G20 Fault Lines Making It Hard to Walk Its Talk
|A general view of the opening ceremony of the G20 finance ministers and central bank governors meeting in Jakarta, Indonesia, February 17, 2022. Mast Irham/Pool via REUTERS|
The challenges before the G20 will be daunting as they meet in Bali, Indonesia, on 15 and 16 November.
World leaders will yet again brainstorm on the unfinished recovery from the worst public health and economic crises in a century, exacerbated by the economic repercussions precipitated by Russia’s invasion of Ukraine. With the surge in costs of living, fuelled by the disruption in food supply chains with the prices of grains, staple cereals, oilseeds, and fertilisers skyrocketing beyond control, annual global inflation has risen to 6.7 per cent this year.
G20 comprises G7, seven developed industrialised economies, 12 developing economies, including BRICS (Brazil, Russia, India, China, South Africa) countries, and the European Union, consisting of 27 member States. While the G7’s focus is usually on security and political issues, the G20 focuses on global economic and financial architecture to avert economic crises.
G20 had its origins as a rapid response crisis management group with a unique size and flexible structure. But looking at the scale of challenges today, the question arises: Can the grouping rise up to the occasion and meet global expectations by arriving at a universally accepted agreement on crucial issues such as economic security, trade divergences, and climate? As a forum of 20 nations, which together account for about 80 per cent of the world’s GDP (Gross Domestic Product), 75 per cent of global trade, and 60 per cent of the population, it can often be unwieldy.
The fault line on Russia
The most obvious fault line among the G20 countries this year is their respective positions on the Ukraine war. Indonesia has invited Ukrainian President Volodymyr Zelensky and Russian President Vladimir Putin to the summit, affirming that the G20 is not the appropriate forum for war and conflict but for economic prosperity.
The West, led by United States President Joe Biden, had repeatedly called for the removal of Russia from the G20 while supporting the participation of Ukraine. In several earlier G20 meetings, the West has walked out and called for the boycott of Russian presence. Yet, members such as China and Brazil have a different view. China continues to value Russia’s importance at the forum and has reportedly directed Indonesia to keep the Ukraine war off the November 2022 summit agenda.
The second fault line is the impasse between the US and OPEC+ (Organization of the Petroleum Exporting Countries, along with Russia and its allies). It is especially with Saudi Arabia, which, to Russia’s relief, was instrumental in refusing Biden’s insistence on the OPEC+ to ramp up oil production to ease pressure on skyrocketing crude oil prices early last month.
Tensions, therefore, are expected to fly high.
However, annual G20 meetings are more important for their processes and sidelines than for their outcomes. It is a forum for like-minded countries to further their bilateral agendas too. One such sideline will be the first in-person meeting of new United Kingdom Prime Minister Rishi Sunak with Indian Prime Minister Narendra Modi.
The moment of the Global South
This year’s G20 has triggered more interest because India will officially take over its presidency for the first time.
It is noteworthy that the troika of the G20 for three years will be the developing world — Indonesia this year, India in 2023, and Brazil in 2024. It definitely gives the platform a credible space and voice for setting agendas to tackle the concerns of the Global South and facilitate a North-South dialogue by negotiating diverse national interests. As global commons nudge the world for robust and systemic engagement, the G20 aims to recover together and stronger, focusing on global health architecture, sustainable energy transition, and digital transformation.
Alongside the G20, another important multilateral meeting on climate, the United Nations’ COP 27 will be held in Egypt. While the recently held International Monetary Fund-World Bank annual meetings are crucial to aiding global financial architecture, the COP 27 is an intergovernmental platform where about 100 world leaders participate in effectively tackling the global challenge of climate change and operationalising sustainable and resilience finance planning to enable the transition to clean energy. The latter is a goal for the G20 as well.
The 2022 plan of action
For the November summit, the G20 has several agendas on its list. One, tackle food security. For alleviating global food insecurity, the G20 Foreign Affairs Ministers’ Meeting has adopted the Matera Declaration 2021. This initiative calls for ensuring sustainable food systems, poverty alleviation, agri-diversity, and territorial development by focusing on some key areas. Public development banks (PDBs) could stimulate private investments and mitigate market risks and failures, especially for financing small and medium enterprises. India has welcomed the initiative by declaring that the agenda resonates with its concern for the welfare of small and medium farmers and promoting agri-diversity.
