Reflections on the G20 Challenges and Opportunities

1. Reflections on the G20 02 August 2012 Reflections on the G20Challenges and Opportunities Alan Hirsch, August 2012

2. Reflections on the G20 02 August 2012 What is the G20?Decomposing a complex institution • “the premier forum for international economic cooperation” • 19 countries plus the EU • The IMF, the World Bank and the United Nations • Its core agenda is: • Stabilisation and Growth in the World Economy • Financial architecture reform • Financial regulation reform • Other issues include: • Development, • Trade, • Food security and commodity prices • Corruption, Energy, Employment Disaster Management

3. Reflections on the G20 02 August 2012 Where did it come from? • 1999 Finance Ministers of 19 systemically important economies and the EU met in Berlin • It met annually • South Africa hosted the G20 Finance Ministers meeting in Kleinmond in September 2007 • In 2008 President GW Bush was persuaded to call the first G20 summit due to failing banks and markets • It was held in Washington DC in mid-November • South Africa was represented by President Motlanthe • It was held biannually in 2009 and 2010 and since then it been an annual meeting

4. Reflections on the G20 02 August 2012 Why this composition? • Countries judged to be systemically important countries for global and regional financial systems in particular • They are not all in the top 20 countries by GDP, but are in the top 26 or so • Some bigger economies left out include Spain, the Netherlands, Poland and Taiwan • The members are all relatively large economies, but some are very rich (e.g. USA, Japan, Germany) and some are quite poor in GDP per capita terms (India and Indonesia)

5. Reflections on the G20 02 August 2012 Participation • At the summit table, each country is represented by 4: the leader, finance minister, Sherpa and DG of Finance • The Presidency is rotated from geographic sets of countries • By agreement, five guests are invited: • Spain (permanent guest); president of AU, Chair of NEPAD, President of ASEAN, and one at the discretion of the host (Mexico invited more) • Beyond the core IOs, the WTO, the ILO, UNDP, the regional MDBs, FAO, UNCTAD and others participate in various meetings

6. Reflections on the G20 02 August 2012 Structure • There is no secretariat: The presidency of the G20 hosts a temporary secretariat (a “leader driven process”) • The presidency is supposed to be supported by a troika system, but this has not yet fully matured • There are two main streams of work: • The financial stream • The Sherpa stream • In fact other streams emerge from time to time including: • employment, trade, and agriculture ministers • Also side-streams such as the B20, the L20, the Y20 and the T20

7. Reflections on the G20 02 August 2012 The core agenda is financial but Sherpas officially lead preparations • The core agenda is: • Stabilisation and Growth in the World Economy with the Mutual Accountability Process • Financial architecture reform—reform of the IMF and the World Bank • Financial regulation reform through the Basle reforms and the Financial Stability Board • Other issues include: • Development • Trade • Food security and commodity prices

8. Reflections on the G20 02 August 2012 Achievements of the G20: core agenda • Reduced the depth of the global crisis through emergency measures taken in in Washington and London • Contributed to quota and governance reform for the IFIs • Drove significant financial regulation including the creation of the Financial Stability Board and supporting the Basle 3 reforms (plus G-SIFIs, shadow banking, derivatives trading etc) • More recently: • Establishment of the Mutual Accountability Process (the “Action Plans” and Policy Commitments • Building IMF resources to reduce the threat of Euro collapse

9. Reflections on the G20 02 August 2012 The IMF reserves issue • Myth #1 “It’s a gift to the IMF” The money is lent to the IMF, not a gift. For all of this time the money will be earning interest for South Africa. The capital of the loan will ultimately be repaid to South Africa. It’s like lending money to a very strong bank. This is not a risky loan. • Myth #2 “The money could be used more urgent purposes” The funds used for this purpose are part of our foreign reserves. They do not require an additional budgetary allocation. • Myth #3 “The money does not help jobs in South Africa” If the global economy falls sharply, there is a serious risk that we will lose more jobs. In the last global recession we lost 1 million jobs. Our contribution to the IMF is intended to help stave off this kind of crisis happening again. •  Myth #4 “The money is for Europe”  The money is available for any member of the IMF that is in trouble, in Europe, in Africa or anywhere else. If South Africa needs help from the IMF, it could borrow much more than the $2 billion that we have set aside for the IMF resourcing. • Myth #5 “Only developed countries should contribute to the IMF funds”  It’s not only developed countries that have contributed to the current funding exercise—countries like China and India a have contributed too. China has a lower per capita income than South Africa and yet they have set aside $43 billion for this resourcing exercise. India is considerably poorer than South Africa and China, and yet they are allocating $10 billion. South Africa is allocating $2 billion.

