Vol 9 - No. 4




PITTSBURGH SUMMIT: Betting on ‘Bigger is Better’ 


WASHINGTON 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 close attention.

“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.

The 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 percent.


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 cold war.

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 space.”

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 secured.”

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 November.

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) negotiations.”

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 subsidies alone.”

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.


The writer 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 development, Editor of the Ceylon ‘Daily News’ and the Ceylon ‘Observer’, and was for a time Features Editor and Foreign Affairs columnist of the Singapore ‘Straits Times’.

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