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The eighth G20 Summit Declaration issued from St Petersburg, Russia, on September 6, is another humungous 27-page document that incorporates and builds on much, if not all, of what was said in previous summits, mostly reiterating motherhood statements and constructive ambiguities concealing sharp internal differences that we have come to expect from the G20, while adding its own distinctive "St Petersburg" veneer.
So what is distinctive about the St Petersburg Summit Declaration for which it will be remembered by G20 historians? The first G20 Summit in Washington is remembered for what it was - the first G20 Summit, where leaders of systemically important countries resolved to co-ordinate macroeconomic policies to counteract the global financial crisis, and where they first diagnosed its deeper, underlying causes, namely financial deregulation and mounting global imbalances. The second "London" Summit remains Gordon Brown's summit where leaders, staring down the barrel of a gun, resolved to do whatever it takes to avoid a second Great Depression, and also put together a "trillion dollar" package to insulate developing countries from the its worst effects. At the third "Pittsburgh" Summit, with green shoots of recovery clearly visible, leaders famously shot the gun with their infamous "It worked" fifth paragraph, declared that the G20 had replaced the G7 as the premier multilateral forum for international economic co-operation, agreed greater voting power for emerging market and developing economies (EMDEs) in the International Monetary Fund and the World Bank, and turned their attention to addressing long-standing structural constraints in the global economy with the launch of the G20's signature "Framework for strong, sustainable and balanced growth". With the beginnings of market revolt against mounting public debt, the natural corollary of crisis management, at their fourth "Toronto" Summit, leaders first underscored the need for targeted fiscal consolidation. The fifth "Seoul" Summit is best remembered for injecting "development" into the G20 agenda. With global economic prospects worsening sharply again in the wake of the euro zone crisis, the sixth Cannes and seventh Los Cabos summits, following close on the heels of the other, will be remembered for the policy dilemma that pitched austerity against growth.
The first big new issue on the St Petersburg agenda of interest to emerging markets and economies (EMEs) was the devastating impact of exit from unconventional monetary policies that is leading to a sudden stop of capital flows foreboding a currency and external payments crisis. The second issue was "Base Erosion and Profit Shifting" (BEPS), a G7 initiative to counter tax avoidance by their own transnational corporations. The Summit however seems to have been hijacked by what happened on the sidelines - the crisis in Syria - especially since concerns regarding the economy were muted on account of the apparent recovery in the US, UK, Japan and even Europe. This was the first summit where the forward-looking prospects of EMEs were actually worse than those of Organisation for Economic Co-operation and Development (OECD) countries, although the decline is not of crisis proportions to date.
Be it as it may, EMEs' diminishing prospects seem to have muted their voice and influence at the Summit. The speech of the Indian prime minister stood out amongst his EME counterparts in voicing concern over the absence of G20 co-ordination on monetary policies in general, and the disorderly unwinding of unconventional policies in particular. Equally eloquent was his silence on the issue of BEPS, indicating that EMEs are still some way from thinking through its implications on their own tax base. While the St Petersburg (Framework) Action Plan was the first that clearly spelt out the monetary policy stance of the four reserve currency area central banks, the St Petersburg Accountability Assessment bared the sharply differing perspectives of advanced and emerging market economies. The final summit declaration underscored that monetary policies respond to domestic conditions while underplaying cross border spillovers, and also endorsed the G7 BEPS initiative.
Did EMEs gain anything substantive from the Summit? This is not the first time that a G20 Summit agenda, meticulously negotiated by Sherpas, finance deputies and working groups over a full year, has been overtaken by events and hijacked by the flavour of the month. The euro zone crisis had hijacked the agenda at Cannes. But this is the first G20 summit not dominated by economic issues. Is this an indication of how the G20 is likely to shape up in future as the global economy recovers - an opportunity for leaders of systemically important countries to directly exchange views on the sidelines of the Summit on the most pressing strategic international issue of the day? The main action was of course on the sidelines, and not reflected in the Summit document. But this could change in future summits, for leaders are not bound by pre-set rules.
If things were indeed to turn out that way, EMEs perhaps need to worry less about the short-term unintended consequences of "tapering" and quietly celebrate the long-term unintended gains from the Syrian crisis at St Petersburg. At their Pittsburgh Summit, leaders anointed the G20 as the premier multilateral forum for international co-operation. The G7/G8 however remained the pre-eminent forum for non-economic issues. If this were to change, and a consensus amongst systemically important countries worked out in G20 summits rather than in a fractious and indecisive United Nations security council, where they are anyway under-represented, this could mark a major victory for EMEs at the expense of the G7/G8.
This would merely reflect the tectonic shift occurring in the global economy in the new millennium. While the rise of EMEs' share in the global economy measured in purchasing power parity has longed been written about, what is even more striking is the doubling of their share over the last 13 years when measured at market exchange rates, which matters more to OECD countries since this measure is more relevant for international trade and therefore for their own growth prospects (see table). Indeed, their share has increased from around 30 per cent since the first G20 Summit in 2008 to 40 per cent currently. All forward looking growth projections indicate that this rapid shift would continue, the current downturn notwithstanding. As Paul Kennedy underscored several years ago, geo-political advances are invariably preceded by economic rise.
The author is a civil servant. The views expressed are personal
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
