National Security Network

Leaders Meet at G-8 as Global Economic Crisis Persists

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Report 8 July 2009

International Economy International Economy economic crisis economic security financial crisis G8 International Economy


The leaders of the eight leading industrialized nations meet in the G-8 summit in Italy today. This meeting comes just a few months after the G-20 summit in London, which sought to create a unified global response to the economic crisis. The IMF today reinforced the concern that much work remains to be done, and that it is too early to back away from stimulus policies and support for poorer countries.  While many wealthy countries are experiencing painful recessions, poorer countries are faring even worse. Fears of famine and political instability have continued to grow since. Director of National Intelligence Dennis Blair, warned that the global economic downturn is the “primary near-term security concern” for the United States.  President Obama is being called upon to play a leading role, putting the US at the front of discussions about climate change and food security as well as Iran and other topics. Yet  from stimulus at home to smarter energy policies to loans to the IMF, congressional conservatives are more interested in playing politics and obstructing the sort of action necessary to help tackle the crisis– a crisis that this Administration inherited from President Bush.

With global economy still in turmoil, world leaders convene at G-8 summit in Italy.
Reuters reported on the G8 summit, which begins in Italy today: “The Group of Eight meet in L'Aquila, a mountain town that was wrecked by an earthquake in April — providing a fitting backdrop for discussions on the crumpled global economy that is struggling to overcome the worst recession in living memory.”  According to Bloomberg, “[s]taunching the recession, combating climate change, promoting trade and dealing with Iran top the agenda of the G-8.”  A draft communiqué from the summit obtained by Reuters warns of “significant risks remain(ing) to economic and financial stability,” as well as a caution that “‘exit strategies’ from growth packages should only be unwound ‘once recovery is assured.’”  On Friday, the summit will turn to international development concerns, and it appears that leaders will commit to contributions of “another $12 billion over the next three years for a food security initiative,” emergency assistance designed to combat hunger, according to the New York Times.  There will also be a renewed impetus to conclude the Doha trade talks early next year.  Significant disagreements continue over two key issues:  climate change, where the G8 have apparently dropped an earlier goal of cutting emissions 50% by 2050, and global economic stimulus.  Bloomberg continues: “Divisions persist over stimulus measures -- Germany says now is the time to begin curbing deficits -- and the scope of financial oversight. The U.S., Europe and Japan are grappling with their first simultaneous recessions since World War II after the collapse of subprime mortgages froze credit markets and spurred almost $1.5 trillion in losses and writedowns at financial firms. The World Bank said last month that the global economy will shrink 2.9 percent this year, a deeper slump than the 1.7 percent contraction forecast in March.”   The Wall Street Journal reported on the latest assessment from the International Monetary Fund, which indicates that while the global recession appears to be leveling out, tough times still lie ahead: “the International Monetary Fund on Wednesday upgraded its outlook for 2010 while slightly trimming this year's forecast. The overleveraged global financial system continues to cast a shadow over the economic outlook, however, and the fund urged policymakers not to become complacent about recent market improvements. ‘Financial conditions have improved, as unprecedented policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen,’ the IMF said in its updating its outlook for the world economy and financial system. ‘Nonetheless, vulnerabilities remain and complacency must be avoided.’” [Reuters, 7/08/09. Bloomberg, 7/08/09. NY Times, 7/08/09. Wall Street Journal, 7/08/09]

Global economic recession increases geopolitical instability and national security risks. From the unexplained fluctuations in energy prices, to the increased likelihood of state failure, to devastating effects on the world’s poorest countries, to the reshaping of the international order, the repercussions of the financial crisis are dramatic. In February Dennis Blair, Director of National Intelligence, told Congress that the economic crisis had replaced terrorism as the “the primary near-term security concern” for America.   In advance of the G8, the UN’s Millennium Campaign warned that countries such as Kenya and the Democratic Republic of Congo could run out of foreign reserves within weeks. Former Deputy Treasury Secretary Roger Altman writes in the most recent Foreign Affairs that, “this crisis likely will increase geopolitical instability. Dennis Blair... has asserted that the downturn already has produced low-level instability in a quarter of the world. The IMF has warned that millions will be pushed into unemployment, poverty, rising social unrest, or even war.  Key commodity-centered nations, such as Iran and Russia, rose with the oil and resource boom and flexed their geopolitical muscles accordingly. But now, they are coming under severe economic pressure... Countries in Africa have been hardest hit of all, and instability will likely rise there. Fragile states, such as the Democratic Republic of the Congo and the Central African Republic, have seen their social problems exacerbated by the crisis. Foreign reserves in the region have dwindled. The Congolese government will soon be unable to import essentials, such as food and fuel. The Central African Republic is already unable to pay the salaries of its civil servants. In 2007, African countries raised $6.5 billion selling bonds on the international markets. This year, the figure will be zero...  A World Bank study estimated that 53 million people living in emerging markets will fall back into absolute poverty this year. More frightening, according to the same study, up to 400,000 more children will die each year through 2015 on account of this economic crisis.”  The instability in the energy market is further evidence that uncertainty and instability of the global recession is likely to continue.  As the New York Times reports, “The instability of oil and gas prices is puzzling government officials and policy analysts, who fear it could jeopardize a global recovery.  It is also hobbling businesses and consumers, who are already facing the effects of a stinging recession, as they try in vain to guess where prices will be a year from now — or even next month.”  [Dennis Blair, NY Times, 2/12/09. UN Millennium Campaign, 7/06/09.  Foreign Affairs, June/July. NSN, 5/29/09. NY Times, 7/5/09]

