The 2012 G20 Summit: facing down global challenges in Mexico

Maria Monica Wihardja (*), East Asia Forum, February 13, 2012

The last 12 months have witnessed the Japanese triple disaster, the Middle Eastern and North African ‘Arab Spring’, nuclear-powered North Korea’s leadership succession to a 27-year-old, Western condemnation of the Iranian nuclear power program, and the shift of US military strategy to the Asia Pacific. Popular movements saw national leaders from Europe (including Italy, Greece, Portugal, Ireland and Spain) to the Middle East and North Africa (Libya, Tunisia and Egypt) toppled from power. Tensions rose between old-power G7 nations and rising-power BRICS countries over currency and trade, the South China Sea, bans on Iranian oil, and most recently, the Syrian regime. Many countries resorted to rising protectionism through tit-for-tat strategies, while the WTO Doha Round has remained stalled. Competition in the food and energy sectors has become increasingly intense. And the US presidential election and the leadership change in China later this year could further add to global uncertainty. All this while prolonged economic turbulence emanating from the euro zone threatens to devastate global economic growth.

With so little space to move and so little time to spare, what can this year’s G20 do differently?

Broadly speaking, the agenda must be continuous, implementable and focused if it is to deliver concrete outcomes. Previous commitments by G20 leaders, while promoting win–win strategies for the international community, have lacked focus and practical implementation plans.

With so much global social unrest and economic turmoil threatening political and social stability, social safety net programs should be prioritised. In particular, the Social Protection Floor, endorsed by G20 leaders last year, must be made central to the coming G20 Summit. The plan must act to attenuate the adverse impacts of the global recession and to maintain social cohesion. Meanwhile, the Multi-Year Action Plan on Development (2010) and recommendations from the G20 Employment Task Force must also be consistently enforced.

Judging by the Finance Ministers’ and Central Bank Governors’ Deputies Meeting in January, there are four key issues that may help shape the G20 Summit’s agenda: IMF quota and voting reforms, financial-sector reforms, commodity and derivatives markets, and disaster-recovery management.

First, the IMF quota and voting reforms will see emerging-market and under-represented countries receive higher shares. With the emerging countries’ share of the global economy rising, IMF quota and voting changes will better represent the new global economic landscape. The IMF’s plan to expand its war chest and increase its firepower is an opportunity for emerging markets to play a contributive role in this new landscape.

Second, although emerging countries have ostensibly committed to financial regulatory reform, including Basel III, scepticism continues to exist. But it is essential that the G20’s developing-economy members overcome this to adopt a strong position on financial regulatory reform, moving beyond the excuse that such measures are for more-developed economies only. There are clearly flaws in the current financial system, and developing economies should not be passive, but active, reformers.

Ways to better connect financial and real sectors must also be discussed. If left unaddressed, such a disconnect may increase scepticism over market capitalism, globalisation, financial greed and inequality — which could ultimately trigger more social unrest.

Third, the co-chairing of a commodity- and derivatives-market working group by Indonesia and the UK is a positive step. Indonesia is an emerging economy with an under-developed derivatives market and volatile commodity prices, partly due to derivatives trading on commodities. By pushing for regulated commodity and derivatives markets, Indonesia would be a counterbalance to the UK. This is the sort of ‘balancing’ agenda needed at the G20 level — one that strikes a compromise between developed and developing economies.

Fourth, disaster-recovery management will benefit many G20 members, including Japan, Indonesia, Australia and the US — all located in disaster-prone areas. Here there is room for alignment with regional initiatives. APEC, which includes nine G20 members, has initiated the APEC High-Level Policy Dialogue on Disaster Resiliency (2011) and the APEC Trade Recovery Programme. The East Asia Summit, encompassing seven G20 members, has also initiated the Practical Approach to Enhance Regional Cooperation on Disaster Rapid Response (2011). This includes efforts to improve efficiency for visa applications, customs, quarantine issues and bureaucratic impediments to disaster-relief efforts, including NGO assistance. The G20 may also contribute to the financial aspects of disaster-recovery management.

With only seven months of preparation time since meeting in Cannes, the G20 Summit in June must ensure the continuity of its agenda, but also recognise the current economic recession. Social protection plans to prevent more political and social instability, and genuine progress toward financial regulatory reform are priorities that should be addressed at the coming summit. Meanwhile, emerging countries should become more active, rather than passive, reformers.

(*)Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies, Jakarta, and a lecturer at the Department of Economics, University of Indonesia. She is currently on leave to work as a consultant at Bank Indonesia.