region>. What kind of transition? Transition to capitalism, the only system they have absolute faith in. They do not say a word about the merits of our people, which for almost half a century of harsh economic sanctions and aggressions, has defended a revolutionary cause that together with its morale and patriotism, has given it the strength to put up a resistance."). There is, Fidel Castro suggests, little that capitalism can offer Cuba. "Tambi n olvidan que, despu s de las vidas ofrendadas y tanto sacrificio defendiendo la soberan a y la justicia, no se le puede ofrecer a Cuba en la otra orilla el capitalismo." Id. (" They seem to forget that after laying down lives and making sacrifices in defense of sovereignty and justice, <st1:country-region st="on"> <st1:place st="on">Cuba</st1:place></st1:country-region> cannot be expected to end up on the side of capitalism."). And thus the betrayal. It seem, according to Fidel, that in the proximity of power, no state is safe. Thus it is that even those emerging economy states most cultivated by Cuba--an oblique reference to both Brazil and China--the temptations of money are too great. Judas, Judas, everywhere in the socialist Garden of <a href="http://en.wikipedia.org/wiki/Garden_of_Gethsemane">Gethsemane</a>, and all too willing to betray for the appropriate sum. "Le hacen gui os a Estados Unidos, so ando que los ayudar a resolver sus propios problemas econ micos inyect ndoles sumas fabulosas de monedas de papel a sus tambaleantes econom as, que sostienen el intercambio desigual y abusivo con los pa ses emergentes." Id. ("They ingratiate themselves with the <st1:country-region st="on"> <st1:place st="on">United States</st1:place></st1:country-region> hoping that it will help them face their own economic problems injecting huge amounts of paper money to their shaky economies which maintain unequal and abusive terms of trade with the emerging nations."). Indeed, for Fidel, the problem is one that makes a mockery of Lula's recent statement that the G-8 no longer exists; that it must give way to the G-20. "President Lula said he would never have been able to imagine emerging powers like Brazil would be given such a role in restructuring the global economy. . . . He told reporters that the Group of Eight (G8) - the world's seven leading industrialised nations plus Russia - was an organisation that was no longer viable, calling it irrelevant. 'There is no logic to making any political and economic decisions without the G20 members - developing countries must be part of the solution to the global financial crisis,' he said." Emilio San Pedro, <a href="http://news.bbc.co.uk/2/hi/business/7731881.stm">Brazil President Hails G-20 Summit</a>, BBC News Online, Nov. 16, 2008. But for Castro, whether G-8, G-20, or whatever--each of these configurations suggest the same configuration of power. In each of these forms, a few states take it upon themselves to bear the burden and control the destinies of the rest. They have assumed that power by virtue of their own economic and political power. And that combination itself suggests a power to participate in the exploitation of the rest, irrespective of the good intentions of their leader--or their rhetoric of past exclusion. The system itself is the problem. Membership merely serves to co opt rising powers and to preserve that of the other developed states. <blockquote>After the summit, he hailed as historic the decision agreed at the meeting to give a role to the emerging economic powers like Brazil, China and India in restructure the global economy.He said it was something that he would have never dreamed could have been possible even six months ago. And, his comments were echoed by Indian Prime Minister Manmohan Singh, who said the crisis served as proof that countries which were excluded in the past must be included in the future. Emilio San Pedro, <a href="http://news.bbc.co.uk/2/hi/business/7731881.stm">Brazil President Hails G-20 Summit</a>,supra.</blockquote>Thus, Brazil, India and China are, for Castro, like the <a href="http://en.wikipedia.org/wiki/Nouveau_riche">nouveau riche</a>, or the <a href="http://en.wikipedia.org/wiki/Robber_baron_%28industrialist%29">robber barons</a> of late 19th century America--eager to show off their new status and quick to forget their origins. Ouch! Thus, Castro suggests it is no surprise that the poor are forgotten in the rush to become socialized in the political culture of rich states. <blockquote>Ninguno de los que participar n en la reuni n, convocada precipitadamente por el actual Presidente de Estados Unidos, ha dicho una palabra sobre la ausencia de m s de 150 Estados con iguales o peores problemas, que no tendr n derecho a decir una palabra sobre el orden financiero internacional, como propuso el Presidente pro tempore de la Asamblea General de las Naciones Unidas, Miguel D Escoto, entre ellos la mayor parte de los pa ses de Am rica Latina, el Caribe, frica, Asia y Ocean a.