Global Cooperation and G20: Role of Finance Track 9811971331, 9789811971334

This book focuses on one of the two G20 tracks, the finance track. It examines the evolution of the finance track in G20

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Table of contents :
Acknowledgements
Contents
About the Authors
Abbreviations
List of Figures
List of Tables
1 Introduction
1.1 Background of the G20
1.2 G7/G8
1.3 Evolution of the Finance Track
1.4 Organisation of the Book
Annexure: Documents used
References
2 Organisation of the G20 Finance Track
2.1 The G20 Leaders and Finance Track Themes
2.2 Understanding the Organisational Features (Working Groups, IOs, etc.) of the Finance Track
2.3 Finance Track Working Groups
2.3.1 Framework Working Group
2.3.2 Global Partnership for Financial Inclusion
2.3.3 International Financial Architecture (IFA) Working Group
2.3.4 Infrastructure and Investment Working Group
2.3.5 Green Finance Study Group (GFSG)
Annexure 1
Annexure 2: The G20 and International Organisations (IOs)
Annexure 3: GPFI and Financial Inclusion Commitments in G20
Annexure 4
References
3 Political Economy Shapes Strategies of Countries
3.1 2008 Washington DC Summit
3.2 2009 London Summit
3.3 2009 Pittsburgh Summit
3.4 2010 Toronto Summit
3.5 2010 Seoul Summit
3.6 2011 Cannes Summit
3.7 2012 Los Cabos Summit
3.8 2013 St. Petersburg Summit
3.9 2014 Brisbane Summit
3.10 2015 Antalya
3.11 2016 Hangzhou Summit
3.12 2017 Hamburg Summit
3.13 2018 Buenos Aires Summit
3.14 2019 Osaka Summit
Annexure
References
4 Evolution of the Finance Tracks Agendas
4.1 Process of Agenda Setting
4.2 Significance of Multilateral Engagement in G20 Agenda Setting
4.2.1 2008 Washington DC Summit
4.2.2 2009 London Summit
4.2.3 2009 Pittsburgh Summit
4.2.4 2010 Toronto Summit
4.2.5 2010 Seoul Summit
4.2.6 2011 Cannes Summit
4.2.7 2012 Los Cabos Summit
4.2.8 2013 St. Petersburg Summit
4.2.9 2014 Brisbane Summit
4.2.10 2015 Antalya Summit
4.2.11 2016 Hangzhou Summit
4.2.12 2017 Hamburg Summit
4.2.13 2018 Buenos Aires Summit
4.2.14 2019 Osaka Summit
4.3 Scope of the G20 Presidency
4.3.1 Global Economy and Growth Framework
Annexure 1: Agenda in the Various Summits
Annexure 2: Summit Wise Plan
Annexure 3
Annexure 4: Latest G20 Commitments [Communiqué, G20 Leaders, Antalya, November 2015]
Annexure 5: Hangzhou Summit
Annexure 6: Co-Chairs’ Report to G20 Deputies, 3 November 2012
Annexure 7: G20 Action Plan on Terrorist Financing
References
5 Financial Regulation and G20
References
6 International Financial Institutions and International Monetary System Reform
References
7 The Indian Presidency and G20’s Future Agenda
7.1 Crises and the G20
7.2 Global Economy and COVID-19
7.3 Problems in the Global Economy
7.3.1 Debt
7.3.2 Other Issues of Critical Importance
7.4 Roadmap for Furthering Finance Track Work
7.4.1 Italian G20 Presidency
7.4.2 Indonesian G20 Presidency
7.4.3 Themes for the Indian G20 Presidency (2023)
Annexure: G20 Summits
References
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Saon Ray Samridhi Jain Vasundhara Thakur Smita Miglani

Global Cooperation and G20 Role of Finance Track

Global Cooperation and G20

Saon Ray · Samridhi Jain · Vasundhara Thakur · Smita Miglani

Global Cooperation and G20 Role of Finance Track

Saon Ray Indian Council of Research on International Economic Relations (ICRIER) New Delhi, India Vasundhara Thakur The Kiel Institute for the World Economy and Bielefeld University Kiel and Bielefeld, Germany

Samridhi Jain PricewaterhouseCoopers Pvt. Ltd. Gurugram, India Smita Miglani Institute of Economic Growth Delhi, India

ISBN 978-981-19-7133-4 ISBN 978-981-19-7134-1 (eBook) https://doi.org/10.1007/978-981-19-7134-1 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Acknowledgements

The genesis of the book lies in the research study Evolution of the Finance Track commissioned by the Department for International Development (DFID) and the Ministry of Economic Affairs, Ministry of Finance, Government of India, under the UK-India Economic Policy and Prosperity Partnership (EPPP). We gratefully acknowledge comments on the draft report from Ms. Anu P. Mathai, Mr. Parveen Kumar, and Ms. Anoopa Nair of the Department of Economic Affairs, Ministry of Finance, Government of India. The comments received from FCDO were very valuable. We are grateful to Dr. Arpita Mukherjee for coordinating the study under the EPPP. We are extremely grateful to Dr. Alok Sheel for acting as our mentor during the study and sharing valuable experiences of the process of G20 agenda setting. We received important feedback on the draft report from Dr. Sheel. We are thankful for reviewers who patiently read the drafts and provided valuable comments. These include Dr. Ludger Schuknecht, Dr. Alok Sheel, Dr. Niranjan Rajadhyaksha, and Mr. Andy Mukherjee. We are extremely grateful to Dr. John Kirton and the stakeholders we consulted during our study. Their views have enriched our understanding of the issues. Finally, we are grateful to our intern Ms. Tanvi Gupta, for her inputs into the political economy processes in the various countries. We would also like to thank Ms. Chhaya Singh for all her help.

v

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Background of the G20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 G7/G8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Evolution of the Finance Track . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Organisation of the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure: Documents used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 2 3 4 6 9 9