Efforts to mitigate the effects of the financial crisis are complicated by policy disagreements and partisan politics abroad and at home.  In his testimony before Congress, Dennis Blair also said, “The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests.”  The runup to the G8 has been marred by allegations that Italy has mismanaged the preparations and behind-the-scenes maneuvering that brought the US into a leading role – including intense US efforts to salvage and improve climate change language through a “mini-summit” tomorrow between leading developed and developing nations.  Echoing a debate taking place in Washington, the IMF warned that “recovery would be sluggish and policies needed to remain supportive.” Yet Bloomberg explained that  “House Republicans are calling for a freeze on federal spending in the next budget as a way to curb the federal deficit. They also were critical of Obama’s plan to cut the deficit. ‘We are challenging House Democrats to freeze spending at current levels as an important first step toward putting our fiscal house in order,’ Representative Mike Pence of Indiana said.” So when it came time to increase IMF funding to keep countries such as Pakistan solvent, conservatives like Senate Minority Leader John Boehner, played politics, even reversing his own position on IMF funding.  As Politico reports, “Boehner now derides the inclusion of IMF cash in the bill, calling it a ‘global bailout,’ despite President Obama's request that Congress make a down payment on the $100 billion he's committed to keeping the financial crisis from swamping developing countries, including Pakistan. That wasn't Boehner's tune in 1998, when the Clinton administration requested $18 billion in IMF funding to ameliorate the effects of the Asian financial crisis. ‘I have been as critical about the IMF as many, but given the crisis we have around the world, the U.S. needs to provide leadership,’ the Ohio Republican told the [Newark, N.J.] Star Ledger in Oct. 1998. ‘The only real avenue is the IMF.’ His comments were in keeping with the rest of the House GOP leadership at the time, including then-Speaker Newt Gingrich, who said the U.S. had ‘an obligation to work with’ the fund.” House Republicans have also opposed almost every effort to stimulate the economy, for instance the Washington Post, notes ,“Without a single Republican vote, President Obama won House approval on Wednesday for an $819 billion economic recovery plan.”[Dennis Blair, NY Times, 2/12/09. The Guardian, 7/08/09. Reuters, 7/08/09. Bloomberg, 2/23/09. Politico, 6/16/09. Washington Post, 1/28/09]

What We’re Reading

Chinese troops arrived in Urumqi, the capital of far western Xinjiang province, which has been wracked by ethnic violence in recent days, and Chinese President Hu Jintao left the G8 meeting to return to China and deal with the violence. The government has vowed to execute the instigators of the rioting. Authorities are blaming Uighur exiles for masterminding the violence. Despite the restrictions of the “Great Firewall” used by the Chinese government to censor the internet in the country, as well as apparent new censorship on Twitter and Chinese rival, the Chinese are venting their anger over the violence via the internet.

Iranian President Mahmoud Ahmadjinejad, calling Iran’s elections a “great event,” claimed they were the “most free” elections anywhere in the world. New protests are planned for Thursday.

In advance of his travel to Ghana, President Obama called on African nations to pursue good governance and stability.

An Iraqi insurgent group linked to al-Qaeda of Iraq urged militants to continue attacks on U.S. troops.

South Korean news agency Yonhap attributed recent crippling cyberattacks on U.S. and South Korean government websites to North Korea or pro-North Korea groups. Meanwhile, North Korean leader Kim Jong-il appeared at memorial services for his father, Kim Il-sung, the founder of the communist state. North Korean citizens continue to defect to South Korea in search of a new life.

International aid and advocacy group Oxfam demanded the “triumph of the rule of law” over the Gaza barrier. On Tuesday, former Georgia Rep. and Green Party presidential candidate Cynthia McKinney arrived in the U.S. after being detained in an Israeli prison for trying to break the Gaza naval blockade and deliver supplies.

Indonesians came out to vote, reelecting President Susilo Bambang Yudhoyo to his second five-year term.

Plainclothes investigators sent to test security at several federal buildings successfully smuggled bomb components through guard posts at all ten sites.  

Costa Rican President Oscar Arias has agreed to help mediate the crisis in Honduras.

Pope Benedict XVI criticized the international economic system and called for a new global structure based on social responsibility, concern for the dignity of the worker and a respect for ethics.

Commentary of the Day

Rebiya Kadeer, a Uighur exile who the Chinese consider to be a terrorist, is doubting the impartiality of the official government explanation for the riots. Kadeer presents an alternate explanation of the Uigher riots.

The LA Times expresses concern that a comeback by the Institutional Revolutionary Party in Mexico’s recent elections may reflect a longing to return to a one-party state.

The NY Times calls on Obama to lead the way at the G8 summit.

Martin Wolf opines about how India can become an affluent nation.