G20 Cooperation Is Good, But Not Enough

The G20 issued a statement that threw its collective weight -- accounting for almost nine-tenths of the world's GDP -- behind pro-growth and pro-trade policies. The attendees broadly agreed to take additional fiscal and monetary measures and pledged not to impose new trade barriers. This is the most that could have reasonably expected.

Leaving aside the U.K.'s recent use of antiterrorist measures to freeze assets of a bank from fellow-NATO member Iceland, there appears to be a heightened cooperative spirit, but that is not the same as coordination. The G20 statement seemed to smooth over differences by explicitly stating that the crisis is "first and foremost" a national responsibility.

And this is not very new or inspiring. Many countries have already taken monetary and fiscal measures. More measures are widely anticipated. *

There were a couple of other actionables coming from the G20 meeting. First, the group tentatively agreed to meet again by May. Second, they agreed to a March deadline for recommendations of reform -- seeking to strengthen accounting standards and oversight of derivatives, hedge funds and rating agencies. Third, as expected, there were efforts to give the IMF a bigger role. Japan had indicated before the G20 summit that it would help boost the IMF's lending capacity to $300 billion from $200 billion. The IMF has committed itself to $40 billion in new programs over the last couple weeks ($7.6 billion for Pakistan, $15.7 billion for Hungary and $16.4 billion for Ukraine), and another $4 billion (for Iceland and Belarus) appears to be in the works.

Taken as a whole, it does not appear that the outcome of the summit will be sufficient to stem the financial crisis. This was a high bar from the start. As the crisis continues, deleveraging and portfolio liquidation likely will continue to exert upward pressure on the U.S. dollar and Japanese yen. Lastly, in this environment, we expect pressure to remain on emerging-market currencies. The volatility and risk aversion remain significant deterrents against picking a bottom, even if interest rates and valuation models make them as a group appear relatively cheap. **

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Marc Chandler has been covering the global capital markets in one fashion or another for nearly 20 years, working at economic consulting firms and global investment banks. Currently, he is the chief foreign exchange strategist at Brown Brothers Harriman. Recently, Chandler was the chief currency strategist for HSBC Bank USA. He is a prolific writer and speaker and appears regularly on CNBC. In addition to being quoted in the financial press, Chandler is often a guest writer for the Financial Times. He also teaches at New York University, where he is an associate professor in the School of Continuing and Professional Studies. While Chandler cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.