2 Organisation of the G20 Finance Track . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The G20 Leaders and Finance Track Themes . . . . . . . . . . . . . . . . . . 2.2 Understanding the Organisational Features (Working Groups, IOs, etc.) of the Finance Track . . . . . . . . . . . . . . . . . . . . . . . 2.3 Finance Track Working Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Framework Working Group . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Global Partnership for Financial Inclusion . . . . . . . . . . . . . 2.3.3 International Financial Architecture (IFA) Working Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4 Infrastructure and Investment Working Group . . . . . . . . . . 2.3.5 Green Finance Study Group (GFSG) . . . . . . . . . . . . . . . . . . Annexure 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure 2: The G20 and International Organisations (IOs) . . . . . . . . . . . Annexure 3: GPFI and Financial Inclusion Commitments in G20 . . . . . . . Annexure 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 11

3 Political Economy Shapes Strategies of Countries . . . . . . . . . . . . . . . . . 3.1 2008 Washington DC Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 2009 London Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 2009 Pittsburgh Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 2010 Toronto Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 2010 Seoul Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 2011 Cannes Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43 43 46 47 50 52 55

15 16 16 16 21 22 22 23 23 33 38 40

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Contents

3.7 2012 Los Cabos Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 2013 St. Petersburg Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 2014 Brisbane Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10 2015 Antalya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11 2016 Hangzhou Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12 2017 Hamburg Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13 2018 Buenos Aires Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.14 2019 Osaka Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57 60 63 66 69 72 75 79 80 81

4 Evolution of the Finance Tracks Agendas . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Process of Agenda Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Significance of Multilateral Engagement in G20 Agenda Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 2008 Washington DC Summit . . . . . . . . . . . . . . . . . . . . . . . 4.2.2 2009 London Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 2009 Pittsburgh Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.4 2010 Toronto Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.5 2010 Seoul Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.6 2011 Cannes Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.7 2012 Los Cabos Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.8 2013 St. Petersburg Summit . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.9 2014 Brisbane Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.10 2015 Antalya Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.11 2016 Hangzhou Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.12 2017 Hamburg Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.13 2018 Buenos Aires Summit . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.14 2019 Osaka Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Scope of the G20 Presidency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1 Global Economy and Growth Framework . . . . . . . . . . . . . Annexure 1: Agenda in the Various Summits . . . . . . . . . . . . . . . . . . . . . . . . Annexure 2: Summit Wise Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure 4: Latest G20 Commitments [Communiqué, G20 Leaders, Antalya, November 2015] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure 5: Hangzhou Summit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure 6: Co-Chairs’ Report to G20 Deputies, 3 November 2012 . . . . Annexure 7: G20 Action Plan on Terrorist Financing . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

85 85 88 89 94 96 101 104 106 109 111 114 117 119 121 124 126 128 130 138 138 150 150 153 153 154 173

5 Financial Regulation and G20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Contents

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6 International Financial Institutions and International Monetary System Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 7 The Indian Presidency and G20’s Future Agenda . . . . . . . . . . . . . . . . . 7.1 Crises and the G20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Global Economy and COVID-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Problems in the Global Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.2 Other Issues of Critical Importance . . . . . . . . . . . . . . . . . . . 7.4 Roadmap for Furthering Finance Track Work . . . . . . . . . . . . . . . . . . 7.4.1 Italian G20 Presidency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.2 Indonesian G20 Presidency . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.3 Themes for the Indian G20 Presidency (2023) . . . . . . . . . . Annexure: G20 Summits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

207 207 209 212 212 215 216 218 218 219 221 221

About the Authors

Saon Ray is an economist specializing in industry and international trade issues, and her research is at the intersection of trade and climate change. Her areas of interest include global value chains, technological upgrading of Indian industries, free trade agreements and trade creation effects, technology transfer, foreign direct investment, efficiency and productivity of firms, financial inclusion, and energy and climate change-related issues. She is a Visiting Professor at ICRIER. She has held positions at the TERI School of Advanced Studies, Research and Information Systems for Developing Countries (RIS), and the Institute of Economic Growth (IEG). Her Ph.D. in Economics from the Jawaharlal Nehru University examined the role of intellectual property rights in transferring technology to developing countries. Her book Global Value Chains and the Missing Links: Cases from Indian Industry was published by Routledge and an edited volume Low Carbon Pathways to Growth in India was published by Springer in 2018. Samridhi Jain is a Consultant at PwC India. She is currently working with Central Bank of Srilanka in developing EPF Policy and improving their systems. She holds a Bachelor’s degree in Economics from Ambedkar University Delhi and a Postgraduate Degree in Economics from the University of Mumbai. Her research interests lie in understanding the state’s role in governing different policies at the state and central level and in the development of implementation plans. During her stint in ICRIER, her research work was focused on international finance, DRR and international relations etc. Vasundhara Thakur is a doctoral candidate at the Kiel Institute for the World Economy and Bielefeld University. Prior to this, she worked as a Research Associate at the Indian Council of Research on International Economic Relations (ICRIER). Her work spans the areas of international trade, investment, and finance. She holds a Master’s and Bachelor’s degree in Economics. Ms. Smita Miglani has over twelve years of experience in policy-oriented research, working with key ministries of the Government in India. In the past, she has handled xi

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About the Authors

research positions at ICRIER, Delhi and at the Alliantgroup, Hyderabad. She has been involved in important studies undertaken for international organisations such as the British High Commission, European Commission, the American Chamber of Commerce and Indian industry associations. Smita Miglani has completed M.Phil. (Economics) from Jawaharlal Nehru University, Delhi and is experienced in the use of econometrics and advanced economic analysis. Her broad areas of research interest are international trade and investment, trade finance and climate change issues. She has published work in reports, working papers, books and refereed journals. Her research work has contributed to India’s negotiating strategies for bilateral trade and investment agreements and policy reforms decisions at the domestic level. She is currently a Consultant at IEG.

