Is Group of 20 sustainable?
G20 emerged as only group to draw global financial cooperation, but too many interests may spoil core purpose
By Kim Da-ye
Hosting a summit of the heads of 19 economically powerful nations and the European Union (EU) November last year was a historic moment for South Korea.
Korea was the first non-G7 nation to chair the G20 summit, so was determined to put on the best show.
The government officials had been conducting endless negotiations in advance to help the leaders smoothly reach an agreement at the two-day summit.
At the same time, Korean citizens put nationwide efforts to leave a good impression on the VIP guests, enduring traffic jams and tougher surveillance and even refraining from disposing foul-smelling food waste.
But what if the gathering of the leaders, which Korea believes to be the sole channel to get its voice heard and wants to play a critical role within, fizzles out?
The G20 consists of both developed and developing countries with clashing interests, which made skeptics wonder if participants would still be willing to cooperate after the shared interest of overcoming the financial crisis fades away.
In addition, there is silent fear among stakeholders against Mexico’s presidency of the 2012 G20 summit as the event had to be pulled forward to June from November — only a few weeks before the country’s presidential election on July 1.
According to insiders and experts, however, the G20 has become increasingly relevant amid the persisting economic crisis.
“There is a consensus that only the G20 could draw a final solution on international economic cooperation,” said Sohn Byung-doo, the director general of the G20 Bureau of Korea’s Ministry of Strategy and Finance.
While globalization has made one economy dependent on another, Sohn said that the G20 is the sole body that represents both G7 members and emerging economies. The Organization for Economic Cooperation and Development, for instance, does not include China, India, Russia and Brazil in the membership.
Will the G20 have a sustainable future, keeping the status as the premier forum for international economic development? Then how?
This year’s G20 summit was held in Cannes, France, Nov. 3-4. It was clearly overshadowed by the roller coaster development in debt-struck Greece — the now-resigned Prime Minister George Papandreou suddenly called for a referendum on the financial bailout earlier that week, but gave up the plan by Thursday. It had enraged European leaders who worked on the bailout plan for months.
In the end, the Cannes summit’s outcome was largely highlighted by the leaders’ failure to approve the expansion of the resources of the International Monetary Fund (IMF) that would eventually lend to the safety-net fund for the eurozone states; and by the positive step of Italy’s agreement to have its economic policies monitored and inspected quarterly by the IMF.
Eswar Prasad, a senior fellow at the Washington D.C.-based Brookings Institute, criticized the outcome of the summit in his column titled “Crisis Kills G-20 Progress.”
“Instead of new ideas to promote global financial stability, the G-20 has offered grandiose but vague promises for the future, which were unlikely to inspire the confidence that financial markets were looking to G20 leaders for,” Prasad wrote.
Judging by the nature of the G20 summit where working-level officials meet in advance and build up the draft of the communique, the Cannes summit had too little a time to come up with realistic solutions on the Eurozone crisis.
Until the last minute, some members including Germany wanted the sovereign debt crisis to be dealt with among European countries, making preparations impossible.
One source, who spoke on condition of anonymity, said that the disappointment with the failure to boost the resources of the IMF may be much of the European perspective because they desperately needed it. From non-European members’ view, the result may not be that bad because as the giver, they need to be cautious.
Mexico, the next chair
The next G20 summit will be held before July 1 in Mexico — nearly four months earlier than usual.
Mexican President Felipe Calderon pulled forward the date because the country is to hold a presidential election in July 1.
John Ackerman, a professor at the Institute of Legal Research of the National Autonomous University of Mexico (UNAM), openly criticized it in his column for the British daily, the Guardian.
“Calderon has already convinced the G20 to move up its 2012 meeting in Los Cabos, Mexico, so that it takes place only a few weeks before the July 1 presidential elections,” Ackerman wrote.
“The Mexican president hopes to use the presence of the international leaders to boost his failing credibility and overcome his party’s weakness in the polls.”
The professor, who criticizes Calderon for the significant increase in violence, warned that the “highly-charged” political environment could lead to new social protests against the world leaders.
Ackerman isn’t the only one to be worried about Mexico’s presidency, according to a series of interviews with experts, but the rest were much more optimistic.
