Paul Coustère - Project Manager, G8/G20 Task Force,Global Economy and Development Strategies Directorate, Ministry of Foreign and European Affairs - France
Jomo Kwame Sundaram - Assistant Secretary-General of the UN
Prof L. Alan Winters - Chief Economist, DFID.
Simon Maxwell - Senior Research Associate, ODI
The chair Simon Maxwell highlighted that this was the second meeting on the G20 Development Agenda at ODI
Professor L. Alan Winters presented the main results from his new paper entitled “Economic growth in low income countries: How the G20 can help to raise and sustain it”, which was co-authored with Wonhyuk Lim and others. The paper aims to operationalise the G20’s commitment to “a more robust and resilient global economy for all” to ensure that the benefits of global growth are shared with Low Income Countries (LICs).
Alan Winters argued that growth strategies have to be developed and owned by LIC governments and that they need to be tailored to individual country needs. However, the question which the paper tries to answer is what the G20 might usefully do to help the LICs realise their ambitions for high and sustained growth. He felt that this is part of the G20’s legitimacy and related to the G20’s official objectives of ‘strong, sustainable and balanced growth’ through international economic cooperation as declared at the Pittsburgh Summit in September 2009.
Alan Winters’ suggested that investments create jobs and higher incomes and increases national Gross Domestic Product (GDP). It is through such growth that individuals in poor countries can attain a higher standard of living for themselves.
Alan Winters also recalled that prior to the recent financial crisis for the first time in decades, increased economic opportunities and living standards became a real prospect for residents in many developing countries. He urged that to restore and maintain these prospects should be a high priority for all policy-makers.
Alan Winters divided the rest of his presentation into the following three parts:
1. Heterogeneity across countries;
2. The history of Growth;
3. The frequency of Downturns.
He highlighted the heterogeneity among LICs. Does the growth rates in LICs differ from growth rates in other developing countries. He drew on two different sets of experience to explore these questions: The past performance of the countries that are defined as low income countries today and the performance of countries that started the period with a low income.
Alan Winters concluded that the selection effects are strong and influence the inferences about LIC growth: Defining LICs by current, as opposed to past, GNI per capita makes LIC growth prospects seem worse than they probably are. On average LICs’ GDP growth, at 2% per annum, is comparable to lower-middle income (and rich) countries’. Growth in LICs is more volatile than in all other country groups. His analysis of the countries that started off in the low income group suggests that the higher growth volatility that they face does not preclude them to grow –growth is possible.
He turned to a simulation exercise to ask whether the focus should be on greater resilience, achieved by mitigating or eliminating downturns, or on raising the underlying rate of growth that affects all years.
Concerning downturns, building on the previous discussion, Alan Winters then went on to examine what is known about the determinants of growth accelerations, continued growth and growth collapses from econometric modelling.
Hausmann et al.,(2005) find that accelerations are correlated with strong increases in investment and trade and with depreciations in the real exchange rate, and that sustained growth is correlated with the first two. The significant triggers for accelerations include: Economic reform; Positive political change; Positive terms of trade shocks; and financial liberalisation.
Alan Winters also drew on the Commission on Growth and Development (2008) analysis of thirteen cases of countries that had achieved sustained growth in the post-war period identifying five common characteristics of successful growth: Full exploitation of the world economy; Promoting FDI and foreign higher education can support knowledge transfer; Macroeconomic stability; High rates of savings and investment.
The Commission on Growth and Development concluded that the necessary and sufficient conditions for growth are not known; there are “no recipes, just ingredients” (Spence, 2010). The causes of take-off into sustained growth are varied.
For the sake of organising G20 discussion he proposed to think about the following ingredients to LIC growth strategies: Trade and openness; skills, macroeconomic stability; infrastructure; financial sector development; and human development.
The chair then raised the question: Why is it a good agenda for the G20? Alan Winters replied no one else is focusing on growth and the G20 has these growth ingredients within its power. Through this study he had identified some broad policy areas where G20 actions can add value to the efforts of other international organisations and help give additional support to LIC growth. There are, however, two overarching areas which will condition the success of all policy actions, across the spectrum of countries. First, improvements to institutions and governance are needed. Second, great strides can be made from the adoption of existing knowledge and technology.
Paul Coustere felt that there were good reasons to be optimistic based upon a first exploration of development within G20, since development now is mainstream thanks to the Korean Presidency. He added that development is key to the broader of objectives of the G20 by quoting from the G20 Toronto Summit declaration.
Paul Coustere also mentioned that at the Seoul Summit a multi-year action plan will be launched and France will follow-up on this. The actual action plan will not look like the previous plans from the G8 era. Mainly because there will be new areas of actions for the international community. He emphasized that the G20 is accelerating the on-going changes in the international debate on development. In this regards the G20 does what it does best namely leadership for economic cooperation.
Paul Coustere defined the key themes in French agenda: The reform of the international monetary system; (ii) Price volatility e.g. extreme fluctuations in food and raw materials prices, and (iii) the reform of global governance, including aid architecture. Each of these themes has an impact on development.
Paul Coustere also mentioned that the G20 has a strong leadership potential, whereas legitimacy is another issue. He finally addressed the eight growth pillars identified by the South Korean G20 WG. France attaches importance to each of them, but has chosen to single out four priorities: (i) Measures to promote economic growth and resilience (ii) Food security. (iii) Infrastructure. (iv) Domestic resource mobilisation.
