Home The Washington Diplomat September 2009

G-20 Gathers in PittsburghTo Revisit London Promises

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British Prime Minister Gordon Brown wrapped up the April G-20 meeting in London by announcing that the world was witnessing the emergence of a new world economic order, implying that the days of Washington-Wall Street dominance were over. In other words, the world’s traditional powers would no longer control the world’s agenda.

While that is debatable, Brown is correct to say the G-20 — the group of 20 nations that together control about 85 percent of the world’s economy — has emerged as a major player, if not the unofficial decision maker, in the lingering global economic crisis.

Faced with a decline in world trade for the first time in a quarter century, decreased growth and frozen credit markets, the body has met twice recently — in November 2008 and April 2009. They pledged more than class="import-text">2009September.Gordon Brown.txt trillion in funding to boost the world economy and committed to greater financial regulation, agreeing on the importance of bailing out developing countries, increasing transparency, stimulating world trade and resisting protectionism.

While world leaders and scholars have called the moves historic strides in battling the current downturn and heading off future recessions, others have been more skeptical of what’s really been accomplished. Even President Barack Obama, after the April meeting, admitted that there were “no guarantees” the plans would reverse the direction of the financial slide.

G-20 members are now preparing for the follow-up meeting in Pittsburgh from Sept. 24 to 25, when they are expected to put on another global show of unity, continue to explore ways to shore up the still-shaky world economy, examine progress made since the last summit, and quiet skeptics who see these international summits as long on photo-ops and short on substance.

The Financial Times argues that if the G-20 wants respect, it must distance itself from other international bodies — namely the G-8 club of industrial powers — by making sure its promises are “not just hot air.” That includes fulfilling pledges to poor countries.

“Groupings that produce grandiloquent promises of international action are only worthwhile when they materially affect the domestic policy debates in their member countries,” the Financial Times wrote following the London summit. “Breaking the G-8 aid pledges has inflicted no significant political damage on anyone…. In that regard, there is scant evidence yet that the G-20 can perform any better than its widely discredited older cousin.”

ABCs of the Gs The G-20 is an informal body made up of the leading industrial economies of the G-8 (Britain, Canada, France, Germany, Italy, Japan, Russia and the United States), emerging market powerhouses such as China and India, as well as middle-income economies such as Mexico. The World Bank and International Monetary Fund also attend the meetings.

The body held its first meeting in December 1999 to deal with the Asian financial crises and the “growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance,” according to the G-20 Web site.

Since then, the makeup of the body has not changed and member countries have come to represent about 90 percent of global gross national product, 80 percent of world trade, as well as two-thirds of the world’s population.

Many experts say that the G-20 carries more clout than the G-8 because its broader membership is more representative of the world economy, encompassing China and other developing heavyweights.

“It does make sense in a lot of ways for there to be a larger group because if the whole point is there are new actors shaping the way the globe is headed, then they ought to be at the table,” said Alexei Monsarrat, director of the Global Business and Economics Program at the Washington-based Atlantic Council of the United States. “But you have to recognize that will make it harder to come up with a common view on where things are headed.”

And nations clamoring to join the exclusive club only compound the issue. “The problem is the practicality of it is very difficult with all these Gs. Is it the G-20, or really the 23 or 24, because you have Spain in there and the Netherlands there. Then you always have a few countries around the edges that are pushing hard to get in. If you define yourself as everything, you have defined yourself as nothing. Then sooner or later you are just the U.N.,” Monsarrat warned. “My concern with the G-20 is that it is not a group of like-minded countries — where the G-8 primarily is. The G-20 does not have that baseline,” he added. “You haven’t really defined what your scope of work will be or your role will be.”

Ascension Amid Downturn So far, the G-20 has largely shaped its identity based on last year’s economic fallout. When the group assembled in Washington last fall just after stock markets around the world crashed in October, the so-called Summit on Financial Markets and the World Economy marked a departure from past gatherings in which finance ministers and bank heads represented member states. Hosted by lame-duck President George W. Bush, the summit was the first to bring together heads of state from each member country, along with their respective finance ministers and central bankers.

The meeting made it clear that the economic crisis had elevated the group to the forefront of the debate over how to tackle a financial meltdown that has ravaged developed countries and also added hundreds of millions to the list of people living in poverty worldwide.

For this reason, many onlookers saw the Washington meeting as the first step toward a new international framework. The primary emphasis had shifted from the G-8 to the G-20.

