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The G-20 summit in Toronto: what does it mean for development?

Written by Dirk Willem te Velde


Most developed G-20 countries are walking a tightrope, trying to balance actions to promote growth whilst ensuring fiscal sustainability. So most headlines about the G-20 Summit in Toronto were about the agreement on growth-friendly plans to reduce deficits, albeit at different speeds in different countries. There was also coverage of the slower than expected progress on financial regulation, and on the agreement to implement bank levies only if and when countries want them. Beyond these headlines, however, the Summit Declaration contains what could become a new development agenda for the G-20, focusing on support for growth in low income countries (LICs). This means that there is much work to do before the G-20 summit in Seoul in November.

The G-20 framework for strong, sustainable and balanced growth

One of the clearest benefits of this Summit was to see the G-20 framework for strong, sustainable and balanced growth working in practice.

The Declaration welcomes ‘ the actions taken and commitments made by a number of G-20 countries to boost demand and rebalance growth, strengthen our public finances, and make our financial systems stronger and more transparent.' At the Summit press conference, Canadian Prime Minister Stephen Harper identified a number of ‘down payments' such as the UK decision to halve its deficit by 2013, the Chinese decision to float the Renminbi, and the US financial sector reform package. This provides some evidence, at least, that such summits work. The G-20 committed itself to halving deficits by 2013 and all members, with the exception of Japan, pledged to stabilise or reduce government debt-to-GDP ratios by 2016. There were commitments to greater exchange rate flexibility in some emerging markets; structural reforms across the entire G-20 membership; action to boost national savings in advanced deficit countries while maintaining open markets and enhancing export competitiveness; and agreement that economies with surpluses will undertake reforms to reduce their reliance on external demand and focus more on domestic sources of growth.

Taken together, the entire span of commitments within the G-20 growth framework represents an ambitious set of reforms that could, according to background papers from the IMF and the World Bank , lead to the following in the medium-term:

  • an increase in global output by almost $4 trillion, with a 2.4% gain in developing country incomes
  • the creation of tens of millions more jobs
  • a fall of around 33 million in the number of people living in poverty (on less than $2 a day), and
  • a significant reduction in global imbalances

What the Toronto G-20 means for development

One key sentence in the Declaration reads: ‘We are committed to narrowing the development gap and must consider the impact of our policy actions on low-income countries.' The Declaration also says 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 on growth.

One encouraging step is the Summit's creation of 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. This Working Group could be the starting point for a G-20/ LIC 20 point charter for strong sustainable and balanced growth which could, as discussed in our pre-Toronto blog , commit both the LICs and the G-20 to engage in mutually reinforcing growth and development policies.

The Working Group could examine in more detail how G-20 policy actions affect specific developing countries, an element that may not have received enough attention in the IMF and World Bank background papers. It could also examine which complementary policies are needed to mitigate any negative development consequences of G-20 policy actions. One example of policies that have already deserved G-20 attention is the possible negative impact of stronger financial regulation, which may reduce bank lending to poorest countries, as outlined in our recent publication on the G-20 and growth.

The Declaration states: ‘We will continue to support development financing, including through new approaches that encourage development financing from both public and private sources.' In Toronto, the Canadian Prime Minister announced to the B-20 (the business equivalent of the G-20) the SME Finance Challenge (small- and medium-sized enterprises), which aims expand business opportunities and create jobs by inviting the private sector to develop proposals that will attract private investment for small businesses in LICs. The successful proposals will be announced at the Seoul G-20 summit. This private sector initiative could be a useful complement to the capital increases for multilateral development banks and increased resources for the IMF previously announced and referred to in the Toronto declaration.

The G-20 renewed its commitment to refrain from protectionism until 2013 – a commitment mentioned in ODI's Development Charter for the G-20 , and which has been highly successful over the past two years – and reiterated its support for bringing the WTO Doha Development Round to an end as soon as possible. While this is not the first time the G-20 has made this pledge, dropping the pledge would be worse. The Declaration also maintains a reference to Aid for Trade, which can be a very effective form of aid.

The Declaration also reinforces the commitment to a green recovery and to sustainable global growth, and welcomes the commitment to the country-specific phase out of inefficient fossil fuel subsidies, ‘taking into account vulnerable groups and their development needs.' The latter is important as some poor groups might otherwise lose out, even though the environment might gain, see our recent publication on the G-20 and growth .

The Declaration mentions the upcoming high level plenary meeting on the Millennium Development Goals in September 2010 , and the 4 th United Nations Conference on the Least Developed Countries in June 2011 in Turkey – events that could also benefit from new thinking on strong, sustainable and balanced growth.

The verdict

A new development agenda for the G-8 and G-20 with new targets is urgently needed, now that the G-8 has dropped references to the Gleneagles commitments on aid, despite the UK's excellent aid efforts and record. The Toronto G-20 may have ushered in a new beyond-aid agenda on development and worked rather well, according to some interpretations. There is more on development in this Declaration than might have been expected from the previous G-20 communique. The onus is now on the Seoul summit in November to deliver, and effective coordination between the newly established G-20 working group on development and developing country policy makers could play a crucial role in this.