When heads of government from over 20 of the world’s biggest countries meet in Toronto this weekend for the G20 Summit, they will, between themselves, represent 88 per cent of world income and 83 per cent of world trade.
If the first Summit of the G20 in Washington in December 2008 helped impart confidence in collapsing markets, the Summit at London in April 2009 helped infuse into the global economy a huge fiscal stimulus that revived hopes for growth. The third summit at Pittsburgh in September 2009 promised a focus on balanced growth, commitment to resist protectionist measures, phasing out of oil and fossil fuel subsidies and the reform of global institutions to reflect the increasing influence of emerging market economies.
While the spectre of protectionism has largely been kept at bay (barring the disturbing “Buy US” provisions in the US stimulus plan), global imbalances have swelled in the last year. The reform of the World Bank, with an increased voting power of 3.13 per cent, pushing China into third place behind the US and Japan, has taken place. Yet this still has to occur in the International Monetary Fund (IMF).
| HEAVYWEIGHTS OF GLOBAL TRADE | |||
| G20 | Share of world | Inflation# | |
| GDP* | Trade* | ||
| Argentina | 0.45 | 0.38 | 10.20 |
| Australia | 1.59 | 1.30 | 2.90 |
| Brazil | 2.32 | 1.10 | 5.30 |
| Canada | 2.60 | 2.60 | 1.80 |
| China | 6.96 | 8.90 | 2.80 |
| France | 4.57 | 4.10 | 1.70 |
| Germany | 5.86 | 15.90 | 1.20 |
| India | 2.12 | 1.60 | 10.20 |
| Indonesia | 0.73 | 0.80 | 4.20 |
| Italy | 3.54 | 0.30 | 4.80 |
| Japan | 8.69 | 4.60 | -1.20 |
| Mexico | 1.64 | 1.90 | 4.30 |
| Republic of Korea | 1.93 | 2.80 | 2.70 |
| Russia | 1.90 | 1.89 | 6.10 |
| Saudi Arabia | 0.73 | 1.70 | 4.90 |
| South Africa | 0.51 | 0.50 | 4.80 |
| Turkey | 0.74 | 1.00 | 9.10 |
| UK | 4.74 | 3.40 | 3.70 |
| US | 26.66 | 10.70 | 2.20 |
| Other EU countries | 10.25 | 17.62 | 6.90 |
| Total | 88.53 | 83.09 | |
| Source:* Based on World Bank/IMF data # The Economist | |||
Canada’s Prime Minister Stephen Harper said, “When the G20 resumes in Toronto, the discussion should be less about new agreements than accountability for existing ones. Less about lofty promises than real results.”
Yet some controversies are already in the air.
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First, there is the issue of China’s central bank’s sudden decision to “strengthen the flexibility” of yuan’s exchange rate. Given the fact that Beijing has strongly resisted international pressure to do exactly this for years, the timing of the move is more than suspicious. Clearly, it is an attempt to head off the US which would have certainly brought up the undervaluation of the yuan at the summit. While experts predict that the move is merely symbolic and a large revaluation of the currency is unlikely in the near future, it puts China in good standing leading up to Toronto.
Another controversial issue stems from contrasting statements from the US and the European camps over the manner in which to tackle the global crisis.
In a letter released ahead of the G20 Summit, US President Barack Obama called for fiscal stimulus in the “medium term” to prop up the recuperation of the financial system. Warning of “significant weaknesses”, he urged G20 leaders to renew their commitment to execute financial reforms and build up their balance sheets to “safeguard and strengthen the recovery”. Joseph Stiglitz, Nobel Prize winning economist, has said that by employing a synchronised drive for austerity, Europe would be courting “disaster”.
The warning is an unveiled barb at European nations which have been reining in their budget deficits, exacerbated by unwieldy public debts in Greece and Spain.
In contrast, German Chancellor Angela Merkel espoused the view that a quick exit from fiscal stimulus programmes, reduced spending and budget consolidation were not only the ways out of the crisis, but also the means for preventing a similar event from occurring. Germany is embarking on budget cuts and taxes to the tune of ¤80 billion over the next four years.
The G20 comprises 19 countries, the EU plus four ex-officio members (the chairs of the the International Monetary and Financial Committee and Development Committees, along with the Fund’s managing director and the president of the World Bank).
It is the result of the evolution of previous groupings, such as the G8, which were recognised as not adequately representing key emerging market economies which had a vast amount of influence on the global economy. The G8, consisted of France, Germany, Italy, the UK, the US, Japan, with Canada and Russia joining later, was noticeably missing the representation of both emerging markets as well as Muslim countries. With the expanded membership of the G20, powerful emerging market economies such as India and China have been brought on board. There has also been the inclusion of three important Muslim countries; Indonesia, Saudi Arabia and Turkey — all of whom are key players in their regions.
It is important to keep the scale of the G20 in mind when evaluating its ability to act as the premier forum for international economic cooperation.
Together, member-countries represent 88 per cent of the world’s GDP, 83 per cent of world trade, as well as two-thirds of the world’s population. According to IMF, 16 of the world’s richest countries are members of the group. Eight of the 10 largest exporters in the world, headed by China which earned a whopping $1.2 trillion in 2009, are also members.
According to an OECD report, G20 members are also key contributors to flows of investment — accounting for “78 per cent of global inflows and 85 per cent of global outflows during 2007-2009”.
While world growth is projected at 4.2 per cent for 2010, the rate at which various regions are emerging from the crisis differs markedly. The US is growing at around 3.1 per cent, Europe at a dismal 1 per cent. Africa is moving steadily ahead at 4.7 per cent, while key emerging market players such as India, Brazil and China are growing at 8.8, 5.5 and 10 per cent, respectively.
With the global economy still straining under the weight of the crisis and growth being driven largely by emerging market economies (60 per cent of economic output by 2030 according to an OECD report), the G20 leadership must ensure it lends a voice to the large number of countries that do not have a presence at the summit.