The G-20 misses another opportunity; it is time for a new game

Jana Silverman Campaigns and Communications Coordinator Social Watch International Secretariat

The declaration emerging from the last G-20 Summit held in Pittsburgh in September 2009 once again falls far short of civil society’s expectations and of the needs by developing countries for resources and a new framework that enables them to restart their economies. Due to this, civil society and governments of the global South must continue to raise their voices for a more thoroughgoing set of reforms to the global financial and economic system. 

For the third time in less than a year, the elite club of the world’s 20 largest economies gathered together in Pittsburgh, USA in September to discuss the construction of coordinated responses to the financial and economic crisis. As a result, for the third time in less than a year, these 20 world leaders produced a document full of vague intentions but with no effective solutions to address the profound impacts of that crisis, which have shaken the markets and also disrupted the lives and livelihoods of workers, women and the poor around the globe. It is now clear that the blueprint to finding just and lasting solutions to the crisis is not to be found at the G-20, so concerted efforts by civil society must be undertaken in order to promote the more inclusive and effective proposals being put forward in the framework of the UN (the “G-192”).

The G-20 is an ad-hoc grouping of eight industrialized countries (the G.-7 plus Russia), along with 11 of the most economically and politically important emerging countries and the European Union participating in representation of all the countries that form part of that bloc (with Holland and Spain participating individually as observers). It is an intergovernmental forum with no fixed secretariat, structure or mandate, which was created in 1999 in response to the economic crises that were rocking countries such as Russia, Brazil and the so-called “Asian tigers” at the time. The G-20 claims that its legitimacy stems from the fact that its members account for almost 90% of the world’s GDP, 80% of international trade, and over 60% of the world’s population. It also asserts that agreements on sensitive issues related to the global economic and financial architecture are negotiated more effectively in restricted spaces in which it is easier to build consensuses. However, this reasoning goes against all democratic principles, and is a reversion to a crudely realist view of international relations in which only the most powerful countries have a mandate to influence key global processes. 

Despite its serious structural flaws, the G-20 has taken upon itself the task of designing and implementing a comprehensive road-map to mitigating the current financial and economic crisis. The group was first convened two months after Wall Street’s implosion last year in Washington to address the immediate impacts of this breakdown of the global financial system. Few concrete measures were taken at that moment, though, largely due to the fact that the “lame duck” (ending its tenure) administration in the US was reluctant to propose thoroughgoing reforms. In addition, a stalemate was produced between the position of European nations such as France and Germany, which advocated for stronger international regulatory system that includes an “early warning” system that can be activated to prevent future crises, and the position of the US and Great Britain, which were seeking greater transparency and regulation on a purely national level. In the end, a lukewarm joint statement was produced which only stated that countries should use all fiscal and monetary measures necessary to find a way out of the crisis, without proposing any specific action on the international level.

The next gathering of the G-20 took place in April 2009 in London, with the newly inaugurated Obama administration taking the lead, and this time around, more concrete solutions were proposed. In the final declaration, mention was made of the need for cogent measures to stimulate employment, reopen credit lines to countries impacted by the crisis, reject protectionism, and work towards building a green economy. The most explicit decision taken was to pledge US$1.1 trillion in additional funding to the IMF and World Bank group, in order to provide funds for developing countries unable to self-finance stimulus packages for their own economies. Shamefully, this injection of new resources for the institutions which were (at least in part) responsible for the very crisis they were being called upon to mitigate, was offered with no pre-conditions related to the structural reform of these entities or the elimination of policy conditionalities for the countries who will be the final recipients of these funds.  US$250 million was designated in the form of IMF Special Drawing Rights (SDRs), a non-debt generating form of financing, yet these SDRs were distributed to recipient countries not on the basis of need but solely on the size of their reserves, thereby allocating the bulk of the resources to rich countries that already had a wealth of financing options instead of to the most resource-starved developing and least-developed economies. 

The outcome of the London Summit was received with dismay by members of the G-77 and other developing-country groupings and, as an alternative to this framework approved by the G-20, more ambitious measures were proposed in the context of the UN Conference on the Economic and Financial Crisis and its Impact on Development held in June in New York.  (For a full analysis of the outcomes of that Conference, see the August 2009 Social Watch e-bulletin.) In particular, the outcome document from that Conference is emphatic on the need to give developing countries more policy space to enact capital account controls, debt standstills and other mechanisms that can help them alleviate the impacts of the global crisis on their economies, issues that are not even mentioned in the discourse emanating from the G-20.

As the G-20 was poised to meet again in September, the dominant messages coming from the media and politicians in developed countries were signalling that the end of the crisis is on the horizon, due to some nominal gains in market indicators and economic growth in certain key economies. However, the millions of people who have been forced into unemployment and underemployment have yet to see the “green shoots” in the economy being touted by these opinion-makers. 

Despite this reality, these optimistic pronouncements set the tone for the Summit, whose triumphalist final declaration announced the creation of a “Framework for Strong, Sustainable, and Balanced Growth” based on the gradual removal of public stimulus packages, a further opening of markets in the context of a prompt completion of the WTO Doha round of negotiations, and the construction of mechanisms to foment “green growth” not based on the indiscriminate consumption of fossil fuels. Concrete proposals to retool the financial system in order to prevent future crises was limited to a call for a reform of compensation policies for bankers (who still managed to earn over $5.2 billion in derivatives trading, just in the second quarter of 2009), the development of global rules to discourage excessive leverage (with implementation targeted to take place by the end of 2012), and an extremely modest redistribution of voting rights in the Bretton Woods Institutions in order to reflect the new weight of emerging economies such as Brazil and China, which in the end would total a mere 5% shift in voting rights at the IMF and an additional 3% shift at the World Bank. The only commitments made to mitigate the social impacts of the crisis were related to the establishment of a “Financial Inclusion Experts Group” that would work on improving access to capital for small and medium size enterprises in developing countries, collaboration with the World Bank to establish a multilateral fund to tackle food security (in part through the promotion of “new technologies” in agriculture, including genetically-modified crops), and a call to convene a Summit of G-20 Labor Ministers to address the jobs crisis. 

It is obvious that these proposals fall far short not just of the expectations posed by civil society but also of the tangible needs by developing countries for increased resources and a new framework which will enable them to enact contra-cyclical policies to restart their economies. This is not coincidental, due to the lack of legitimacy, transparency and democracy inherent in the G-20 institutional framework itself, something made territorially explicit in Pittsburgh by the 48-hour blockade of the entire city center imposed by a thousands-strong police force in order to “protect” the Convention Center that housed the Summit from peaceful protesters. Beyond Pittsburgh, both civil society and governments of the global South must continue to object to the “business as usual” policies promoted by the G-20, and raise their voices for a more thoroughgoing set of reforms to the global financial and economic system such as those being proposed in the context of the UN General Assembly as a follow-up to the historic Conference on the crisis held in June. Borrowing from baseball terminology, three strikes have already been called on the G-20 so now it is time to declare them out, and begin a new game in which all the players of the G-192 are permitted on the field.