The G-20 summit in St. Petersburg, Russia, ended Sept. 6 with the conclusion that it is premature to declare that the global economic crisis has ended, despite signs of improvement.
During the two-day event, the G-20 leaders are believed to have covered a wide range of issues, including the impact the U.S. Federal Reserve’s exit strategy for quantitative easing may have on the world, particularly emerging economies, the fiscal deficits of each G-20 member, and potential responses to the alleged use of chemical weapons in Syria. The gap between the United States and Russia over the Syria issue was reminiscent of their Cold War confrontation.
However, the leaders’ declaration only repeated what the G-20 finance ministers and central bank chiefs said back in July — that central banks need to carefully adjust future changes in monetary policy while paying close attention to the risks and unintended side-effects of protracted monetary easing.
These all point to the limitations of the G-20 framework. The G-20 (which includes members of the European Union) accounts for roughly 90 percent of the world’s gross domestic product, 80 percent of all trade and about two-thirds of the world’s population. Yet they are still unable to spell out concrete responses to global political and economic challenges like the G-5 powers did in the past. In other words, the G-20 is unable to take responsible action in managing global affairs in a way commensurate with its hefty GDP. This is because each member is busy tackling its own problems, especially fiscal ones.
On the sidelines, Prime Minister Shinzo Abe also got his brief first chat with Chinese President Xi Jinping and spoke with U.S. President Barack Obama and Russian President Vladimir Putin. But these talks aren’t the purpose of the G-20 gathering itself.
Abe told his G-20 counterparts that Japan will aim to achieve its targets for fiscal rehabilitation based on the medium- and long-term plans adopted by the Cabinet last month. At home, however, he faces opposition even from his Liberal Democratic Party about the scheduled consumption tax hike.
Opponents argue that the two-stage tax hike could undermine Abe’s bid to end the nation’s protracted deflation. However, it must be noted that this economy-first mantra has resulted in Japan accumulating the world’s highest level of public debt.
Since the government is going to increase the burden on taxpayers with the pair of tax hikes, it needs to quickly work on cutting expenses — namely the number of national and local politicians and public servants and the size of their salaries. Various organizations that have been set up mainly to provide jobs for retired bureaucrats must be urgently dismantled as well.
Unfortunately, the government, in discussing ways to proceed with fiscal reconstruction, has done so little in terms of reducing public spending that it appears to be focusing mostly on how to increase revenue instead.
On Sept. 8, Tokyo was chosen to host the 2020 Summer Olympic Games. Although the event itself is seven years ahead, the decision will likely add momentum to the economy. However, it must also be remembered that when Tokyo last hosted the summer games in 1964, the massive cost of investing in Olympic-related facilities and infrastructure, along with the end of such spending when the event was over, resulted in the government issuing deficit-covering bonds in fiscal 1965 — the first time since the end of the war.
Japan now faces the obligation to hold a successful Olympic Games. At the same time, fiscal reconstruction is also a commitment to the world that Prime Minister Abe made at the G-20 summit. We cannot let the government use the 2020 Olympics as an excuse to postpone efforts to trim the deficit.
Teruhiko Mano is an international economic analyst.