SUMMIT: Betting on ‘Bigger is Better’
BY ERNEST COREA
DC (IDN) - Global economic leadership moved at the Pittsburgh Summit
(Sept. 24-25) from the small, Western “rich folks’ club” of eight
nations (the Group of Eight or G8) to a larger Group of 20 (G20) that
creates some 90 percent of the world’s economic output and contains
around 66 percent of its population. That was the summit’s
headline-earning decision although there were several others that merit
“We designated the G20 to be the premier forum for our international
economic cooperation,” is how the final communiqué of the Pittsburgh
Summit sedately put it.
change was made at a time of both uncertainty and hope. Slow, jobless recovery
in even the biggest economies is the cause of uncertainty. Hope rests on two
facts. First, the plunge towards a depression has been halted. Second,
recovery, however slow, has actually begun and economies are responding to the
stimulus programs which the G20 supported when they last met.
Was it necessary to move from G8 to G20 to lessen the uncertainty and build on
the hope? Yes, because some members of the G8 are no longer in the top tier of
economic power. For example, France and the UK have a combined share of 2.0
percent of international reserves while the combined international reserves of
China and India, two of the largest emerging market economies, amount to 23.1
The G8 began as the G5 (France, Germany, Japan, the UK, and the US) following
an economic summit organized by President Valery Giscard d’Estaing in 1975.
Canada and Italy joined the group shortly thereafter, making it the G7. It
grew into the G8 when Russia was inducted into membership at the end of the
The G20 consists of the G8, 11 additional countries (Argentina, Australia,
Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South
Korea, Turkey) and the European Union (EU).
It began life as a forum of finance ministers and central bankers meeting
against the frenzied fears caused by the Asian financial “meltdown” in
1999. G20 heads of state or government joined in for the first time at a
summit meeting convened in Washington last year to develop an international
response to the challenge of the worst recession in recent memory.
The G20 will next meet in Canada as well as in South Korea next year, and will
meet once a year from 2011. By then, it should be possible for the G20 and the
rest of the world to assess whether betting on “bigger is better” for
international economic management is paying off.
The G20 contains only one African country and one from the Middle East.
Despite this anomaly, developing countries have now been recognized as
integral components of the global economic management group. For this reason,
perhaps, some of the decisions reached at Pittsburgh that merit close
attention are of specific relevance to developing countries and to the fate of
the world’s poor.
The G20 committed itself to “modernizing the IMF’s governance,” in an
effort to improve the IMF’s credibility, legitimacy, and effectiveness.
The G20 will also “pursue governance and operational effectiveness reform in
conjunction with voting reform” in the World Bank “to ensure that it is
relevant, effective, and legitimate.”
The first steps towards change will be to shift the “quota share” (which
determines voting strengths) from “over-represented to under-represented
countries” by 5 percent at the IMF and 3 percent at the World Bank. This
could lead to a somewhat stronger voice for countries such as Brazil, China,
and India on the executive boards of both institutions.
On the basis that a change from bad to better is a signpost pointing towards
good, these minimalist changes will be welcomed, but much greater reform is
required, beginning with an end to the power sharing agreement -- actually,
all power and no sharing -- by which management of the World Bank has been
permanently vested in the US and that of the IMF, in Europe.
More promising, in making a difference in the life of the world’s poor, is
the summit’s commitment to poverty reduction. The G20 reaffirmed their
“historic commitment to meet the Millennium Development Goals and (their)
respective Official Development Assistance (ODA) pledges, including
commitments to aid for trade, debt relief, and those made at Gleneagles,
especially to sub-Saharan Africa, to 2010 and beyond.”
Even before the financial crisis, the G20 said, “too many still suffered
from hunger and poverty and even more people lack access to energy and
finance. Recognizing that the crisis has exacerbated this situation, we pledge
cooperation to improve access to food, fuel and finance for the poor.”