10. Reflections on the G20 02 August 2012 The Development Agenda “Narrowing the development gap and reducing poverty are integral to our broader objective of achieving strong, sustainable and balanced growth and ensuring a more robust and resilient global economy for all. In this regard, we agree to establish a Working Group on Development and mandate it to elaborate, consistent with the G20’s focus on measures to promote economic growth and resilience, a development agenda and multi-year action plans to be adopted at the Seoul Summit.” G20 Leaders Declaration, Toronto, June 2010

11. Reflections on the G20 02 August 2012 The reasons • Prosperity must be shared to be sustained • The interconnected nature of the world economy means that crises impact on all economies and can severely hurt the poor in LICS • As “the premier forum on international economic cooperation”, the G20 needs to compliment the work of donors in driving for MDG goals, by focussing on the contribution of stronger growth • The world economy needs to encourage the development of new growth poles in developing countries and LICS to support long-term global growth • Credibility and legitimacy

12. Reflections on the G20 02 August 2012 The development principles The core approach is that G20 development interventions focus on economic growth, as a compliment to the social objectives at the centre of the MDG and related processes • Consistent with the G20 Framework for Strong, Sustainable and Balanced Growth, inclusive sustainable and resilient growth is crucial to reduce poverty (while ODA commitments are still essential for LICs) • There is not single formula for success, therefore we engage with developing countries as partners • We must prioritise global and regional systemic issues that call for collective action, including South-South and triangular cooperation • We recognise the role of the private sector in economic development and job creation, and will support actions to improve the investment environment • We aim to add value and not duplicate existing efforts • We will focus on tangible outcomes that remove blockages to growth, especially in LICs

13. Reflections on the G20 02 August 2012 The Pillars (and action plans) • Investment in infrastructure, especially in LICs and for regions • Human resource development • Enhance Trade Capacity and Access to markets • Private Investment and Job Creation • Food Security • Growth with resilience • Financial Inclusion • Domestic Resource Mobilisation • Knowledge Sharing • Inclusive green growth (non-pillar)

14. Reflections on the G20 02 August 2012 Achievements of the DWG • Infrastructure development: • The MDB Action Plan • The HLP focus on reducing risk for private investors • Incremental gains on food security e.g. AMIS • Commitments to support Domestic Resource Mobilisation • Social protection floor in broad principle • Commitment to reduce the cost of remittances • Financial inclusion instruments and indicators agreed upon (GPFI)

15. Reflections on the G20 02 August 2012 Achievements for the Non-G7 • G20 replaced the even narrower G8 as a key coordination point for global economic cooperation • Launched a development agenda with some notable achievements • Commitment to an accountability process for the development agenda Other Developmental Achievements: • Introduction of inclusive green growth into the development agenda • Replenishment of the regional MDBs and IDA • Strong “support” for regional integration in Africa

16. Reflections on the G20 02 August 2012 Failures of the G20 • IMF quota and governance reform is very slow (hence some countries’ reluctance to bolster IMF reserves) • Anaemic leadership on Euro Crisis—Europe effectively resisted attempt by the other members of the G20 urge more decisive actions • The Development Agenda while effective in parts is uneven and unwieldy (it is poorly communicated and has little public impact) • Level of participation of the US, China and India in the DWG is suboptimal • Level of engagement with the G>190— “Outreach”. it is unsystematic and lacks credibility

17. Reflections on the G20 02 August 2012 Overall view of the G20 • It was very successful in 2008-09 in preventing the greater deepening of the global financial crisis • The MAP is an important innovation though it is yet to prove itself • The G20 has helped to drive a new generation of financial regulation • Its impact on financial architecture reform started fairly well with the World Bank but has slowed on the IMF • It has made some progress in institutional reform to support development, but has a way to go

18. Reflections on the G20 02 August 2012 This is not a defence of the G20 • It’s not ideal • Some countries have veto powers • Failures are evident • There is a risk of weak presidencies • The agenda is still not clearly delineated • But, what else have we got • A UN elected committee in its place (idealistic) • The UN itself? • The IFIs? • It is better than an G2 or a G4 • Developing countries are well represented • If we try to tamper with it (now, anyway) we will open a Pandora’s box