</blockquote>Fidel Castro Ruz, <a href="http://www.granma.cu/espanol/2008/noviembre/sabado15/REFLEXIONES-15nov.html">La reuni n de Washington</a>, supra. ("None of the participants in the conclave hurriedly convened by the sitting President of the United States has said a word about the absence of over 150 nations facing the same problems or even worse. These will not have the right to speak on the international financial order as the pro tempore President of the UN General Assembly Miguel D Escoto had proposed, even when they include most of the countries from Latin America, the Caribbean, Africa, Asia and Oceania. "). And of course, the little dig to the outgoing American president to add a dismissive suggestion of desperation to the cast of the meeting. And more than that--a tentative and pessimistic outreach to the incoming president. "Muchos sue an que, con un simple cambio de mando en la jefatura del imperio, este ser a m s tolerante y menos belicoso. El desprecio por su actual gobernante conduce a ilusiones del probable cambio del sistema. No se conoce todav a el pensamiento m s ntimo del ciudadano que tomar el tim n sobre el tema. Ser a sumamente ingenuo creer que las buenas intenciones de una persona inteligente podr an cambiar lo que siglos de intereses y ego smo han creado. La historia humana demuestra otra cosa." Id. ("Many seem to dream that after a simple change of leadership in the empire, this would be more tolerant and less hostile. Apparently, contempt for the incumbent ruler makes some entertain illusions about a probable change in the system. The innermost ideas of the citizen who will take over the issue are yet unknown. It would be extremely na ve to believe that the good will of a smart person could change what is the result of centuries of selfishness and vested interests."). And what of the G-20 meeting? First, it is worth recalling the origins of the G-20: "The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 15 16, 1999, hosted by German and Canadian finance ministers." <a href="http://www.g20.org/G20/">About G-20</a>, Official Website. The object is inclusion--certainly so--but also socialization and community among the group of developed states. Joining the G-20, in a sense, requires abandoning status as a developing state, as a have-not, and assuming the responsibilities, obligations, and character of the haves. That, I suspect, is the ultimate betrayal that Castro is right to fear--for him--and the Americans to welcome for the preservation of the current system. Well, so far so good--for the Americans: the appearance of a grand coalition to revamp Bretton Woods while preserving its essence in private economic ordering, disclosure and free movements of capital without substantive intrusion by the state. This is what comes across from a reading of the well crafted G-20 Declaration, the <a href="http://news.bbc.co.uk/2/hi/business/7731741.stm">full text of which</a> has been reproduced by the BBC. Let us look at the <a href="http://news.bbc.co.uk/2/hi/business/7731741.stm">G-20 Declaration</a> a little more closely. I want to focus on two elements of that Declaration. The first is the "Actions to be Taken": <blockquote>7. Against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries. As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will: Continue our vigorous efforts and take whatever further actions are necessary to stabilize the financial system. Recognize the importance of monetary policy support, as deemed appropriate to domestic conditions. Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability. Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support. We stress the International Monetary Fund's (IMF) important role in crisis response, welcome its new short-term liquidity facility, and urge the ongoing review of its instruments and facilities to ensure flexibility. Encourage the World Bank and other multilateral development banks (MDBs) to use their full capacity in support of their development agenda, and we welcome the recent introduction of new facilities by the World Bank in the areas of infrastructure and trade finance. Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis. </blockquote><a href="http://news.bbc.co.uk/2/hi/business/7731741.stm">G-20 Declaration</a>. There are several points worth emphasizing here. The first is an affirmation of the role of states as regulators of markets, but not as the controllers of markets. That is an important and critical distinction. Thus the importance of policy support. The second--and one that must have raised Castro's blood pressure--is the embrace of the consumerist model of economic prosperity. The global financial crisis will end, it seems, upon the appropriate stimulation of what is termed "domestic demand." And most importantly, perhaps, is the commitment to the present IMF-World Bank architecture. There will certainly be reforms around the edges to satisfy the needs of the new members of the inner circle--but they will remain gestures rather than fundamental reform. The second is the section entitled "Common Principles for Reform of Financial Markets":<blockquote>9. We commit to implementing policies consistent with the following common principles for reform. Strengthening Transparency and Accountability: We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions. Incentives should be aligned to avoid excessive risk-taking. Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. We will also make regulatory regimes more effective over the economic cycle, while ensuring that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services. We commit to transparent assessments of our national regulatory systems. Promoting Integrity in Financial Markets: We commit to protect the integrity of the world's financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency. Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution. Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response. </blockquote><a href="http://news.bbc.co.uk/2/hi/business/7731741.stm">G-20 Declaration</a>. There are a few significant points raised here as well. The most interesting for me is the displacement of private regulatory power with state power. Most critical in that respect is the pledge to control credit rating agencies. For an important discussion of the regulatory power of credit rating aencies, see Katheryne Mitchell and Katherine Beckett, S<a href="http://www.accessmylibrary.com/coms2/summary_0286-35169642_ITM">ecuring the Global City: Crime, Consulting, Risk, and Ratings in the Production of Urban Space</a>, 15 Indiana Journal of Global Legal Studies 75-100 (2008). The commitment to strengthening transparency and accountability is a project long in the making. It has marked all elements of globalized regulation. The same appliues to the commitment to promoting the integrity of financial markets. It has been at the foundation of prohjects to modernize the markets regulatory system within the E.U. and U.S. These projects are at least a decade in the making in their modern form. See, Larry Cat Backer, <a href="http://ssrn.com/abstract=1081242">Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes</a>, Indiana Journal of Global Legal Studies, Vol. 15:101-148, 2007. To that extent it represents an advance in business as usual rather than an innovative new approach. The details will be interesting but the regulatory vector is traditional indeed! The most interesting proposal involves not what most of the media has focused on (enhanced sound regulation) but the commitment to international cooperation. We have already begun to see some of the shadows of the emerging cooperative framework--a development of a college of central banks. See Larry Cat Backer, <a href="http://lcbackerblog.blogspot.com/2008/11/cuban-puritanism-and-american.html">Cuban Puritanism and American Internationalism on the Road to the Global Financial Estates General of 2008</a>, Law at the WEnd of the Day, Nov. 11, 2008. The reform of the international financial instruments is a honeyed trap for the developing states now members of the G-20. On the one hand it appears to represent a loss of power by the G-8. Nopw others will assume a level of control unthinkable a decade ago. That is the way the media and emerging economies would like to see it. But the reality will be more complex--joining will begin the socialization process in the mechanics of dominance and power. The greatest victory, the silver lining of this crisis, is the opportunity to fold the great emerging states into the political mores of the older club. Careful review reveals that the enhanced mission of the IMF and other bodies appears little different from the policy movement of these institutions that have been carefullty charted over the last decade. Its announcement as somehow innovative or responsive to the crisis is suspect. Its principal purpose is clear--to provide a propaganda curtain behind which the group of dominant states grows, but their character remains unchainged. This is a good thing for the Americans and Europeans--it represents another small victory in efforts to preserve the current form of glovbalization and its socio-political presumptions. For Castro, it represents a betrayal at the Garden of Gethsemane for many more than 30 pieces of silver. </div>

Full post as published by Law at the End of the Day on November 17, 2008 (boomark / email).