G-20 at Davos

The G-20 was discussed at the World Economic Forum in Davos last month.

"Might the G20 become the G8 of the 21st century?"

Participants generally agreed that the G7/G8 formula representing only a small group of the world’s richest countries has outlived its usefulness

Chinese leaders believe strongly in the potential of the G20. Yu Yongding, Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences, said "We want to get involved and make a contribution. We believe the G20 is very important for global governance." But China has no interest in the G8, added Yu. "We don’t want to join a rich man’s club."

But participants also agreed that the G20, which incorporates economies deemed to be of greatest significance for the international finance system, must shape a suitable infrastructure and change its current informal nature if it is to develop into a genuine global institution. It will need to create permanent mechanisms, said Charles H. Dallara, Managing Director, Institute of International Finance (IIF), USA. "There are limits to what the G20 can do without a headquarters," said Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University, USA. "It can’t expand what it is doing much if you don’t have a structure or a secretariat."

Will the G-20 correct the Bretton Woods Institutions?

Both the G-8 and G-20 say they are very concerned about the ineffectiveness of the Bretton Woods Institutions. Are they serious? In this connection, documents on the site of the Bretton Woods Project make interesting reading.

We learn in one case of the IMF's (key Bretton Woods Institution) attempt in 2001, no doubt because of growing accusations of serious bias in its dealings, to convince the world that it operates impartially. The International Monetary Fund's Executive Board therefore introduced the mechanism of the Independent Evaluation Office - a form of audit. The Office was mandated to operate independently of IMF management and at arm's length from the IMF's Executive Board.

In September 2006, the IEO published a report An Evaluation of the IMF's Multilateral Surveillance. The report emphasised the need for the IMF to persuade effectively and widely, and thought it should distribute not only raw information, but informed analysis.

The IEO also recommended that the IMF should get its message across better by interacting more with intergovernmental groups, particularly the G-7/8 and the G-20. However the IMF disregarded this advice.

Bretton Woods Institutions should remain relevant

The G20 programme for 2007 begins with a continuation of the current efforts to ensure that the Bretton Woods Institutions remain relevant and effective to and for all member countries in coming years.

A new Bretton Woods conference in South Africa?

This is a great opportunity for the Bretton Woods Project to be effective. The BWP is a UK-based network of NGOs including Oxfam, ActionAid, Christian Aid, One World Trust and new economics foundation.

Should the G20 take over from the G8?

The official website of the G-20 for 2007 is here. South Africa will chair the important political grouping, which may be seen to have more legitimacy than the G8.

SA's theme for its host year is ‘Sharing - Influence, Responsibility, Knowledge’.

The programme begins with a continuation of the current efforts to ensure that the Bretton Woods Institutions remain relevant and effective to and for all member countries in coming years. The second element of the work programme will seek to share experiences and views on the impact of high commodity prices on economic growth, macroeconomic management and the implications for countries’ financial systems. Finally, the 2007 work programme includes an analysis of the fiscal elements of growth and development, which looks at how countries utilise fiscal space to enhance national developmental objectives. The rise in commodity prices over the past few years has contributed positively and negatively to G-20 economies in various ways. South Africa will also use the opportunity of its host year to improve and strengthen knowledge, within the forum, of African economic and financial policy challenges – and to facilitate a sharing of knowledge with the African countries.

The Institute for International Economics, based in Washington, commented on the increasing legitimacy of the G20 over a year ago - see comments.

Update

1. From the Australian press in October 2006, Geeing up to shape the global economy:

Mark Thirlwell and Malcolm Cook from the Lowy Institute sum it up this way in a policy brief, Geeing Up the G20: "The most fundamental shortcoming of the current international economic architecture is that it fails to adequately represent the make-up of the new global economy. Most of the existing structure was created at a time when the centre of world economic gravity spanned the Atlantic Ocean and was anchored by western Europe and North America. In the (past) two decades, the geographic distribution of economic power has shifted, with a much larger role both for key emerging markets and for the Asian region."

A look through recent G7 communiques shows its inability to deal with the issues that it identifies as important. These include global economic imbalances, oil prices, exchange rate flexibility, the Doha Round of world trade negotiations and energy security.

2. Regarding global energy and the G20, an Australian think tank - the Lowy Institute for International Policy - published a policy brief in November 2006. The research was titled 'New Rules for a New 'Great Game': Northeast Asian Energy Insecurity and the G20'.

The conclusion was:

a) To ensure that energy security does not become a global strategic problem the international community needs to promote the efficient functioning of energy markets, encourage international cooperation regarding political and strategic questions surrounding enegy extraction and transportation, and build consensual rules for the energy diplomacy 'game'.

b) The G20 should take a leading role in these efforts by building on its existing resource security agenda and network of workshops, perhaps complementing them with one and a half track and second track working groups, and bringing together experts from strategic, foreign policy and economic fields.

3. The G8 should abolish itself

G-20 conclusions

The communique for the G-20 meeting in Melbourne has been released.

On energy, it is reported:

We agreed that enhancing global trade by strengthening markets, and ensuring sustainability by promoting investment and encouraging efficiency, are the best ways to deliver lasting resource security.

There should be intervention in national politics by international politics for global aims.
Long-term resource security and dealing with key global challenges, such as climate change, require effective international policy frameworks and actions.

Moreover,
We note the International Energy Agency’s World Energy Outlook and its recommendations. The IEA reported this month that national governments and companies need to spend $20 trillion in the next 25 years - and there is still no guarantee of finding enough oil and gas. More than half the total will be needed in emerging countries; China alone needs to spend $3.7 trillion on energy during 2005 to 2030. Source

However the G-20 may have agreed on the best way forward, but have no powers of enforcement in the crucial matter of energy.

Melbourne on 18-19 November 2006

From a posting below:

"Global energy is a new item for the G20's agenda, says the Australian secretariat of the G-20. It has yet to be discussed; the expectation is that Ministers and Governors will talk about some of the aspects at their meeting on 18 and 19 November 2006."

Australia's G20 website tells us: This November, Melbourne will host the world’s most influential economic and financial leaders at the G-20 Meeting of Finance Ministers and Central Bank Governors. It will be the most significant gathering of its kind ever held in Australia. Following the success of this year’s Commonwealth Games, Melbourne will again be at the centre of the world stage.

Energy was recently said to be a "political challenge of global dimensions". How will the G20 respond?

The G20's aim?

Per the work programme for 2006:

The G-20 has had a mandate to review the Bretton Woods institutions from its inception in 1999. . . In 2006, the G-20 will monitor progress of reviews already underway, provide further focus to the reform agenda, and sustain the momentum for reform.

Accordingly, the press tell us the G20 want changes to the decision-making process at the Fund. However it is unclear what, specifically, the G20's aims are after a technical rebalancing of influence at the IMF. An adjustment to voting power might reduce subjectivity in decision-making, but there are surely better ways to introduce objectivity. No doubt the Australian chair of the G20 will explain further, to take the important matter forward.