This week at ODI the French alternate Sherpa Cyrille Pierre, DFID’s chief economist Prof L. Alan Winters and the Assistant Secretary General of the United Nations Jomo Kwame Sundaram will look forward to the next stage of G-20 meetings and provide an interesting discussion ahead of the summit in November.
So what did we learn this weekend from the G-20 finance ministers meeting?
The plight of current accounts received most media attention. With threats of currency wars abounding, the meeting shifted the debate away from a dispute over diagnosis of the causes (Chinese renminbi, vs overspending in the US) towards policing symptoms of imbalances.
Relevant sections of the G-20 framework were reinforced, with finance ministers agreeing to move towards more market determined exchange rate systems that reflect underlying economic fundamentals, and to refrain from competitive devaluation of currencies. This is alongside strengthened multilateral cooperation which aimed at pursuing the full range of policies conducive to reducing excessive imbalances, and maintaining existing current account imbalances at sustainable levels.
China, Japan and Germany (and Saudi Arabia due to oil) all have a large current account surplus. This would be a global challenge if they 1) do not stimulate domestic consumption and 2) do not ensure a globally efficient allocation of the capital (the flip side of a large current account surplus). Turkey, South Africa and the US have large current account deficits in the G-20, which is a global challenge if such deficits are not financed through productive inflows.
Persistently large imbalances in current accounts will be assessed against indicative guidelines and assessed on their nature and the root causes of impediments to adjustment as part of the Mutual Assessment Process (a process which ministers agreed should continue beyond the Seoul Summit).
Research by ODI and a number of developing country officials and researchers has already suggested that poor and vulnerable countries would gain from:
- structural reforms in G-20 countries;
- financial markets which are stable, but also provide capital flows (more rules will stifle capital and growth, but some emerging countries now have too much capital inflows);
- strong growth and appropriate stimuli in G-20 countries with some available directly to the poorest (e.g. in the form of a financial safety net);
- a standstill on protectionist measures;
- flexible exchange rates (e.g. a 10% renminbi appreciation would raise African incomes by more than a Doha WTO round).
Poor countries need to be prepared for structural shifts in global economic power: ODI-led research suggests that BRICs (Bangladesh, Russia, India and China) are useful markets for primary products, but less so for processed goods.
The effect of core G-20 policies needs greater attention.
The impact of IMF quota reform (commendably allocating European seats to emerging markets on the board) on the poorest remains unclear but, more broadly for development, the communiqué refers to:
- the multi-year action plan of the G-20 Working Group on Development to promote inclusive and sustainable economic growth and resilience in developing countries;
- achieving the Millennium Development Goals by 2015, including through aid;
- a replenishment of the World Bank's International Development Association;
- demands for more funds for the Global Agriculture and Food Security Programme;
- actions identified to improve access to financial services for the poor and small and medium enterprises (SME Finance Challenge);
- progress made to phase out fossil fuel subsidies;
- public-private partnerships to promote economic growth based on the work of the G-20 Business Summit Working Groups.
The form of the multi-year action plan is one crucial development aspect of the G-20. It is interesting to note that a third of the proposals concern infrastructure, that governance proposals have been submitted only by developed countries, and knowledge exchange proposals only by emerging markets. We have to wait to see which proposals are adopted at Seoul.
Bearing in mind the distinguishing features of the G-20 (includes emerging markets as well as developed countries, focuses on sustainable growth, a network not an agency, reacts well to urgencies), the following proposals would constitute a credible, focused and appropriate agenda:
- A G-20 initiative on infrastructure for sustainable development, which would bring in new investors from emerging markets, ask them to sign up to appropriate standards, link them to poor countries, review the infrastructure instruments of development banks, and use blended loan grant finance intelligently to leverage private investment for green power. This has a clear demand from African countries, and could help rebalance the global economy by re-allocating official and private wealth from surplus countries to high return activities in poor countries.
- A G-20-supported decentralised knowledge exchange (see my presentation at the G-20 high level development conference in Seoul), bringing in the experience of countries such as Korea which grew rich in one generation, and could cover topics such as innovation, public private partnerships, tax policy, and others).This would follow the Wikipedia model with many editors around the world (given the wide differences in growth).
- Others, e.g. support for initiatives such as GAFSP, Aid for Trade, and the SME Finance Challenge which all focus on addressing growth constraints and building resilience.
ODI researchers have long argued for more formal representation of the poorest and most vulnerable countries. Five non-G-20 countries (Spain, Singapore, Ethiopia, Malawi and Viet Nam representing AU, NEPAD and ASEAN) have been invited to Seoul mostly to represent regional groupings. There is an opportunity to formalise this and cement the role of the BRICs which should be seized by the Koreans and the French. This is sure to be just one of the issues up for discussion at ODI on Wednesday."