G20 meetings are annual rituals which attract thousands of protestors. These mainly anti-globalisation and anti-establishment protests often turn violent, leading to a loss of property, and host cities often deploy heavy security forces to control them.
Half of the members of G20 are highly industrialised advanced countries: the US, the UK, Japan, Canada, Australia, France, Germany, Russia, Italy, and the EU. The other half are emerging market economies: India, China, Indonesia, Turkey, Brazil, South Africa, Mexico, South Korea, Argentina and Saudi Arabia.
Ever since it was formed in 1999 as an offshoot of the G7 (the rich countries’ club), the G20 has been dominated by the developed countries and others have followed their agenda for the most part. It represents two-thirds of the world’s population and 85% of the global economy.
Despite the protests, each year the G20 has gone ahead and met and this year the summit will be held in Buenos Aires, Argentina (last year it was in Hamburg, Germany). Next year will be Japan’s turn. Germany, Argentina, and Japan will work together to ensure consistency and continuity of the group’s agenda. The G20 has no headquarters or permanent staff and the host plays a leading role in setting the agenda and building consensus among the members. International agencies such as the US, the World Bank and the IMF are invited.
The G20’s primary objective and responsibility since the global financial crisis of 2008 has been to safeguard and strengthen global financial stability. At the G20’s first summit, which took place at the height of the crisis in Washington, in November 2008, it assumed the responsibility of strengthening the international financial architecture so that another financial crisis would not occur in the future.
Every G20 meeting is preceded by a finance ministers and central bank governors’ meeting to which the IMF head is also invited. The G20 meeting in Hamburg in 2017 was preceded by such a meeting in Baden Baden. The elaborate process preceding the summit involves a large number of consultations between bureaucrats and civil society organisations that represent different sectors of society who provide inputs in the member countries’ working groups. The G20 has 12 working and study groups, and 6 meetings of the agriculture, foreign, finance, digital, labour and health ministers. Then there are 7 engagement groups (business 20, civil society 20, labour 20, science 20, think tanks 20, women 20, youth 20).
The working groups are agriculture, anti-corruption, education, climate sustainability, development, employment, health, digital, energy transitions, trade and investment, international financial architecture, international taxation, financial inclusion and sustainable financing.
There are two tracks in the meetings: the finance track, in which the G20 finance ministers and central bank governors meet; and the sherpa track, for which each member country appoints a sherpa. The meetings focus on a broad number of issues like anti-corruption, gender equality, trade, development, climate change, and any new issues proposed by the host country. The finance track deals with financial architecture issues.
At the summit in Hangzhou, China in 2016, the G20 adopted a special G20 action plan, a ‚2030 Agenda‘, in which it identified 15 ‘sustainable development sectors’ (SDS) that reflect the focal areas. They are not identical to the UN’s Sustainable Development Goals as ecological aspects remain underrepresented and human rights are not mentioned at all.
At the G20 meeting in Hamburg, the action plan demanded that the fiscal policies of member countries should be pro-growth and investor friendly. The emphasis has always been on economic growth in G20 meetings and it is regarded as a panacea for achieving prosperity and development, contrary to the increasing evidence against it.
Emphasis on economic growth alone has often led to the exploitation of natural resources, environmental degradation, and increases in pollution in countries like India and China, as well as an increase in social disparities. On trade, in Hamburg, a welcome agreement was reached on a compromise formula to counter protectionism, including all unfair trade practices but also to ‘legitimise trade defence mechanisms’, which was not followed up.
The bureaucracies and ministries of the member countries welcome the G20 meetings and members jostle with each other to host them. This year India lost out to Argentina. It gives ministers and bureaucrats occasion to travel frequently. Over 50 meetings usually take place before a summit in various cities in the host country. But the expenditure is huge, making quite a big hole in host and member country budgets. This year around 20,000 people are going to visit Argentina for the 2018 G20 meeting. The final summit will take place on 30 November and 1 December.
Increasingly, the G20 is going into areas that require long-term focus. This year the emphasis will be on the future of work, infrastructure development, and the future of sustainable food. The regulation of cryptocurrencies and North Korea may also figure prominently.
The goal of maintaining short-term international financial stability was, however, the main goal at the London summit of 2009. In order to do so, the IMF was to be revamped and refurbished with more funds and it would resume the role of surveillance of global financial flows. At the Seoul summit in 2010, the G20 pledged to reform the IMF in two steps. The first was a doubling of quotas of member countries and the second was the reform in governance of the IMF and to have all elected seats on the IMF’s executive board. The IMF became stronger as a result of the enhancement of funds and along with the Basel Financial Stability Board and the Committee on Bank Supervision located in Switzerland, it became responsible for overseeing all global financial flows.
