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While the last summit meeting of the G20 in St. Petersburg was overshadowed by the conflict in Syria and how to react to it, governance of the global economy and financial system were at the top of the agenda. The G20 has not always made relevant decisions, but it has worked as the only coordinating forum dealing with the fallout from the crisis.
The G20 was born at the request of the G7 back in 1999, when the world was confronting the beginning of an episode of global financial turmoil in the emerging economies.
Its importance has grown since then, and it has served as a way for Brazil, Russia, India and China (BRICs) to become more actively involved in setting the global agenda and working out solutions to pressing problems.
One of the initiatives of BRICs has been to create a $100-billion fund to stabilize currency markets. This is a timely development in the wake of the likely tapering of the U.S. monetary stimulus, which has strengthened the dollar while putting downward pressure on other currencies, especially the Indian rupee.
Emerging economies are concerned about the potential departure of the massive funds that have reached their shores during the three rounds of quantitative easing implemented by the Federal Reserve.
The other relevant outcome from the G20 meeting had to do with international fiscal issues. Tax avoidance by multinational firms operating across borders, while legal in most cases, has introduced major distortions in international capital flow and deprived cash-strapped governments of much-needed revenue.
The public is increasingly sensitive to tax hikes. Reports about aggressive tax planning practices by household brand names have become a political issue.
G20 has essentially agreed to support the Action Plan formulated by the Organization of Economic Cooperation and Development, whose members include the world's most developed countries. The intention is to level the playing field by reducing tax avoidance and simultaneously lowering the corporate tax rate for all companies. New regulations will tax profits in the country in which the profit-generating activities take place. The case of taxing the mobile telecommunications sector has figured prominently on the agenda.
Other topics were also discussed, especially those concerning financial reforms aimed at reducing the too-big-to-fail problem, enhanced transparency, and shadow banking. The credibility of the G20 hinges on delivering results that go beyond a mere declaration of good intentions.
The global economy needs a legitimate body in which important topics beyond the control of single governments can be debated and solutions adopted. Now it is the turn of governments to facilitate the implementation of the agreements reached in St. Petersburg.