Abbreviations

AEOI AfDB AFI AMIS AML APEC ADB BASEL BCBS BEPS BIS BRICS C2E2 CCL CCPs CDS CFS CFSG CFT CGAP CLOs COP21 COP24 CPMI CPSS CRA CRS CwA DGI DRM DRR

Automatic exchange of tax information African Development Bank Alliance for Financial Inclusion Agricultural Market Information System Anti-Money Laundering Asia-Pacific Economic Cooperation Asian Development Bank The Basel Committee on Banking Supervision Basel Committee on Banking Supervision Base erosion and profit sharing Bank for International Settlements Brazil, Russia, India, China, and South Africa Copenhagen Centre on Energy Efficiency Climate Change Levy Central counterparties Credit default swap Committee on World Food Security Climate Finance Study Group Combating the Financing of Terrorism Consultative Group to Assist the Poor Collateralised Loan Obligations 21st Conference of the Parties 24th Conference of the Parties Committee on Payments and Market Infrastructures Committee on Payment and Settlement Systems Credit Rating Agency Common Reporting Standard Compact with Africa Data Gaps Initiative Disaster risk management Disaster risk reduction xiii

xiv

EBRD ECM EMDCs EMDEs EPG FAO FATF FCL FCP FCPFL FDI FDP FFS FIAP FIEG FinTech FINTWG FISF FSAP FSB FSF FWG GABS GDP GFC GFSG GFSN GGGI GGKP GIH GPFI G-SIBs G-SIFIs GVCs IADB IADI IAG IAIS IASB IBRD ICS ICT IEA IEF IEO

Abbreviations

European Bank for Reconstruction and Development Energy and Commodity Markets Emerging market and developing countries Emerging market and developing economies Eminent Persons Group Food and Agriculture Organisation Financial Action Task Force Flexible credit line Financial consumer protection Financial Consumer Protection and Financial Literacy Foreign direct investment Forcibly Displaced Persons Fossil fuel subsidies Financial Inclusion Action Plan Financial Inclusion Experts Group Financial technology Financial Integrity Working Group Financial Inclusion Support Framework Financial sector assessment programme Financial Stability Board Financial Stability Forum Framework Working Group German-African Business summit Global Domestic Product Global financial crisis Green Finance Study Group Global financial safety net Global Green Growth Institute Green Growth Knowledge Platform Global Infrastructure Hub Global Partnership for Financial Inclusion Global systemically important banks Globally systemically important financial institutions Global value chains Inter-American Development Bank International Association of Deposit Insurers Inter-Agency Group on Economic and Financial Statistics International Association of Insurance Supervisors International Accounting Standards Board International Bank for Reconstruction and Development Insurance Capital Standard Information and communications technology International Energy Agency International Energy Forum Independent Evaluation Office

Abbreviations

IFA IFAD IFC IFI IIWG ILO IMF IMFC INFE IOs IOSCO IPCC IPEEC IWG LAC LCBM LCR LDCs LEI LICs LIDC MBS MDBs MLA MMFs MSME MTO MYAP NAB NAFTA NBFI NIR NSFR OECD OPEC OTC PCL PECC PLL PPP R&D RFA RMB SDGs SDR

xv

International financial architecture International Fund for Agricultural Development International Finance Corporation International Financial Institution Infrastructure Investment Working Group International Labour Organisation International Monetary Fund International Monetary and Financial Committee International Network for Financial Education International organisation International Organisation of Securities Commissions Intergovernmental Panel on Climate Change International Partnership for Energy Efficiency Cooperation Infrastructure Working Group Latin America and Caribbean Local currency bond market Liquidity Coverage Ratio Least Developed Countries Legal entity identifier Low-income countries Low-income developing countries Mortgage-backed securities Multilateral development banks Mutual Legal Assistance Money market funds Micro, Small, and Medium Enterprises Money transfer operator Multiyear Action Plan on Development New Arrangements to Borrow North American Free Trade Agreement Non-bank financial intermediation New Industrial Revolution Net Stable Funding Ratio Organisation for Economic Co-operation and Development Organisation of the Petroleum Exporting Countries Over-the-counter Precautionary Credit Line Programa Especial de Cambio Climático Precautionary and liquidity line Public–private partnerships Research and development Regional financing arrangements Renminbi Sustainable development goals Special Drawing Rights

xvi

SE4ALL SFSG SIBs SIDS SIFIs SME SOEs SSBs StAR STI TBTF TCFD TIWG TLAC TRs TSC UN UNCTAD UNDP UNFCCC UNIDO WBG WEO WGs WHO WTO

Abbreviations

Sustainable Energy for All Sustainable Finance Study Group Systemically important banks Small Island Developing States Systemically important financial institutions Small and Medium Enterprises State-owned enterprises Standard-setting bodies World Bank—UN Stolen Asset Recovery Science, technology, and innovation Too-big-to-fail Task Force on Climate-related Financial Disclosures Trade and Investment Working Group Total loss-absorbing capacity Trade repositories Temporary steering committee United Nations United Nations Conference on Trade and Development United Nations Development Programme United Nations Framework Convention on Climate Change United Nations Industrial Development Organization World Bank Group World Economic Outlook Working groups World Health Organization World Trade Organization

List of Figures

Fig. 2.1

Financial regulation and Reform of IFIs’ commitments in the G20 summits (2008–2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 2.2 Organisational structure of the G20 summits . . . . . . . . . . . . . . . . . Annexure Fig. 3.1 G20 summits agenda highlights and key domestic drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 4.1 Global Economy and Growth Framework: Agenda Development across G20 summits . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 4.2 Framework for Growth Challenges . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 6.1 IFI reform commitments in the G20 summits (2008–2016) . . . . . .