Leaders emerged from the first summit with the “Washington Declaration,” which said the G-20 was committed to taking “whatever actions are necessary” to stabilize the financial system. The G-20 also produced an action plan that addressed strengthening transparency and accountability; enhancing sound regulation; promoting integrity in financial markets; reinforcing international cooperation; and reforming international financial institutions.

The body also pledged to fight anti-trade policies, though that effort was later debunked by a World Trade Organization report released in March that found that of the 20 members, 17 had failed to keep their promises, raising tariffs, imposing import restrictions or reinstating subsidies.

Nevertheless in April, President Obama reaffirmed the G-20‘s ascendance in world affairs with the London summit. Obama declared that the follow-up gathering demonstrated the power of developing nations and signaled a new age in which decisions about the future of the global economy would no longer be made by an elite club of Western powers that had established global rules since the Bretton Woods Agreements in 1944.

Leaders emerged from London committed to increasing IMF resources by 0 billion, to support a Special Drawing Rights allocation of 0 billion, and to boost international development bank lending by 0 billion. An additional 0 billion was committed to support trade finance. Also, a Financial Stability Board (a beefed-up version of Financial Stability Forum) was created to police global financial risk and push sanctions against secretive tax havens.

Winners included the IMF, the Financial Stability Board and China, which “stood out to the point where it rivals the U.S. as the ‘indispensable power,’” according to Andrew F. Cooper, associate director of Canada’s Centre for International Governance Innovation.

Meanwhile, others say poor nations apparently came out at the bottom — again.

To gain any relevance, the G-20 must show it’s serious about linking institutional reforms to the “issue of equality with the global south,” Cooper argued, referring to developing nations.

World-renowned economist Jeffrey Sachs agrees, pointing out that all of the assistance is in the forms of loans, not grants — and the class="import-text">2009September.Gordon Brown.txt.1 trillion figure masks the actual amount promised. “The G20 has done almost nothing for the world’s poorest countries,” charged Sachs, director of the Earth Institute and economics professor at Columbia University. “At the very most, less than 5 percent of this package — about billion — is targeted at low-income countries, but this too is an exaggeration. At least half of this billion has not been raised. Moreover, none of this billion will be used to provide the grants desperately needed by poor countries. Instead, it will be disbursed as loans.”

Pinning Hopes on Pittsburgh In recent months, the class="import-text">2009September.Gordon Brown.txt.1 trillion package pledged in London has faced additional scrutiny from advocacy groups and policy wonks who say a good deal of the money may have been double counted. Others complain that the G-20 countries must inject more stimulus money into the world economy, deal with toxic assets that still clog the market, provide poor nations with real representation in international institutions, and live up to their stated desire to avoid protectionism.

But others point out that there are strong signs the economy has bottomed out and is on the road to recovery. To wade through the conflicting data, U.S. Treasury Secretary Timothy Geithner travels to London from Sept. 4 to 5 for the G-20 meeting of finance ministers and central bank governors to examine the progress made since the London summit. That discussion will drive much of the conversation when state leaders travel to Pittsburgh a few weeks later.

“The Pittsburgh conference is going to look much more toward the future. What’s going to lead economic growth and what our recovery is going to look like. The role of innovation, and what that is going to mean to me, and whether or not the regulations should be put in place,” said Monsarrat of the Atlantic Council.

“I think they have done, frankly for what they are, a fairly good job,” he added, noting that the group has made tangible gains in financial regulation. But like many experts, he says the fragmented nature of the group inherently prevents it from forging real consensus — the crucial test for its future authority.

“My experience working in government and watching these things is that [these global groupings] are very useful for setting out an agenda and making clear … what’s important to them and what’s going to matter for global development, global health etc.,” said Monsarrat. “What strikes me about the G-20 is that they have not yet defined what those sets of issues are that they are going to try to set an agenda for…. That always makes it harder for a group of anybody to come up with a plan.”

Cooper of the Centre for International Governance Innovation agrees that the group has to get it together and figure out its role in the shifting global economy. “The G-20 remains a work in progress, and the jury is still out on whether this larger grouping can deliver on its promises,” Cooper and his colleague Gregory Chin recently wrote. “If it can, then it would certainly provide the new organizational basis for the emerging global economic order.

“However, if it fails to deliver on some major promises, it could fuel cynicism and fragmentation.”

About the Author

Seth McLaughlin is a contributing writer for The Washington Diplomat.

Last Edited on July 7, 2014