Development agenda: can it make a difference?

The big question is how can the G20 use its position to add something to the existing development fora

Dirk Wilem te Velde, head of Trade, Investment and Growth Programs at Overseas Development Institute, London

"The big question is how can the G20 use its position to add something to the existing development fora"

Dirk Willem te Velde

In less than two months when the leaders of the G20 countries convene in Seoul they will face a stark choice. They may choose to address issues such as financial regulation, bankers’ bonuses and stimulus exit strategies – all issues which resonate at home but leave developing countries largely out of the equation. Or they can choose to improve the legitimacy and relevance of the G20 for poor countries by ensuring their actions are coherent in promoting development. This would mean promoting a development dimension of core actions within the G20, such as those on financial regulation and financial safety nets, and establishing the terms of a new multi-year action plan on development.

The G20 was a financial and technical grouping which emerged from the fall out of the East Asian Financial Crisis with little regard for the agenda of the poorest countries. The 2008 global financial crisis forced the G20 into the public’s gaze. Leaders had to solve an urgent and deep crisis. Unprecedented co-ordinated action followed and brought with it a positive impact on development. The 2009 London summit announced fiscal stimulus packages which have indirectly helped poorer countries, it provided more liquidity into the financial system (with guarantees for poorer countries) and agreed, with some success, not to increase protectionism.

The declaration of the Toronto summit earlier this year was a further positive statement about the need for development to sit at the core of the G20: ‘We are committed to narrowing the development gap and must consider the impact of our policy actions on low-income countries.' it said and ‘Narrowing the development gap and reducing poverty are integral to our broader objective of achieving strong, sustainable and balanced growth and ensuring a more robust and resilient global economy for all.' This means the poorest countries are now seen as central to the G20 deliberations.

A further outcome of Toronto was the establishment of a working group on development, with a mandate to create a development agenda and multi-year action plans to be adopted at the Seoul Summit. Promoting development is no longer seen as an altruistic act, but something which is in the self interest of the G20.

Now the G20’s development agenda faces a number of challenges. The big question is how can the G20 use its position to add something to the existing development fora and how can it establish working relationships with countries outside of the G20 or other businesses and NGOs? But others remain, how can its core actions be made responsive to development needs? How could it design a development agenda that it in the interest of poor countries? A legitimate G20 has to answer all these questions.

There are very few global platforms which discuss economic growth explicitly. The G20 is the right forum to discuss economic growth issues. Big announcements on aid (such as the recent one by the G8 on maternal health) are better left to the G8 or UN MDG related fora. Other issues such as trade preferences, which in isolation are not the keys to development, might be better left to complex trade negotiations fora such as the WTO.

That is why ODI research has focused on understanding the role of poor and vulnerable countries in the G20 framework for strong sustainable and balanced growth. The G20 can rebalance their economies, promote smart subsidies, and reallocate wealth with an eye for development impact. Poor countries in turn can bring their own growth plans to the G20, or a regional intermediary, which the G20 can support further.

We know poor countries face large deficits in infrastructure financing which impede growth prospects, even though such projects can have large economic, and sometimes, financial rates of return. This problem can be solved. The successful Korean growth story suggests that government supported infrastructure, skills and export promotion helped it to develop quickly. The G20 can promote different forms of finance beyond aid (mixing private finance, sovereign wealth funds, development finance institutions as well as aid) to support infrastructure projects and offer skills and technology. Similar solutions can work to deliver climate finance and low carbon growth.

The relevance of the G20 for poor countries will depend crucially on whether the emerging market members of the G20 play their part. ODI research confirms that trade with emerging markets has cushioned the impact of the financial crisis on poor countries. In addition, foreign direct investment from emerging markets to Africa grew sharply throughout 2009 in contrast to a decline from G8 countries. What is more sovereign wealth in emerging markets could increasingly put their wealth to good development use by realising that there is often a greater potential for return in poor countries rather than US treasuries. G20 leaders have much to learn from Korea, often touted as the bridge between G8 countries and emerging markets in the G20 and that is why Korea can play a key role this November by taking the lead and establishing a G20 knowledge sharing network on growth and development.