14 15 81 131 151 204

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List of Tables

Table 1.1 Table 1.2 Table 2.1 Annexure

G7/8 and G20 summits (2008–20) . . . . . . . . . . . . . . . . . . . . . . . . List of documents used in the book . . . . . . . . . . . . . . . . . . . . . . . . GPFI’s subgroups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 2.2 Key Finance Track themes in the leaders’ declaration of the G20 summits . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure Table 2.3 Principles of financial inclusion . . . . . . . . . . . . . . . . . . . . Table 4.1 Summit wise agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure Table 4.2 Action Plan for implementing “Principle of Reform” 2008 Summit—Washington DC . . . . . . . . . . . . . . . . Table 4.3 Agenda 2009 - London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 4.4 Agenda 2012 - Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure Table 4.5 Summit-wise finance track themes . . . . . . . . . . . . . . . . . . Annexure Table 4.6 The G20 summits: a snapshot . . . . . . . . . . . . . . . . . . . . . Table 5.1 Financial regulation agenda in the G20 summits: Broad highlights and the associated financial environment . . . . . . . . . .

5 8 19 24 39 139 144 148 150 157 160 179

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Chapter 1

Introduction

Abstract The realisation that emerging economies were becoming systematically important dawned on the major advanced economies with the Asian and Russian financial crises of the late 1990s, and hence, the necessity was felt for a larger forum than the G7 encompassing the emerging economies. The Group of Twenty Countries (G20) was launched as a forum of the finance ministers and Central Bank governors primarily to address the challenges to international financial stability that had begun in Asia in 1997. The need was felt for a “permanent forum” for informal dialogue between developing and developed countries in the G20. The need for the inclusion of major emerging economies in discussions on the international financial system was underlined by the global financial crisis of 2008. A platform was created where leaders of systemically important countries resolved to coordinate macroeconomic policies to counteract the global financial crisis. In turn, they analysed the deeper, underlying causes of the financial crisis. This chapter introduces and motivates the book and discusses the rationale behind the formation of the G20. It discusses the background of the G20, the role of G7 and G8, and discusses the organisation of the book in the chapters that follow.

The global financial crisis of 2008 highlighted the need to include the major emerging economies with access to international capital markets in discussions on the international financial systems. The realisation that emerging economies were becoming systematically important dawned on the major advanced economies with the Asian and Russian financial crises of the late 1990s. The need was felt for a larger forum than the G7 encompassing emerging economies (Bery et al., 2019). The Group of Twenty Countries (G20) was launched as a forum of the finance ministers and the central bank governors primarily to address the challenges to international financial stability that had begun in Asia in 1997 (Munk School of Global Affairs & Public Policy, 2007). The G20 provided a permanent forum between developed and developing countries that diagnosed the underlying causes of the global financial crisis. It has evolved through a series of discussions and policy documents prepared by different existing groups like the G7, IMFC, G22, G33, etc.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_1

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1.1 Background of the G20 In this section, we highlight how the financial crisis developed and led to the formation of the G20. The widely held view before the crisis was that coordination is difficult but could provide economic benefits, though small. It was known that successful policy coordination would need to focus on technical issues, in a small group of likeminded countries (such as members of the G7), and aim to continue with existing policy regimes (Eichengreen, 2011). Before being promoted to the leaders’ level in 2008, the G20 meeting of finance ministers and central bank heads took place at a ministerial level in 1999 (Bery, 2018). The first inaugural meeting of G20 finance ministers and the central banks was held on 15–16 December 1999 in Berlin. The meeting resolved to establish a commitment of G20 members to comply with internationally accepted codes and standards set by the IMF, the World Bank, etc. Those codes and standards by the international standard-setting bodies aimed to strengthen the domestic financial systems. They covered a range of issues that included financial sector supervision, data and policy transparency, auditing, accounting, and insolvency arrangements. The group’s focus was on adopting “best practices” to reduce vulnerability to financial crises which continued in the early 2000s. These themes included crisis prevention and resolution (discussed from 1999 to 2004), challenges of globalisation (discussed from 2000 to 20,004), combating terror financing (2001–2004), development and aid (2002 and 2003, 2005 and 2006), financial abuse/financial crime (2003–2004), institution building in the financial sector (2003–2004), regional economic integration (2004), surveillance and domestic policies (2004–2007), Bretton Wood institutions reform (2005–2007), commodities and economic impact (2006–2007), and fiscal policies (discussed in 2007) (G20 Group, 2007 (South Africa summit)).1 This decade, wherein the G20 meetings happened on a ministerial level, was instrumental in weaving the Finance Track into the fabric of the G20. Consequently, smooth integration of the track with the key objectives and governance of the international financial institutions (IFIs) (specifically the International Monetary Fund (IMF) and the Financial Stability Board (FSB)) was ensured (Bery, 2018). The first multilateral consultations with five systemically important economies (these were the USA, the Euro area, China, Japan, and Saudi Arabia) were launched by IMF in June 2006 (Lavigne & Sarker, 2012), with the aim to reduce global current account imbalances (IMF, 2007). However, there was no formal tracking of the implementation. Countries were unwilling to publicly commit to the joint plans (that were laid out like those in the G20 Framework). The process also was hampered by a lack of transparency, and political ownership was limited (Blustein, 2012). Following the collapse of Lehman Brothers in September 2008, the environment for cooperation changed dramatically. The feasibility and usefulness of policy coordination were shown ably by policy-makers. The coordination involved major central banks quickly extending and expanding foreign currency liquidity swap lines to counter widespread US-dollar shortages (Lavigne & Sarker, 2012). In response to 1

http://www.g20.utoronto.ca/docs/g20history.pdf

1.2 G7/G8

3

the global shock, synchronous interest rate cuts were executed in October 2008. In addition, it was demonstrated that the costs of continuing the precrisis policies were potentially significant (Murray, 2011). After the global financial crisis, the Group of 20 (G20), now the main forum for international economic policy coordination, responded on several fronts. It accelerated the programme for global financial sector reform, strengthened the International Monetary Fund (IMF), and increased macroeconomic policy coordination among its members. Several initiatives were put forward at the Washington and London summits in November 2008 and April 2009, respectively. The measures included a dramatic augmentation of the IMF’s resources, a concerted push for global financial sector reform, and a clear commitment that the G20 was ready to respond as required. A key element was concerted fiscal stimulus: the total amount of stimulus from the G20 members in 2009 was close to 1.4% of their aggregate GDP, although countries varied widely in terms of size, speed, and composition of measures (Prasad & Sorkin, 2009). All these measures were designed to cool financial markets and re-establish confidence in global policy-making (Sheel, 2013).