Jomo Kwame Sundaramfocused on the major challenges going forward. First there was the question about adequate financing for development. Secondly, many people believe that the transformation the last three decades have not been development friendly and has reduced policy space and fiscal space. Thirdly, the failure of international cooperation needs to be addressed.
Jomo Kwame Sundaram mentioned a range of issues: Financing for development; domestic resource mobilisation; access to international capital (should be distinguished from capital account openness); Overinvestment leading to overcapacity. As the LICs do not have the resources to invest in the green technologies, it is important to be able to facilitate this through international cooperation and PPPs.
Jomo Kwame Sundaram recognised what is still undone and what is in the process, such as the regulation issue. He regretted that the international community had not seized the brief Bretton Woods moment.
Jomo Kwame Sundaram highlighted that one major gap is how to establish institutions and policies that are countercyclical and that avoid the boom and bust that are so damaging for the LICs. He supported the intention of the French G20 Presidency to reform the International Monetary System. He also addressed the importance of tax cooperation and the creation of orderly sovereign debt workouts. He criticised Basel III for not overcoming the problems of Basel II.
Jomo Kwame Sundaram finally wanted the G20 meeting to keep focusing on financial issues. He concluded by saying how important it is not to look at development in isolation but in conjunction with a range of other issues.
Questions and Answers
Q1: How come given the strong evidence from the DFID studies that there is not a better countercyclical architecture with regards to external shocks so that countries can continue to grow? Alan Winters replied that there is a need to think about countercyclical policies and lending on an international scale like the central bank’s countercyclical lending to commercial banks.
Q2: The importance of sustaining growth in the OECD? Alan Winters replied that the G20 needs to get its own house in order as well as in its thinking about development (cf. the currency war issue).
Q3: Whether countries should not have the right to implement their own policies today? Alan Winters replied that development is extraordinary difficult. What is needed is country level thinking and a capable government to think hard about development strategies.
Q4: Is achieving productive employment generation to alleviate poverty not only possible at the grass-root level? Alan Winters replied that it is indeed key.
Q5: What about the South Korean growth model and other alternative thinking about growth? Jomo Sundaram replied the evidence seems to suggest that trade liberalization will make LICs worse off (cf. Kym Anderson), but that they will benefit from is market access.
The French representative replied acknowledge that some progress has been made on what growth is by alluding to the new research on the measure of growth (cf. Stiglitz).
Q6: The DFID paper has an annex looking specifically on the Korean experience and the policies that helped to raise average rate of growth. Jomo Sundaram replied that Korea has not liberalised agricultural trade because of its social policy concerns. The expectation that LDCs must liberalise trade is too one-sided.
Q7: What is the rationale for the statement that ODA has not worked? France replied that France is very keen on innovative financing as complementary to scaling up ODA.
Q8: What can the G20 do about growth? How are we sure that the G20 can deliver on beyond aid such as loans; bank lending; FDI or SWF and what are the benchmarks France replied one way is the identification of good projects whereby he considered regional, environment and transparency as three areas of deliverables. Moreover, there is also a need to think beyond ODA.
Q9: Is the G20 an opportunity to bring a different group of non-DAC members together on Aid effectiveness? Chair replied there already exist an UN Forum on Aid Effectiveness. Jomo Sundaram replied the US does not want the UN forum to meet more than 2 times per year.
Q10: Should tax heavens be on the G20 agenda? Jomo Sundaram replied that any kind of balanced tax approach has to look at transfer pricing not covered by the more one-sided OECD approach and seek to work with inclusive international institutions.
Q11: It was mentioned that NEPAD/AU infrastructure is very important for Africa. In this regards it was further mentioned that there is need to find new ways of financing infrastructure for upgrading and maintaining existing infrastructure. Human resource development technical cooperation programmes and projects were also considered very important, and a hope that the G20 will support this AU/NEPAD agenda was expressed? Paul Cousterereplied that this suggestion is what the French Presidency intends to follow.
The Chair wanted to know how to engage leaders during the next 18 months? Jomo Sundaram replied that forcing China to appreciate their currency will not work, because China does not want to follow the Japanese experience, since the Yen appreciation killed the Japanese miracle. He further mentioned that UNESCAP had proposed an idea of Asian Investment Bank.
The declaration of the G20 summit in Toronto earlier this year says that ‘We are committed to narrowing the development gap and must consider the impact of our policy actions on low-income countries.' The Declaration also states that ‘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.' The poorest countries are, therefore, seen as central to the G-20 deliberations. The Toronto Summit also initiated a Working Group on Development, with a mandate to create a development agenda and multi-year action plans to be adopted at the Seoul Summit.
What will the outcome of discussions at the G20 Summit in Seoul be, how will they shape G20 development agenda and how might the upcoming French Presidency of the G20 impact this agenda? The panel will try to explore these issues at this meeting.
Paul Coustère, Ministry of Foreign and European Affairs in France, Jomo Kwame Sundaram, Assistant Secretary General of the UN, and Prof L. Alan Winters, the chief economist of the UK DFID all gave their views on the G20 development agenda. Each will talk for around 10 after which there is time for an open discussion. Simon Maxwell, senior research associate at ODI, will chair the meeting.