Argument

The G-20 Is Failing

World leaders said they'd reform the world's financial institutions in the wake of the Great Recession, but they haven't met their commitments. We all may pay the price.

The leaders of the G-20 countries have played a crucial role in rescuing the world from the brink of economic and financial disaster. They agreed to an impressive agenda in Washington in November 2008, and at their April 2009 London summit committed themselves to an integrated strategy to rescue the world economy from the brink of depression, to reform international financial regulation, and to transform the governance of the world's most important global financial institutions.

But now the G-20's accomplishments are in danger of unraveling, because these countries have failed to implement their agreements on reform of the International Monetary Fund (IMF). These reforms would enhance the role of the emerging market and developing countries, and help to cement the commitment of those countries to the global system. A failure now would produce multiple black eyes for the G-20 and represent a setback for the still-precarious world economy.

The challenge for the G-20 is to live up to its subsequent pledge in Seoul in November 2010 to implement a two-step reform of the IMF's governance. The first step would double IMF quota subscriptions, which are the core financial resources the IMF uses to lend to other members. Although this step would not significantly increase the overall financial resources of the IMF due to offsetting reductions elsewhere, it would modestly redistribute voting power away from the advanced countries and toward fast-growing emerging market and developing countries.

In addition, the Seoul agreement included the adoption of an amendment to the IMF charter that would redistribute seats on the IMF's executive board away from Europe. The G-20 leaders promised that this combined first step would be implemented by mid-October of this year, when the IMF's annual meeting will be held in Tokyo.

The second step agreed to in Seoul called for a revision of the formula used to adjust IMF quota shares by January 2013. This revision would be followed by a substantial increase in IMF quota subscriptions and overall financial resources by January 2014. This also promises to further increase the IMF voting power of emerging and developing countries, which was a key to winning their agreement to the overall reform package. Many of those same countries are now being called by the Europeans and by IMF Managing Director Christine Lagarde to temporarily lend to the IMF to protect Europe and the rest of the world from an escalation of the European sovereign debt crisis. One would think they would be more inclined to heed those calls if prospects for the reforms' implementation were better.

Unfortunately, and potentially tragically, the G-20 countries have dropped the ball on implementing the IMF governance reforms. Although October is still months away, it now looks like the Seoul commitments will not be met on the original timetable. None of the elements of the first step in the Seoul agreement can be implemented unless they all receive the necessary approvals. The crucial element is the amendment of the IMF charter: It requires acceptance by 60 percent of member countries (113 of 187) that also hold 85 percent of total IMF votes, which are weighted according to IMF quotas.

As of April 5, only 66 members with 46 percent of the votes had accepted the amendment. Crucially for the credibility of the G-20, only nine of the 19 core members of the G-20 have acted positively. The 10 missing G-20 countries have 36 percent of the votes in the IMF, 3 percent short of the remaining 40 percent needed to pass the amendment.

The United States, which has the largest IMF quota, is one of the major culprits behind the delay. Implementing the first step in the Seoul agreement requires formal approval by the United States because it holds 16.7 percent of the votes. But the Obama administration has declined to submit the necessary legislation to Congress, apparently fearing that doing so would ignite a fiscal battle that it does not want in an election year.

This lack of U.S. leadership is distressing, and at odds to the role the United States played in London three years ago. But it's not only the United States that has failed to act: The list of G-20 countries that have failed to embrace these necessary reforms includes two other advanced countries -- Canada and Germany -- and seven emerging market countries -- Argentina, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, and Turkey.

The foot-dragging on the part of Mexico -- the current chair of the G-20 -- is indicative of a lack of G-20 commitment to IMF reform. The presence of Russia and South Africa is also ironic as they are members of the BRICS -- the group of developing economies that at its summit last month in India called for implementing the IMF reforms on the agreed timetable. Each G-20 country has its own reasons for delay, but at present the sum total is a colossal failure in G-20 leadership.

What should happen? Most importantly, the United States and the other G-20 countries should meet their international commitments by passing the IMF reforms on the agreed-upon schedule.