1.2 G7/G8 The Group of Seven (G7) comprises the USA, the UK, France, Germany, Italy, Japan, and Canada. The G7 together with Russia forms the Group of Eight (G8). In most cases, the G7 meetings have preceded the G20 summits (as is evident from Table 1.1). It has been observed that the G7 nations have brought issues discussed in the G7 meetings to the G20 deliberations. The fact that there is an intersection between the agenda of the G7 and the agenda of the G20 has also been pointed out by Alexander et al. (2016). This must be seen in the context that issues in G7 are “more political and security-related” as compared to the G20 where deliberations essentially focus on “global economic and finance governance.” The ensuing discussion highlights some instances wherein similarities have been noted in the G7 and G20 agendas. In the Hokkaido Toyako summit in 2008, the G8 discussed augmenting the financial system’s resilience2 highlighting that “serious strains still exist” in the financial market conditions and called on international organisations such as the World Bank, the IMF, and the OECD to improve harmony and synchronisation between them.3 Both of these agenda items made inroads to some extent in the G20 agenda during the 2

The Hokkaido Toyako summit (2008) declaration stated “financial market conditions have improved somewhat in the past few months. But serious strains still exist. While good progress has been made in implementing the recommendations by the Financial Stability Forum (FSF) in April, we urge private-sector players, national supervisory authorities and international bodies to rapidly implement all FSF recommendations to strengthen resilience of the financial system” (G8, 2008). 3 The Hokkaido Toyako summit (2008) declaration highlighted “we invite international organizations, in particular the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO), the International Labor Organization (ILO) and the Organisation for Economic

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2008 Washington summit (hosted by a G8 member nation, the USA). The summit saw a focus on the financial markets reform and regulation, and the need for reforming the Bretton Woods Institutions was stressed. It is important to note at this juncture that the focus on issues that were financial was in part driven by the emergency arising out of the global financial crisis. The agenda of both forums (G8 and G20) included discussions related to these issues, and hence, agenda similarity in both the forums about these issues has been pointed out. Tax information exchange also formed part of the 2008 Hokkaido Toyako summit’s declaration,4 and this also formed part of the G20 agenda at the Washington summit in 2008. In the L’Aquila summit (2009), the G8 underscored their goal of balanced, as well as sustainable growth, and the declaration contained deliberations about “a common framework for balanced and sustainable growth” as the G8 leaders stated their forward-looking goal as being the following “going forward, we need a strategy to comprehensively address long-term issues and lead the global economy to stable, balanced and sustainable growth” (G8, 2009). At the G20 summit in Pittsburgh (hosted by a G8 member nation, the USA) later in the year in 2009, “a framework for strong, sustainable, and balanced growth” was launched. The G7 leaders indicated tuning their fiscal policies and structural policies to lend a hand to “sustainable social security services” for tackling their demographic concerns5 (G7, 2016). Challenges arising out of demographic changes featured in the G20 Osaka summit in 2019 hosted by a G7 nation, Japan (G20, 2019).6

1.3 Evolution of the Finance Track The G20 was a key element in the management of the global financial crisis of 2008. Bery et al. (2019) pointed out the crucial position that the G20 occupied during the global financial crisis in saving the world economy from a potential second Great Depression. The G20 has brought together twenty countries with approximately 85% of global GDP and two-thirds of the world’s population. It provided a platform where

Co-operation and Development (OECD), to enhance their cooperation and to improve coherence” (G8, 2008). 4 According to the Hokkaido Toyako summit (2008), “we urge all countries that have not yet fully implemented the OECD standards of transparency and effective exchange of information in tax matters to do so without further delay, and encourage the OECD to strengthen its work on tax evasion and report back in 2010” (G8, 2008). 5 The G7 Ise-Shima Leaders’ Declaration stated that “We commit to ensuring that our fiscal and structural policies support sustainable social security services, which contribute to addressing our common demographic challenges” (G7, 2016). 6 The G20 Osaka Summit Declaration noted that “Demographic changes, including population ageing, pose challenges and opportunities for all G20 members, and these changes will require policy actions that span fiscal, monetary, financial, labour market and other structural policies” (G20, 2019).

1.3 Evolution of the Finance Track

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Table 1.1 G7/8 and G20 summits (2008–20) Year

G7/8 summits

G20 summits

2008

Hokkaido Toyako, Japan, 7–9 July 2008

Washington summit, 14–15 November 2008

2009

L’Aquila (formerly La Maddalena), Italy, 8–10 July 2009

London summit, 1–2 April 2009

2010

Muskoka, Huntsville, Ontario, Canada, 225–26 June 2010

Toronto summit, 26–27 June2010

2011

Deauville, France, 26–27 May 2011

Cannes summit, 3–4 November 2011

2012

Camp David, USA, 18–9 May 2012 (formerly Chicago, 19–20 May 2012)

Los Cabos, Mexico, 18–19 June 2012

2013

Lough Erne, Northern Ireland, UK, 17–18 June 2013

St. Petersburg, Russia, 5–6 September 2013

2014

Brussels, Belgium, 4–5 June 2014 [G7 leaders]

Brisbane, Australia, 15–16 November 2014

2015

Elmau summit, Garmisch-Partenkirchen, Germany, 7–8 June 2015 (originally scheduled for 4–5 June 2015)

