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Amidst the currency turmoil, a new G-20 development agenda is emerging

Written by Dirk Willem te Velde

The G-20 leaders will gather in Seoul from 11-12 November. The G-20’s value as a debating network shows that the most hotly debated global topics currently include currencies, current account targets, quantitative easing and capital controls. Yet, amidst the frictions and currency turmoil, a new G-20 development agenda is emerging, owing to Korean leadership.

ODI’s G-20 Development Charter for the London summit, followed up by a 20-point G20-LIC (low-income country) action plan for transformative growth and recent public meetings have informed this agenda.

Despite the multi-year action plan for development emerging from Seoul, much work remains. France – the next G-20 president – needs to take note, and develop a structured network approach towards monitoring and updating the development agenda with sufficient developing country inputs.

Quantitative easing, current account targets and global imbalances: China, Germany and US could act together for the global good

The point of the G-20 is for peer review of economic plans. So it is good to see countries discuss US plans for a $600 billion quantitative easing which is likely to drive down the dollar, drive up commodity prices and lead to more US capital outflows. With a large current account deficit, the US is not the best country to stimulate the economy. Whilst it might stimulate global growth, it is not the optimal type of growth right now, as explained in the first five bullets of ODI’s action plan. Instead, Germany and China (consistent with China’s recent five-year plan) need to consume more to rebalance the global economy, as they both have a large current account surplus and low government deficit. It is similarly important to discuss structural growth plans in the rest of the G-20.

The G20 development agenda:  beyond-aid, not replacing aid

The emphasis in the G20’s development agenda on trade, investment and growth is the right one for diversification, innovation and long-term development, although, contrary to recent suggestions, this agenda should not be seen as a shift in aid policy (alone) but rather as a beyond-aid development policy by the G-20. Seen in this light, an emphasis on infrastructure (including a high-level panel which would unblock finance for much needed investment), skills and knowledge-sharing plays to the G-20’s strengths, and benefits the poorest countries, as discussed in points 6-12 of ODI’s action plan.

G-20 policy coherence: a missed opportunity this time, so let’s ask France and also improve poor countries’ say in the matter

Indeed, the beyond-aid development policies of the G-20 could go much further in the future – as set out in points 13-20 in our action plan – and is a challenge for the next G-20 chair to take up. Joint modelling work by ODI and the National Institute of Economic and Social Research (NIESR) considers the development implications of three G-20 core actions. It shows that 1) the G-20 fiscal stimuli packages of last year, 2) a 10% appreciation of the Chinese exchange rate, and 3) a new calculation simulating global rebalancing of the world economy (where China, US and Germany reduce their current account to an absolute level of around 3% of GDP) would stimulate African GDP respectively by 2.5%, 0.25% and 1% (though more demand from China benefits commodity exports over process goods and services). The G-20 development working group should make the case for development-friendly beyond-aid G-20 core policies.

Why do the development implications matter for G-20 core policies? Poor countries now have a clear role in global rebalancing. For example, Africa is expected to grow at 6% a year in 2011, and the rates of return on US and UK foreign direct investment (FDI) on assets over the last five years have been some 3 times higher in Africa than in the rest of the world. There is a natural link between surplus capital in the G-20 and opportunities in poor countries, in activities ranging from infrastructure to climate finance.

Whilst some direct links between the G-20 and poor countries are being highlighted (e.g. trade, although this lacks serious consideration of Rules of Origin reform and trade in services through migration), and discussions on a financial safety net are well advanced, there is little consideration of the development implications of other core actions. This might improve if poorer countries get a number of formal and permanent seats (rather than invited ad hoc) at the G-20 table and can directly argue the case.

Implement, monitor and update the G-20’s development agenda

The Seoul summit will place development high up the agenda. This is good, but more needs to be done to exploit the various G-20 related networks:

Centralised networks

Decentralised networks led by think tanks

Other networks

With such an array of voices, it is time that a G-20 secretariat function builds bridges amongst these networks – as well as with developing country research institutes – to monitor implementation, to learn and evaluate, and to update the G-20 development agenda. Amongst all the frictions in the G-20 today, the development agenda is more likely to deliver on its plans with a wide network of support.