Brahmo
Chapter 3Latin America’s Economic Performance: What Ails It? Manmohan Agarwal and Amrita Brahmo
Chapter 4What Realistically Can the G20 Contribute to Development? Manmohan Agarwal and John Whalley
Chapter 5The 2008–2009 Crisis and Developing Countries Manmohan Agarwal and Adrita Banerjee
Chapter 6Argentina, G20 and Beyond: The “Outsider” Saga Aparajita Gangopadhyay
Chapter 7Indonesia’s Role in the G20: Assessing the Critical Link in the ASEAN Chain Shankari Sundararaman
Chapter 8Saudi Arabia and the Millennium Development Goals P. R. Kumaraswamy and Md. Muddassir Quamar
Chapter 9Turkey, G20 and Global Governance: Aspiration and Limitation Anwar Alam
Introduction
In the wake of the 2008 global financial crisis (GFC), the G20 was upgraded from the finance ministers and central bank governors’ level to leaders’ level. The purpose was to coordinate policy responses by the governments of the major economies in order to prevent the GFC slipping into a worldwide depression. The leaders agreed at the third summit at Pittsburgh in September 2019 that the G20 would be the premier organisation for their international economic cooperation. The purpose of this cooperation was to generate strong, sustainable and balanced growth (SSBG). While the cooperation among the leaders succeeded in stabilising the world financial system and avoid a world depression, it has been less successful in achieving SSBG. The chapter, “G20 and International Economic Coordination: Lessons from the Inter-War Years”, by Agarwal, analyses the attempt at policy coordination during the tumultuous inter-war years in order to draw lessons for when coordination can be expected to be successful.
The inter-war years were a period of considerable turbulence. Governments tried to cooperate at various levels to tackle the problems emanating from the war. Cooperation was achieved through the establishment of central banks in the countries formed after the breakup of the Austro-Hungarian Empire, negotiations about reparations and achieving monetary stability in order to help the recovery of the world economy. The chapter finds that it was easier to solve numerous technical problems, but where power relations were involved, agreement could not be always reached. Though smaller countries in East Europe were allowed to adopt the gold exchange standard, the US would not accept Germany, an important economy, being on it.
Today a host of international institutions with a history of cooperative behaviour make cooperation easier. The World Trade Organization (WTO) and financing from the International Monetary Fund (IMF) reduce the need for protectionist policies. Agreement on additional funds for the IMF to tackle the GFC was soon reached. However, agreement has not been so easy to reach in the Doha Round of multilateral trade negotiations or for additional funds and reform at the World Bank or in implementation of the agreed upon reforms to the change in voting shares and representation on the Board of the IMF. The traditional powers are not so ready to cede power to the rising powers unless forced by circumstances such as the IMF needing additional funds after the GFC.
Among the host of institutions that seek cooperative solutions in their field are institutions developing rules and procedures in areas such as banking insurance and stock exchanges. These rules and procedures bring about greater certainty and uniformity in regulations, which in turn reduce the uncertainties companies face.1 Despite all these institutional innovations, recovery has been very slow. This stems from the models guiding monetary and fiscal policies are similar to those in the inter-war years. Monetary policy run by largely independent central banks in many countries is merely to control the rate of inflation. Central banks are more sensitive and responsive to any possibility of overshooting the target than undershooting it.2 The expectation is that with the slightest recovery interest rates will be raised. So monetary policy is biased towards deflation.
Fiscal policy is not supposed to be very effective in tackling short-term fluctuations and is expected to be geared towards long-term growth. In fact, modern macro is geared towards the long-term and does not really deal with short-term fluctuations. Consequently, many countries argued at the Toronto summit in 2009 that budget deficits should be reined in to provide a conducive atmosphere for private investment — the same arguments that were made in the 1930s to rein in budget deficits.
Today also there is a shift in the balance of power and no hegemon may exist just as in the inter war years. But cooperative practices are more deeply entrenched. When the IMF had to raise fresh resources in 2008, China and India agreed to provide them without any quid pro quo. At the time of the 1997 Asian Financial Crisis, there were fears that China may also devalue its currency in order to maintain export competitiveness. But it did not do so. The newer powers have been more cooperative than the US had been in the inter-war years as their economies are much more dependent on the world economy.3
The main role we envisage for the G20 is for leaders to exchange views about how they see their economies evolving. In particular, they can inform their peers about the policies in their country so that partner countries can base their policies on a proper assessment of policies in other countries.
The G20 has grown beyond its initial crisis management focus stemming from the 2008 GFC. The chapter on G20 and development by Agarwal and Whalley (AW) seeks to place the long-term legitimacy of the G20 in the context of whether it is able to meet the aspirations of developing countries for development. The G20 adopted the Seoul Development Consensus at its 2010 meeting and has initiated interactions with international agencies in the two areas of food security and infrastructure as they relate to development goals and the successful attainment of Millennium Development Goals (MDGs) and later the sustainable development goals (SDGs). The G20, however, lacks both resources under its direct control and a clear legal structure and faces issues of legitimacy in any discussion of development since most developing countries are not members. Its legitimacy can be further questioned because of its inability to deliver on its promise of SSBG.
AW ask what realistically can the G20 contribute to development. They argue that the potential contributions are significant even if the initial steps thus far are modest. At leaders’ level, it can provide the overall framework for cross-agency development initiatives and objectives, and its legitimacy in the area can be enhanced by regional consultative processes already initiated. The chapter provides detail on actions on development already undertaken. AW also discuss possibilities for the future. But the realisation of these possibilities will require it to go beyond its currently limited analytical framework. The G20 alone in their view cannot drive global development policy, but through its positioning across agencies, it can play a constructive role. The G20 could also decide on a more activist approach by proposing improved global resource management for development, moving towards a global legal structure and providing strengthening of international disciplines. These latter steps may be years or decades away, but strengthened global disciplines would be positive for smaller countries