Antalya, Turkey, 15–16 November 2015

2016

Ise-Shima summit, Japan, 26–27 May 2016 Hangzhou, China, 4–5 September 2016

2017

Taormina summit, Italy, 26–27 May 2017

Hamburg, Germany, 7–8 July 2017

2018

Charlevoix summit, Canada, 8–9 June 2018

Buenos Aires, Argentina, 30 November–1 December 2018

2019

Biarritz summit, France, 24–26 August 2019

Osaka, Japan, 28–29 June 2019

2020

US summit, USA, 10–12 June 2020 (Videoconference)

Riyadh, Saudi Arabia, 21–22 November 2020 (Virtual meeting)

Pittsburgh summit, 24–25 September 2009

Source Compiled by authors from G7/8 summits, G7 Information Centre7 and G20 summits, G20 Information Centre8

leaders of systemically important countries resolved to “coordinate macroeconomic policies as a response to the global financial crisis” (Sheel, 2013). Since the G20 did not have a permanent secretariat like other international organisations (IOs), in 2002 it established a managerial structure called the “Troika” which consists of current, previous, and immediately upcoming chairs. “The Troika proposes agenda issues for the G20, selects speakers in consultation with members, and deals with the logistics of meetings. It also gives the current and upcoming chairs ready access to the experience of the previous year’s chairman” (G20, 2007). G20 members envisaged that the group’s mandate would encompass all major economic issues related to long-term growth rates and ensure discussions surrounding financial

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http://www.g7.utoronto.ca/summit/index.htm. http://www.g20.utoronto.ca/summits/index.html.

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stability. It was formed to shape the international agenda, discussing economic and financial issues where consensus had not been reached. The Finance Track of G20 has been instrumental in orchestrating agreements on a gamut of macroeconomic policy coordination and regulatory measures that were later taken up by concerned bodies like the Basel committee or the EU and eventually took the shape of national laws (Federal Ministry of Finance, 2016). Progress has been made in improving the monitoring and regulation of the international financial system and creating a fairer international tax system (Federal Ministry of Finance, 2016). The G20’s enlarged focus covering not just banks but also shadow banks has resulted in the development of a work programme on the shadow banking system (Federal Ministry of Finance, 2016).

1.4 Organisation of the Book This chapter introduces and motivates the book and discusses the rationale behind the formation of the G20. The book outlines: 1. The evolution of the Finance Track in terms of agendas covered, understanding of the organisational features (working groups, international organisations (IOs), etc.). 2. The path followed by major issues discussed in the Finance Track vis-à-vis the world’s political economy and the position and strategies of different countries. The book has three major elements: 1. Mapping of agendas discussed in the Finance Track in G20 summits First, a list of all the agendas covered in different G20 Finance Track meetings every year is presented, along with a matrix that identifies the agendas discussed, and those that could be taken up in future. The viewpoints of all the major G20 countries, as well as the IOs, are then identified from the exercise. This mapping provides an overall picture of all the agendas discussed in the Finance Track, representing a shift in policy framework from the 2008 Washington summit to the Osaka summit in 2019,9 and covering the entire trajectory. 2. Documenting the organisational features of the G20 Finance Track This document codifies the organisational aspects of the Finance Track. It is divided into four sections covering infrastructure, taxation, financial sector, and the global economy and examines the topics covered, a list of deliverables, communiqués, and a roadmap of these issues in the various summits. 3. Mapping of documents generated by the international organisations (IOs) In the aftermath of the financial crisis, the G20 also called for immediate reforms of international financial institutions (IFIs) to promote the integrity and stability of global financial markets. The documents generated by the IOs, who act as 9

The Saudi and the Italian Presidency are discussed in Chap. 7.

1.4 Organisation of the Book

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advisors for the G20, capture the trajectory of the evolution of the Finance Track and the G20 itself. Various IOs like the IMF, the OECD, the World Bank, etc., have been involved in these meetings, providing their support, and these will be tracked by looking at different contributions. This document will trace the trajectory of the topics covered by the IOs. The study is based on a literature review, secondary information and data analysis, and stakeholder consultation. After going through all the G20 communiqués, the study maps how different themes under the Finance Track have evolved and how the position of countries has changed over time, which helps to visualise the changes, commonalities, and differences in a tabulated format (a complete list of documents analysed is presented in Annexure, Table 1.2). The themes will be based on ideas/developments from the earlier presidencies and consider the current scenario on topics covered in the working groups of the Finance Track. Organisation of the book Chapter 2 discusses how the Finance Track in the G20 is organised and its features. It presents the working of the Finance Track through various working groups such as the Framework Working Group, the Global Partnership for Financial Inclusion, the International Financial Architecture Working Group, the Infrastructure and Investment Working Group, and the Green Finance Study Group. In Chap. 3, we examine the trajectory of the major issues apropos the political economy of the G20 countries. We discuss how these issues shaped the agenda of the country. Chapter 4 discusses the evolution of the agenda in the Finance Track, the process of agenda setting, and the scope of the G20 presidency. In Chap. 5, we discuss the agenda of financial regulation in the various summits, while in Chap. 6 we present how the reform of the international financial institutions, particularly the IMF. Chapter 7 concludes with a discussion on the problems in the global economy including a discussion on COVID-19 and debt. It also presents some themes that could be important for the Indian presidency.

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Table 1.2 List of documents used in the book Year

Official documents

2008

Communiqué-finance ministers and central bank governors Leaders’ declaration SPERI PAPER— Tony Pawny First G20 summit—Lee Dong Hwi A summit of substantial success—John Kirton

2009

Communiqué-finance ministers and central bank governors Leaders’ statement G20 Summit—Lee Dong Hwi

2010

Communiqué-finance ministers and central bank governors Leaders’ declaration Principles for innovative financial inclusion

2011

Communiqué-finance ministers and central bank governors Leaders’ declaration G20 Coherent conclusions for the management of capital flows drawing on country experiences Global partnership for financial inclusion report to leaders

2012

Communiqué-finance ministers and central bank governors Leaders’ declaration

2013

Communiqué-finance ministers and central bank governors Leaders’ declaration G20 study group on financing for investment Advancing transparency in regional trade agreements G20 roadmap towards strengthened oversight and regulation of shadow banking Global partnership for financial inclusion A narrative progress report on financial reform: report of the financial stability board to G20 leaders Tax annex to the Saint Petersburg G20 leaders declaration

2014

Communiqué-finance ministers and central bank governors Leaders’ communiqué 2014 Financial inclusion action plan

2015

Communiqué-finance ministers and central bank governors Leaders’ communiqué

2016

Communiqué-finance ministers and central bank governors Leaders’ communiqué

2017

Communiqué-finance ministers and central bank governors Leaders’ declaration

2018

Communiqué-finance ministers and central bank governors (continued)

References

9

Table 1.2 (continued) Year

Official documents Leaders’ declaration

2019

Communiqué-finance ministers and central bank governors Leaders’ declaration Declaration on Digital Trade

Annexure: Documents used See Annexure Table 1.2.