Because of the political season, there is a good chance that the United States will only consider acting after the election, in a lame-duck session of Congress. However, this alternative should not be in play unless enough of the rest of the G-20 countries has acted, or will act, by the end of the year. The reason is that a lack of progress on the first step in the Seoul package has delayed progress on the second step -- and will continue to do so. The U.S. administration has little to gain from spending its scarce political capital on a controversial issue unless it has a reasonable assurance that the complete two-step IMF reform package is back on track.

An attractive alternative would be to restart the process in early 2013. The G-20 countries and the rest of the IMF membership could then focus on reaching agreement on the new quota formula and on a substantial, permanent increase in IMF quota resources -- which the European crisis has demonstrated are needed -- by January 2014. The two steps in the original Seoul agreement would be combined, and the United States and other laggard countries would be able to submit the package in its entirety to their national approval processes. This would allow the G-20 countries to catch up with their original timetable.

What is not acceptable, however, is for countries to allow these important reforms to remain in limbo indefinitely. A failure to do what is necessary will put the global economy and financial system at risk by starving the IMF of resources and sidelining it as the principal institution of the global economic and financial cooperation. This time, if there is another crisis, the G-20 countries would have only themselves to blame.

MARTIN BUREAU/AFP/Getty Images

Argument

Clinton Embraces the Navy

Will U.S. competition with China for naval dominance spark a new Cold War on the high seas?

On Tuesday evening, U.S. Secretary of State Hillary Clinton recounted, for the benefit of an audience of midshipmen at the United States Naval Academy, the tension of watching the Osama bin Laden raid play out in real time. She also warned North Korea against testing a ballistic missile in honor of Kim Il Sung's birthday, and sketched out some themes relating to the future of U.S. relations with China. In what may be the most important but least remarked upon part of the speech, however, Secretary Clinton signaled the Obama administration's embrace of the vision set forth in the U.S. Navy's Cooperative Strategy for 21st Century Seapower, the 2007 strategic guidance document linking maritime power to the success of the liberal international order, and may have tipped the administration's hand with regard to how the defense realignment of the next decade will play out. Clinton's speech effectively aligned U.S. East Asian strategy with the Navy's cooperative strategic concept, a move that may signal the direction of U.S. regional defense and diplomatic policy and structure the character of China's response.

North Korea commanded Clinton's immediate attention. Earlier in the day, she held a joint press conference with Japanese Foreign Minister Kochiro Gemba, reaffirming the American commitment to the U.S.-Japanese alliance and expressing concern over the developing situation in North Korea. The central problem involves North Korea's apparent plans to launch a ballistic missile to mark the 100th anniversary of Kim Il Sung's birth. According to U.S. officials, this launch would represent an abrogation of the accord reached earlier this year to supply the DPRK with nutritional assistance. Optimistically, the deal struck with the DPRK might have placed North Korea on the back burner for a few months. The near record-setting collapse of the deal means that the administration will have to divide its attention between Iran and North Korea while making the domestic case for its foreign-policy success.

North Korea, however, represents only a facet of the larger strategic situation facing the United States in East Asia. Clinton repeatedly invoked themes associated with liberal internationalism and rejected the idea that the administration's much-ballyhooed "pivot to Asia" represented a return to the Cold War, or to a "zero sum" relationship with China, instead arguing that "a thriving China is good for America, and a thriving America is good for China." Clinton suggested that the "architecture of institutions, norms, and alliances" developed in the wake of the Second World War required "renovation," but that the basic principles of management of international relations (and of U.S. leadership) remained sound.  She lauded the Chinese role in fighting pirates off the Horn of Africa, but was also cagey about China's regional role, repeatedly emphasizing U.S. concerns over maritime freedom in the South China Sea.