While Deanne Leifso, the G20 project officer at the Center for International Governance Innovation (CIGI), a Canadian independent think tank, acknowledges the leaders’ tendency to play up issues that will make good headlines for them, she said that Calderon hosted a successful climate meeting in Cancun in 2010.
“The strength of Mexico is that it is a non-European, non-G7 emerging economy... The challenge for Mexico is to bring back momentum to the G20 process, to focus on compliance with past commitments without bogging down the agenda with new issues,” Leifso said in an email interview, pointing at the excessive focus on the eurozone crisis in Cannes.
David Shorr, a program officer at the U.S.-based Stanley Foundation, believes that Mexico will be able to achieve that — putting the G20 back on the track.
“I know that the Mexican government is concerned about all the different issues and commitments that have built up for the G-20, and they want to keep a tight focus on the items that are already on the table and not pile on more issues,” Shorr said via email.
One insider, who spoke on condition of anonymity, expressed more concerns on the Mexican presidency, but said the U.S. is likely to have a significant role in the 2012 summit, advising the neighboring country to host the summit successfully.
He said that the U.S. would be interested in sending out its messages through Mexico because emerging economies would listen to the latter’s argument better than the former’s.
Korea’s role in the future
Because the G20 summit is the only opportunity for the Korean government to directly participate in global rule setting, it naturally does not want to lose a grip on the leadership it built last year.
From next year, Korea will be no longer part of the Troika — the group of past, present and future chairs. Does it worry the government? Apparently not.
The French government, according to several sources, did not closely cooperate with other Troika members in hosting the Cannes summit anyway, so leaving the Troika wouldn’t make much difference to Korea.
And the government wasn’t too disappointed with this year’s summit because of the continued discussion on the agenda it pushed forward last year called the “Korea Initiative.” It includes the establishment of a global financial safety net and investment into developing countries’ infrastructure.
In relation to the financial safety net, the G20 members agreed on the expansion of the IMF’s “precautionary credit line” — a credit line lasting one to two years for countries with sound fundamentals facing liquidity crisis — by adding a six-month short-term lending mechanism.
The domestic government suggested last year the creation of the “global stabilization mechanism (GSM)” in which the IMF sets a credit line for risky countries even in the absence of their request to prevent the contagion of a crisis.
The G20 members also followed up on Korea’s proposal to expand investment into infrastructure in developing countries. The communique calls for multilateral development banks to pursue the implementation of 11 projects.
How will Korea make sure it continues to be heard among the world’s major economies?
Korea once suggested the creation of a permanent chair out of concerns that the G20 summit may weaken after a few sessions although the idea was opposed by many developed and emerging member countries.
Sohn of the finance ministry’s G20 bureau said that after several summits, especially the one in Cannes, stakeholders are no longer concerned about the disruption of the regular meeting.
“And the chairs until 2015 have already been determined,” Sohn said. In 2013, Russia will host the event, followed by Australia and Turkey.
Some may feel uneasy about the absence of G7 member countries on the list, but Shorr of the Stanley Foundation said that it is actually a good thing for emerging economies to serve as chair.
“As long as they have enough diplomatic capacity, spreading the hosting duties around this way only reinforces that solutions can only be reached in an inclusive way and that the big powers shouldn’t be doing all the heavy lifting,” Shorr said.
The more immediate need for the Korean government is apparently the maintenance of a department that can continue participating in the working groups of the G20. The working groups prepare agendas, negotiate them and follow up on previous commitments throughout the year — the existence of those groups is a critical difference between the G20 and the G7.
The G20 Bureau of the finance ministry is dedicated to the ongoing development between the summits, but it is scheduled to stay alive only until next March.
The Ministry of Public Administration and Security is reviewing the extension of its term, and the G20 Bureau staff members are working hard to convince the ministry of their importance amid uncertainties.
To convince the public of the importance of the G20, Sohn said the summit will have to yield visible outcomes.
“It shouldn’t disappoint the market,” Sohn said with a short laughter.
But even without definite solutions drawn from the summit, the G20’s importance is being acknowledged abroad.
Leifso of the CIGI said, “Of course right now there is no viable alternative to the G20. If these leaders cannot make it work at the G20, which was created to fill a gap in global governance, who or which organization can?”