References Alexander, N., Löschmann, H., & Schuele, W. (2016). The G7 and G20 in the global governance landscape. Heinrich-Böll-Stiftung, November 30. http://www.boell.org/en/2016/11/30/g7and-g20-global-governance-landscape#:~:text=The%20agendas%20of%20the%20two,by%20I taly%20and%20Germany%2C%20respectively Bery, S. (2018). The G20 turns ten: What’s past is prologue. Policy Contribution (20). Bery, S., Bindi, F., & Brekelsman, S. (2019). Twenty years of the G20: Has it changed global economic governance? Russian Journal of Economics, 5, 412–440. Blustein, P. (2012). A flop and a debacle: Inside the IMF’s global rebalancing acts, CIGI Papers, No. 4. June. Eichengreen, B. (2011). International policy coordination: The long view, National Bureau of Economic Research Working Paper No. 17665. Federal Ministry of Finance. (2016). G20 presidency 2017: Finance track priorities. G7. (2016). G7 Ise-Shima Leaders’ Declaration. https://www.mofa.go.jp/files/000160266.pdf G8. (2008). G8 Hokkaido Toyako Summit Leaders’ Declaration, July 8. http://www.g7.utoronto. ca/summit/2008hokkaido/2008-declaration.html G8. (2009). G8 leaders declaration: Responsible leadership for a sustainable future, July 8. http:// www.g7.utoronto.ca/summit/2009laquila/2009-declaration.html G20. (2019). Communiqué: G20 finance ministers and central bank governors meeting, June 9. http://www.g20.utoronto.ca/2019/2019-g20-finance-fukuoka.html IMF. (2007). Staff Report on the multilateral consultation on global imbalances with China, the Euro Area, Japan, Saudi Arabia, and the United States. Lavigne, R., & Sarker, S. (2012). The G-20 framework for strong, sustainable, and balanced growth: Macroeconomic coordination since the crisis. Bank of Canada Review, Bank of Canada, 2012(Winter), 1–12. Munk School of Global Affairs and Public Policy. (2007). The group of twenty: A history. Munk School of Global Affairs and Public Policy. http://www.g20.utoronto.ca/docs/g20history.pdf Murray, J. (2011). With a little help from your friends—the virtues of global economic coordination, Remarks by Mr. John Murray, Deputy Governor of the Bank of Canada, at the State University of New York at Plattsburgh, Plattsburgh, New York. Prasad, E. S., & Sorkin, I. (2009). Assessing the G-20 stimulus plans: A deeper look. The Brookings Institution.

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Sheel, A. (2013). St Petersburg G20 Summit—Unintended consequences, Business Standard. Retrieved 10 September 2013, from https://www.business-standard.com/article/opinion/aloksheel-st-petersburg-g20-summit-unintended-consequences-113091001092_1.html

Chapter 2

Organisation of the G20 Finance Track

Abstract The organisation of the Finance Track can be understood in terms of the various working groups constituted within the G20. This chapter discusses the Finance Track themes that have formed part of the leaders’ deliberation within the G20 in order to delineate the issues that have garnered attention from the leaders. Further, it also discusses the quantum of commitments in the Finance Track issue areas of financial regulation, along with their share in the total commitments for all summits from 2008 to 2019. In order to understand the organisational features of the Finance Track, the Framework Working Group is discussed, along with the Global Partnership For Financial Inclusion, the International Financial Architecture Working Group, The Infrastructure Working Group, and finally the Green Finance Study Group. The recent changes brought about in the working of the G20 are also briefly discussed.

This chapter discusses the Finance Track themes that have formed part of the leaders’ deliberation within the G20 in order to delineate the issues that have garnered attention from the leaders. Further, it also discusses the quantum of commitments in the Finance Track issue areas of financial regulation, along with their share in the total commitments for all summits from 2008 to 2019. The organisation of the Finance Track can be understood in terms of the various working groups constituted within the G20, which are also discussed.

2.1 The G20 Leaders and Finance Track Themes This section sheds light on the Finance Track themes that have formed part of the leaders’ deliberation within the G20 in order to delineate the issues that have garnered attention from the leaders. Finance Track issues in the Leaders’ Declaration Under the G20 Finance Track, a host of issues are taken up in every Presidency. Not all Finance Track issues of a particular Presidency make it into Leaders’ Statements © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_2

