G-20 takes a centre stage in global politics
AFTER the Second World War, G-2 (US & Britain) was replaced by G-7, then by G-8 and now by G-20. Decisions often made in distant European and American capitals have a direct effect on livelihoods for working people across the world; Bangladesh is no exception.
G-7 has been a European club with the Americans and Japanese and the G-8 included Russia. Realisation gradually dawned that it was impossible to run the global economy without the involvement of China, Brazil and India.
The transition demonstrates how power evolves itself in the global order. The replacement of G-8 by G-20 is an epic development in global politics and it did not come about by accident. Although G-20 is constituted primarily as global economic policy, it will also deal on sidelines with security, climate change and other global burning issues from time to time because collectively, the G-20 represent two-thirds of the world population, comprise 85% of global gross national product and 80% of world trade (including EU intra-trade).
The current economic crisis has been blamed on America's lax financial regulation and non-existent mortgage regulation which led to a decade-long debt binge that drove consumer spending, house prices and a massive deficit. This was further fed by manufacturing nations, like China who implemented policies to drive exports, leading to huge surpluses.
G-20 recognises that developed economies alone no longer dominate the global economy to the extent that they can meaningfully deal with world economic policy. This is felt more after the global economic crisis that has affected almost all countries, although it was "made in USA".
G-20 met twice in 2008 and in April 2009 in London followed by the Pittsburgh's meeting. In 2010 it will meet first in Canada and then in South Korea.
The communiqué that emerged from 25th September meeting at Pittsburgh is very broad in scope and ambition. At its centre is a commitment for the G-20 nations to consult each other on future economic plans and to subject them to "peer review", first by IMF and then by the Financial Stability Board, comprising G-20 Finance Ministers, in order to avoid the dangerous imbalances that helped fuel the economic crisis.
After the conference, President Obama said: "Our global economy is now fundamentally interconnected, we need to act together to make sure our recovery creates new jobs, and industries, while preventing the kinds of abuse that led us into this crisis."
The leaders agreed to tackle in a co-ordinated way the regulation of important financial institutions. The G-20 agreed to devise by the end of 2010 specific rules to ensure capital adequacy rules for systematically important financial institutions and implement them by 2012. They also agreed to regulate the derivatives market by the end of 2012.
In a win for the French, the G-20 agreed to implement the Financial Stability Board's recommendations on regulating executives' salaries so they are linked more closely to longer-term performance rather than encouraging short-term, high risk-taking.
The downside of G-20, according to some economists, is that there is no enforcement mechanism envisaged by the G-20 other than disapproval by fellow members. Secondly, the larger the body the difficult it is to achieve a consensus on decisions by the G-20.
Although China has been playing its role in the current global system, it does not see any merit in it. It is out-dated, in particular the international financial institutions - IMF and the World Bank - that need overhauling so that developing countries must have a say in their functions. China questions the US dollar as global reserve currency. It needs to be changed to reflect the needs of the day. Furthermore, many say unless developing countries have a say in the policies of the IMF and the World Bank, G-20 may not have any impact on global economy.
The emergence of G-20 first arose in 1999 when finance ministers of G-20 countries met in Berlin in December of that year. These include the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK, and the US. The 20th member is the European Union.
There are no formal criteria for G-20 membership and the composition of the group has remained unchanged since it was established. Membership does not reflect exactly the 19 largest national economies of the world. Not represented by membership in the G-20 are Switzerland, Norway, Taiwan, Iran and Venezuela, even though they rank higher than some current members.
In view of the objectives of the G-20, it was considered important that countries and regions of systemic significance for the international financial system be included. Aspects such as geographical balance and population representation also played a major part.
In a forum such as the G-20, it has been argued that it is particularly important for the number of countries involved to be restricted and fixed to ensure the effectiveness and continuity of its activity.
The G-20 operates without a permanent secretariat or staff. The chair rotates annually among the members and is selected from a different regional grouping of countries. The chair is part of a revolving three-member management group of past, present and future chairs referred to as the Troika. The incumbent chair establishes a temporary secretariat for the duration of its term, which coordinates the group's work and organizes its meetings. The role of the Troika is to ensure continuity in the G-20's work and management across host years.
Many suggest that to prove their concrete action, G-20 needs to spend more political will to push for a quick conclusion of the stalled Doha Round. An agreement would send a message of confidence to governments and businesses around the world, increasing the momentum towards restoring worldwide economic recovery.
The author is former Bangladesh Ambassador to the UN, Geneva.
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