But the delivery of this speech as part of the Forrestal Lecture Series at the United States Naval Academy was no accident. Clinton was not shy about connecting the Asian pivot with Secretary of Defense James V. Forrestal and with the Navy, as the speech made clear that the primary responsibility for managing military affairs in the Asia Pacific region will fall on the Navy, with the U.S. Air Force presumably playing a significant supporting role. The critical insight came in discussion of the nature of U.S. Navy responsibility; Clinton lauded not the Navy's combat capability in the manner of Alfred T. Mahan, but rather emphasized that the Navy helps shape the contours of political conflict in the Asia Pacific through a wide variety of means, not least direct contact with regional navies. According to Clinton, "each year U.S. Navy ships, and sailors and marines, participate in more than 170 bilateral and multilateral exercises, and conduct more than 250 port visits in the region. ... This allows us to respond more quickly and efficiently when we have to work together with partners." She invoked the partnership between the U.S. Navy and its Japanese counterpart, the Maritime Self Defense Force, in the wake of the Kobe earthquake as fruit of the multilateral policy. The U.S. Navy's ability to conduct multifaceted relief operations in the Asia Pacific littoral (a capability that the Chinese Navy currently lacks) highlights the persistent utility of a U.S. leadership role; the U.S. Navy effectively makes itself an indispensible part of any major multilateral maritime operation. Clinton repeatedly invoked themes of maritime security as a positive-sum game, partnership building, freedom of navigation, and multilateral dispute resolution.

These themes could have been ripped straight from the Navy's Cooperative Strategy for 21st Century Seapower, which emphasized the same talking points. Built on the "1,000-ship Navy" concept, the Cooperative Strategy, known to Navy wonks as CS-21, envisions a U.S.-led multilateral naval capability that essentially makes the world safe for the liberal international economic order. Mahan it is assuredly not.

So what does it all mean? As part of its "pivot to Asia," the Obama administration has adopted the Navy's vision of the centrality of seapower to grand strategy, and appreciates the multifaceted role that the Navy will play in shaping East Asian politics. Clinton, at least, appreciates that CS-21 is fundamentally a document of "soft" liberal internationalism, even though it emerged under the previous administration. In terms of defense politics, this appreciation may well suggest that the administration may favor the Navy over the other two services. That Clinton emphasized the "soft" diplomatic and partnership building elements of naval power rather than the "hard" warfighting aspects implies that the Obama administration will favor the "sea" over the "air" in the AirSea Battle doctrine the Navy and Air Force are jointly producing. Indeed, given that the Romney campaign has repeatedly stressed themes associated with the Navy and with East Asia (such as shipbuilding), signs point to a relatively bright future for our nation's admirals and sailors.

It seems unlikely, though, that the Chinese will be too excited about seeing more American warships in their backyard. Clinton acknowledged this obliquely, saying, "I am well aware that some in Asia fear that a robust American presence, and our talk of architecture, institutions, and norms is really code for protecting Western prerogatives and denying rising powers their fair share of influence. The argument goes that we're trying to draw them into a rigged system that favors us."

Well, yes.

Regardless of U.S. protestations to the contrary, the Chinese will likely favor precisely this interpretation of the reorganization of U.S. military assets in the Asia Pacific. Indeed, there were hints of Cold War-style dispute resolution mechanisms; Clinton made clear that "working hard to reduce the risk of miscalculation or miscues between the American and Chinese militaries and forge a durable military-to-military relationship," was a key goal. However, by using the language of cooperative seapower, Clinton attempted to set the terms on which the U.S. Navy and its Chinese counterpart would compete for influence in East Asia. Regional navies undoubtedly already note the contrast between the U.S. Navy's focus on partnership and Bejing's confrontational attitude in the South China Sea.

Moreover, Clinton's acknowledgment of the relationship between maritime power, the liberal international order, and U.S.-China relations was important. As she noted, China and the United States have much deeper ties with one another than the United States and the USSR possessed 60 years ago. As much as they may diverge, the two superpowers share critical maritime interests, and the key question of Sino-American relations may become how to accommodate these interests within an emerging regional security architecture. This speech may have given indications not only of the future of defense politics in the United States, but also of the character of U.S.-Chinese competition for the next decade and beyond.

JIM WATSON/AFP/Getty Images