The G20 development ministers have supported the formation of a ‘Finance in Common’ Working Group on Financing Sustainable Food Systems, led by IFAD (International Fund for Agricultural Development), which brings together PDBs to stimulate more private sector investments and create more jobs.
Two, optimise the role of multilateral development banks (MDBs). Earlier this month, Indonesia’s G20 presidency organised a conference on ‘Boosting Multilateral Development Banks’ (MDBs’) Role and Capacity in Development Finance’ in Washington DC. Strongly supported by Indonesian President Joko Widodo, the conference adopted the objectives to provide credible and transparent benchmarks for evaluating Capital Adequacy Frameworks for resilient global banking.
The focus on the MDBs is timely as this year, four of them — the Asian Infrastructure Investment Bank (AIIB), African Development Bank (AfDB), European Investment Bank (EIB), and European Bank for Reconstruction and Development (EBRD) — are updating their energy policies with an unambiguous focus on renewables.
But despite having grand suggestions and plans of action, the G20 remains befuddled with its share of impasses when it comes to implementation.
Challenges and impasses
G20 has failed to coordinate policies around the global health architecture. Leaders have repeatedly highlighted the crucial role of coordination in ensuring equitable access to vaccines and pharmaceuticals. However, there is a wide gap in terms of global production and distribution of Covid vaccines and diagnostics among advanced and emerging and low-income economies.
The overall number of administered vaccines has risen dramatically, but so has the inequality of the distribution. Of more than 10 billion doses given out worldwide, only one per cent have been administered in low-income countries. India has called for removing the trade barriers such as vaccine differentiations, Covid passports, and other mobility restrictions that can disrupt the flow of critical services. G20 members such as Indonesia, South Africa, and India have asserted that the TRIPS (Trade-Related Aspects of Intellectual Property Rights) waiver proposal be accepted. Despite the Biden administration’s announcement of supporting the waiver, a few G20 members, including the EU (agreeing to only a partial waiver), Germany, and the UK, have opposed any consensus on this proposal.
The second challenge is to mitigate the North-South divide over Special Drawing Rights (SDR) allocations. Although member countries had agreed to boost IMF reserves with a new SDR allocation of $650 billion, the efficacy of the move has been argued. But that is not the only problem.
As SDRs are allocated proportionally to countries’ quotas at the IMF, the distribution is skewed towards richer countries with advanced economies receiving around 67 per cent of the allocation, while the Low-Income Countries (LICs) only about one per cent.
In particular, to close the gap between rhetoric and practice on public services, the World Bank and the IMF should approve a new allocation of SDRs, preferably targeted exclusively to developing countries, to create much-needed liquidity to face the crises. It seems unlikely as the developed group within the G20 is not likely to give in to this plan drowning in the economic aftermath of the Ukraine war.
Next comes the World Trade Organization Appellate Body impasse. The failure to reform the WTO has been stark. G20 leaders have recognised the urgent need to restore the dispute settlement system to “contribute to predictability and security in the multilateral trading system”. However, since December 2019, the Appellate Body has been unable to replace the retired members for the required quorum — rendering the body inactive. The US, under Donald Trump, had blocked the appointment of judges to it. Despite several attempts and proposals, the G20 has not been able to expedite the restoration of dispute resolution.
And finally, addressing conflicting climate goals. G20 members have failed to break the impasse on climate goals. While the US, EU, Japan, and Canada want the G20 to cap temperature rise at less than 1.5 degrees and phase out coal by 2025, though contextualised differently, countries such as China, Russia, India, Saudi Arabia, and Turkey have defended the use of fossil fuels. According to emerging economies like India, climate goals must be guided by a country’s national circumstances and stage of economic development and not at the cost of it.
In the West, Russia’s war has made Europeans desperately diversify energy imports, and transition to renewables at war footing with promising results of late. Research shows that pivoting to wind and solar power during the Ukraine war has saved the EU €11 billion.
G20 divergences are making it difficult for them to walk their talk. India’s presidency is coming at a unique moment in history. Today, India is known to shape important conversations not only for itself but from a position of a rising global player too. Whether its stature will help a rather divided G20 with its deliverables is something time will unravel.