The World Bank, meanwhile, was encouraged to strengthen its focus on food
security, human development, infrastructure, and the transition to a green
economy.” Coordination among development agencies was emphasized, and the
World Bank was urged, as well, to ensure that developing countries were given
“ownership of (development) strategies and programs, and adequate policy
Proposed new arrangements for the IMF and World Bank, and agenda setting for a
stronger and better coordinated attack on poverty, were set in the context of
overall economic recovery, the need to nurture that process, and to pro
prepare exit strategies for governments that have had to play a lead role in
stimulating and supporting recovery.
Several domestic forecasts have indicated continued improvement, and the IMF
projection is for 3 percent global growth this year. “We brought the global
economy back from the brink, we have laid the groundwork today for long term
prosperity as well. Still, we know there is much further to go,” President
Barack Obama told a Pittsburgh press conference.
The G20 communiqué, developing that theme, said: “A sense of normalcy
should not lead to complacency. The process of recovery and repair remains
incomplete….We cannot rest until the global economy is restored to full
health and hard-working families the world over can find decent jobs. …We
pledge to sustain our strong policy response until a durable recovery is
To maintain the momentum of recovery, the G20 agreed to establish a Framework
for Strong, Sustainable and Balanced Growth.” Finance Ministers, acting in
consultation and collaboration, are expected to launch the framework in
The framework, the G20 agreed, “is a compact that commits us to work
together to assess how our policies fit together, to evaluate whether they are
collectively consistent with more sustainable and balanced growth, and to act
as necessary to meet our common objectives.” The IMF will assist in the
process of monitoring consistency.
Countries that have accumulated large deficits will adjust their policies to
bring these under control. Others with large trade balances will seek to
stimulate domestic consumption and not depend excessively on exports. These
measures are contemplated because economists believe that imbalances in these
fields fueled the recession.
G20 members will “act together to raise capital standards, and to implement
strong international compensation standards aimed at ending practices that
lead to excessive risk taking.” Regulatory systems for commercial banks and
other financial institutions will be devised to prevent reckless behaviour and
a lack of responsibility. Excesses will be brought under control.
On the trade front, liberalization is key. “We will fight protectionism,”
says the G20, which is committed to bringing the Doha Round to a successful
conclusion in 2010.
Broad references to “greening economies” were splattered throughout the
discussions and made their way into the final documentation as well. However,
with the support of developing country members, Obama was able to push for two
specific provisions that affect the environment.
The first is that members “will spare no effort to reach agreement in
Copenhagen through the United Nations Framework Convention on Climate Change (UNFCCC)
The second, more specific, is a decision that “inefficient fossil fuel
subsidies that encourage wasteful consumption” will be phased out. This
reform will not apply to support for clean energy, renewables, and
technologies that dramatically reduce greenhouse gas emissions.
Energy and Finance Ministers are expected to develop implementation strategies
and timeframes, and report back to the next summit. Relevant institutions were
requested to provide the next summit with “an analysis of the scope of
energy subsidies and suggestions for the implementation of this initiative.”
Even before G20 delegates had left Pittsburgh, American oil and gas industry
representatives were pushing back hard, saying, in effect, “leave our
Observers have said that it was convenient and easy for G20 members to adopt
all these provisions and more because the group has no enforcement mechanism
and no way of imposing penalties on those who ignore their own commitments.
Sure, words on a piece of paper do not of themselves produce results. They do
serve as reminders, however, and those who will be reminded of what they have
undertaken to accomplish are politicians.
The crude but powerful instinct of self-preservation, if nothing else, should
persuade them to try to keep their commitments. Besides, they will all be
subject to mutual “peer review” when they next meet. Let’s suspend
judgment until then.
has served as Sri Lanka's ambassador to Canada, Cuba, Mexico, and the USA. He
was Chairman of the Commonwealth's Select Committee on the media and
of the Ceylon ‘Daily News’ and the Ceylon ‘Observer’, and was for a
time Features Editor and Foreign Affairs columnist of the Singapore ‘Straits