Since the last global financial crisis, there has been a lull and a slowdown in global financial flows due to the slow growth of the world economy but there could be a problem of volatility if the US raises interest rates significantly in the future. This could occur due to a rise in employment and an FII rush back from emerging market economies to the US, especially when more robust global growth is predicted for 2018. The G20 is supposed to safeguard against such volatility.
At the St. Petersburg summit in 2013, members stressed that the IMF’s quota reforms should take place immediately. They wanted quotas to reflect the current weight of emerging market economies in the global economy. Quotas are important for each of the 189 member countries of the IMF. Each member is assigned a quota that determines its maximum financial commitment to the IMF and its voting power and these have a bearing on members‘ access to IMF financing. The current quota formula is a weighted average of the GDP (weight of 50%), the openness of the economy (30%), economic variability (15%) and the size of international forex reserves (5%). GDP is measured through a blend of a country’s GDP based on market exchange rates (weight of 60%) and Purchasing Power Parity exchange rates (40%).The quotas are denominated in Special Drawing Rights (SDRs) which is the IMF’s unit of account.
The largest quota holder is the US with 17.7% or SDR 82.99 billion. India has only a 2.75% quota and China 6.4%, and that too only since January 2016. Earlier quotas were much lower for both: India, 2.34%; and China, 3.81%. The revision happened only after the 14th review of quotas was completed in 2016 after waiting for six years since the Seoul summit of 2010 because the US blocked any increase in quotas for emerging market economies. The US has the sole veto power at the IMF. But it could not stop the Chinese Yuan from being added to the SDR currency basket along with the yen, euro, pound, and dollar in 2016, due to its strength and use in international transactions.
In the IMF’s present quota regime, the developed (OECD) countries together possess much higher quotas (63%) than the global south and they thereby have a much greater influence on important policies and decisions affecting the global financial architecture.
In Hamburg, the G20 urged the quick completion of the 15th general review of quotas, which was supposed to have been completed by October 2017, but now the date has been extended to 2019. The 15th review also seeks changes in the governance structure of the IMF with better representation of emerging economies on the board of governors. A new formula for granting country quotas is also expected.
A lower quota means lower access to loans from the IMF. These loans come with conditionality and countries are allowed to borrow for tiding over balance-of-payments problems. IMF conditionality includes cutting government expenditure through austerity, devaluation, trade liberalisation, balancing budgets, removing price controls and state subsidies, privatisation, improving governance and enhancing rights of foreign investors vis-à-vis national laws. The stringent conditionality makes it difficult for developing countries to access loans.
India does not need to go to the IMF anymore because it has huge foreign exchange reserves of $400 billion. What it needs is infrastructure financing for which it can turn to the BRICS’ Shanghai-based New Development Bank. India is seeking $2 billion in loans from the NDB, whose terms and conditions will be better suited for India. Other developing countries will also be able to access loans from the NDB. Regional and multilateral development banks will become more relevant for the global south in the future and the G20 has taken note of this.
Real reform of the international financial architecture can only be completed when emerging economies or the other half of the G20 are fully represented in the decision making and governance of the IMF, which remains the main pillar of the global financial system. Similarly, in institutions like the Financial Stability Board and the Basel Committee on Bank Supervision (BCBS) that have laid out the Basel III norms for banking (which are difficult to implement by developing countries like India), there has to be better representation of the global south.
The Hamburg declaration notes that BCBS should not significantly increase capital requirements for banks. Unless the G20 enforces these changes, the change in the international financial architecture will remain incomplete.
As the agenda gets diluted, covering a vast number of subjects that are actually the core competence of other international and multilateral agencies, the voice of the G20 can be expected to be short-lived. Since there is no G20 secretariat, no follow-up action can be expected on numerous fronts. This year, in all likelihood the joint communique will make headlines in the global media via rich members’ voices and imprint, only to be disregarded and forgotten later. The only hope is that member states carry forward some of the decisions in their own national policies. Otherwise, these meetings, with their enormous material costs for members and huge carbon footprint, will lose their value for the rest of the world, especially when the G20 preaches environmental sustainability. The G20 will simply be a big photo op, in which the rich and powerful half dominate and dictate a list of action points urgently needed for the betterment of the world. It may be of little relevance to the rest of the world without a follow-up action plan that benefits all and finds solutions to deeper global problems.