1050x300-AS-G-20-Righting an upside-down world

G-20: Righting an upside-down world

Author(s): Andrew Sheng

Date: Feb 21, 2014

Theme(s): Finance & Macroeconomics

Publications: Opinions & Speeches

Andrew Sheng writes on his hopes on the takeaways for G20 2014.
It is not so obvious these days, but the G-20 was formed out of crisis, established in 1999 as a meeting of finance ministers and central bank governors in the aftermath of the Asian financial crisis. The world came together back then in recognition that the old global economic governance model of the G-7 (North America, Europe and Japan), which later became the G-8 to include Russia, lacked legitimacy in managing a multipolar world.

In 2008, in the midst of crisis, there was agreement that reform of the international monetary system was urgent. Six years on, the G-20 seems to be confronting a world of “de-globalization” instead of strengthening global growth and stability. Perhaps when they meet in Sydney this weekend, the G-20 finance ministers and central bank governors will contemplate some or all of the following issues:

First, in late January, the U.S. Congress de facto killed progress in international monetary reform by not ratifying International Monetary Fund quota changes that were largely crafted by the U.S. administration itself.

Second, the World Trade Organization trade negotiations nearly stalled until last-minute talks in Bali last December staved off a disastrous collapse.

Third, banking has become balkanized amid the subsidiarization of branch banking. There are still no concrete rules on how to deal with shadow banking.

Fourth, instead of emerging markets becoming the engine of growth, the tapering of the U.S. Federal Reserve’s quantitative easing program has caused a massive capital flow out of emerging markets, so much so that the markets are now worried about the “Fragile Five” – Brazil, Indonesia, India, Turkey and South Africa, all leading members of the G-20.

Talk it out

The G-20 is the right forum to consider such issues. The group comprises the old G-8 and 12 large, emerging and advanced economies or markets, notably Argentina, Australia, China, India, Brazil, Indonesia, South Korea, Mexico, Turkey, Saudi Arabia, South Africa and the European Union.

Seven international organizations are also involved in the G-20 process, namely, the Financial Stability Board, the International Labor Organization, the IMF, the World Bank, the Organization for Economic Cooperation and Development, the United Nations, and the World Trade Organization.

Together, the members account for 85 per cent of world GDP, 75 per cent of world trade and two-thirds of the world’s population.

Essentially the group meets twice a year, once with finance ministers and central bank governors, who will meet in Sydney under Australia’s chairmanship on Feb 22-23. This will be followed by a Leaders Summit, set for mid-November in Brisbane. The group’s official purpose is to discuss ways to strengthen the global economy, reform international financial institutions, improve financial regulation, and implement key economic reforms in important countries.

Recognizing that shepherding a large global agenda with an annual rotation of hosts is a complex task, the previous, current and next G-20 chairmen — Russia, Australia and Turkey — each have a team of 20 “sherpas,” or experts, in each country to help coordinate complex national priorities within a convoluted global agenda.

Growing complications

Unlike the G-7, which is a tight group of officials meeting regularly to discuss the common interests of advanced countries in a largely unipolar world, G-20 meetings involve a cast of thousands. For the upcoming meeting, over 2,000 people will descend on Sydney, while 7,000 are expected to go to Brisbane in mid-November, including 4,000 delegates and 3,000 media representatives.

Over the last eight years, starting with the 47 Action Plan agreed in Washington to address the North Atlantic financial crisis, the G-20 has widened its scope to partner with business groups (B-20), civil society (C-20), labor (L-20), think tanks and academic research groups (T-20) and youth (Y20).

Given a rotating host and no permanent secretariat, the G-20 has found itself in exotic cities — Los Cabos and Cannes, for example — with individual hosts adding their own pet issues, so that the agenda has grown beyond recognition. As one former sherpa remarked after the last summit, in St. Petersburg, “The G-20 is falling into a bureaucratic morass -– longer communiques (and annexes), more words and no sense of progress.”

There are high hopes for the G-20 under the leadership of the Australians, who are famous for their straight talk and Aussie “can-do” approach. As Prime Minister Tony Abbott said in his welcome remarks,“The G-20 has proved itself in difficult times. … The challenge for the G-20 this year will be to make concrete decisions and take real steps that will improve people’s lives through stronger growth, more jobs and better infrastructure.”

In that vein, Brisbane’s “G-20 Agenda for Growth and Resilience in 2014” offers a veritable wish-list, with something for each of its 20 stakeholders. The organization’s track record suggests it has not always delivered on leadership when the interests of the global public diverge from the interests of its individual members. Abbott rightly recognizes that getting the G-20’s act together requires developed and emerging economies to work in concert, and requires partnership between governments, private enterprise and local communities.

The question is whether there will be real partnership when the world’s wealthiest 1 per cent own half the world’s assets, whereas just before the crisis it was only 40 per cent. This is the upside down world that we all hope will begin to be righted Down Under.


This article first appeared in the Nikkei Asian Review February 21, 2014.

The views expressed in this article are the author’s own and do not necessarily reflect Fung Global Institute’s editorial policy.