President Obama

In the communiqué issued after the summit concluded on Sunday afternoon, the leaders, including US President Barack Obama, pledged to cut their respective national deficits by half by 2013.

The promise is just one of the commitments made at the summit that also included countries like Canada, Brazil, Germany the United Kingdom, China, Argentina, India and members of the European Union.

G20 countries are faced with a significant dichotomy. On one hand, some counties, like the US, are faced with the problem of generating economic growth through huge stimulus funding, while at the same time cautious of expanding national debt. On the other, while these countries are pressing for expenditure to stimulate economic growth others countries like members of the European Union want to implement more rigorous measures.

The G20 communiqué was somewhat ambiguous. It stated, "Strengthening the recovery is key. To sustain recovery, we need to follow through on delivering existing stimulus plans." But the communiqué also stated, "Sound fiscal finances are essential to sustain recovery.”

The communiqué pinpointed the difference between European leaders and the US. For example, German Chancellor Angela Merkel has said budget cuts are urgently necessary, and the United Kingdom just announced a very austere budget. But, President Obama, speaking after the summit concluded said it must be recognized the financial health of tomorrow depends “in no small measure” on the ability of the global economy to “create jobs and growth today.”

Countries like India, Brazil, and Argentina also share the US’s concern that too sharp a deficit in government spending could spark another global recession. However, in the end, the fear that if some countries do not reduce their deficits could leave them unable to respond to another global economic crisis, seem to have influenced the agreement to try to reduce deficits by half by 2013.

But, the significance of this deficit-reduction agreement is questionable as it is not mandatory and there are no sanctions to be imposed if the deficit targets are missed. However, the IMF could serve the G20 as the watchman to ensure there is some attempt to cut deficits.

The IMF warned G20 members in a report that ignoring increases national debt could slow economic growth, create further high unemployment, higher debts to service and bigger trade deficits.

The IMF recommended that serious deficit reduction would offer big medium-term benefits – boosting the world's economic output by US$4-trillion, creating millions of jobs, roll back poverty and improve global economic stability.

But some US economists believe cutting the US deficit by half could worsen the economy as this could involve implementing cutting spending on major stimulus projects, possibly increasing taxes, and make the economy dependent on greater private sector expenditure at a time when credit is still hard to come by.

What the US delegation really wanted at the G20 Summit was for countries with trade surpluses to buy more from other counties with low exports to increase the latter’s national revenues. However, this strategy did not gain the required traction.

Led by the US which is involved in the process to reform its financial system the G20 also agreed to finalize regulations of the financial firms of its members by the next G-20 summit in Seoul next November. The key financial reforms under review include bank capital requirements, increased transparency for investment products, and more effective oversight of financial firms and the general financial market.