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of that Presidency. Hence, this discussion elucidates the Finance Track issues that have drawn leaders’ attention in different summits by probing the leaders’ deliberation of each summit as contained in their statement or declaration for key Finance Track themes that can help track down the leaders’ focus. The Finance Track issues discussed by the leaders have ranged from the themes surrounding global growth, macroeconomic policies, and financial sector regulations to the specific issues of debt, climate finance, and fossil fuel subsidies. Key Finance Track themes from the Leaders’ Statement of each summit have been identified and presented in Annexure 1. It paints a clear picture of the issues belonging to the Finance Track that has caught the leaders’ eye over the years in various summits. Some core issues that have been featured in the leaders’ declaration of virtually all summits, including in the emerging economies’ summits, in various forms and degrees, are those of financial sector regulation and reform; reform of IFIs; global growth; and monetary and fiscal policies. Besides the aforementioned themes, another issue that has been a part of all the statements of the G20 leaders has been that of international taxation which commenced with the emphasis on the exchange of tax information and tax transparency and gradually broadened to include the issues like base erosion and profit shifting. All of these issues have been a constant since they were first discussed by the leaders in the very first 2008 G20 Washington summit. The introduction of these topics in the first summit was largely driven by the exigency of mitigating the impact of the global financial crisis. These four issues have been a fundamental part of the Finance Track broadly as well as the part of the Finance Track that the leaders discuss. The ensuing summits have seen the leaders’ focus widen to include numerous other Finance Track themes as has been depicted in Annexure 1. Issues of debt sustainability, competitive currency devaluations, and functioning and stability of the international monetary system found a place in the Leaders’ Statement of the London summit. In the Pittsburgh summit, as the focus transitioned from the nearterm myopic view to the medium- and long-term perspective so did the focus of the leaders as they included the consideration of structural reforms in the declaration. Other issues such as climate change financing, financial inclusion, fossil fuel subsidies, and global imbalances also garnered leaders’ attention at the summit. At the Toronto summit, consideration was accorded to infrastructure spending and the global financial safety net by the leaders. The 2010 Seoul summit added fossil fuel price volatility to the tally of discussed issues. The G20 leaders, in the Cannes summit, talked about commodity price volatility, local currency bond markets, capital flows, consumer protection from a finance perspective, remittances, money laundering, and terrorist financing in addition to the issues introduced in earlier summits. Financial education, commodity markets, disaster risk management, and policy spillovers were deliberated by the leaders in the emerging economy Presidency of Mexico in 2012. The German Presidency 2017 saw the leaders discuss a partnership with Africa; the Compact with Africa was also specified as one of the focus areas of the Finance Track for the Hamburg summit (Federal Ministry of Finance, 2016). Future of Work formed part of the leaders’ deliberations at the Buenos Aires summit 2018. Universal Health Coverage financing was a Finance Track topic that the Japanese presidency

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introduced, and hence, it also formed part of the leaders’ discussion. The leaders also discussed the subject of technology in finance at the 2019 Osaka summit. The catalogue of Finance Track issues forming part of the leaders’ communiqué has altered and modified as the G20 has traversed through various summits with some core issues remaining constant as pointed out earlier. There have been issues like structural reforms, exchange rates, debt, global financial safety nets, financial inclusion, climate finance, infrastructure investment, fossil fuel subsidies, local currency bond markets, policy coordination and spillover management, Anti-Money Laundering, and countering the financing of terrorism on which the leaders have exchanged views in all summits except some. On the other hand, some issues such as remittances, disaster risk reduction and management, and Compact with Africa have found a place only in a handful of summits. Sharpening the focus on the G20 emerging economies’ presidencies, it can be discerned that the common threads between the G20 emerging economies’ presidencies in terms of the Finance Track themes that leaders considered have been that of global imbalances and/or rebalancing; financial inclusion; exchange rates; infrastructure and/or infrastructure investment; and structural reforms besides the core themes that have always been a part of the discussions as elucidated above. Another feature of the emerging economies’ presidencies has been that of the subject of policy communication, coordination, and spillovers. The leaders in the 2012 Los Cabos summit considered the issue of policy spillovers. This issue coupled with the theme of policy coordination was discussed in the Russian Presidency in 2013 by the leaders. The Antalya summit which was geared towards the priorities of the low-income developing countries also took up this issue in the form of calibration and communication of policies as the leaders stated “We will carefully calibrate and clearly communicate our actions, especially against the backdrop of major monetary and other policy decisions, to mitigate uncertainty, minimise negative spillovers and promote transparency” (G20, 2015a). Moreover, macro policy coordination was also a priority for the Turkish presidency under the broader theme of “Strengthening the Global Recovery and Lifting the Potential,” one of the three pillars of the G20 Turkish Presidency (G20, 2014). Its successor, the emerging economy presidency of China (2016), also took forward this issue in its own summit. Commitments Commitments are the mainstay of the G20 process. The agreements reached in the course of each presidency are very well reflected via the commitments, as they essentially signal that all the leaders are on board with the issue in question and are of one mind. They also signify the extent of conclusiveness reached for any particular issue. The nature of these commitments is non-binding, and the G20 has no way to administer the implementation of the agreements arrived at within the G20 at the country level “beyond moral suasion” (CRS, 2019). Through the G20 summits from 2008 to 2019, several commitments have been reached the G20 across several issues. CRS (2019) states that “The types of commitments or agreements reached at the G20 summits have evolved as global economic conditions have changed, from the pressing height of the global financial crisis to

2 Organisation of the G20 Finance Track 70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

0

% of total summit commitments

Number of commitments

14

Financial regulation commitments Reform of IFIs' commitments Financial regulation commitments (% of total summit commitments) Reform of IFIs' commitments (% of total summit commitments)

Fig. 2.1 Financial regulation and Reform of IFIs’ commitments in the G20 summits (2008–2019). Source Commitments data from the G20 Research Group (2015), Warren (2016, 2017, 2018, 2019)

signs of recovery amid high unemployment in some advanced economies, to concerns about the Eurozone crisis.” The data on commitments by issue area is provided by the G20 Research Group, G20 Information Centre, Munk School of Global Affairs and Public Policy.1 Issue areas from the database that have been considered here are those of financial regulation and reform of IFIs with respect to the Finance Track, and the same has been illustrated in Fig. 2.1. This exercise brings forth the number of commitments in these key Finance Track areas and also discerns the share of the commitments pertaining to these issues in the total summit commitments. The financial regulation commitments were the highest (59 commitments) during the 2008 Washington summit and post that they have been uncertain. The commitments related to the reform of IFIs touched a high of 29 commitments in the 2009 London summit, and they have also been varying post that. The share of financial regulation commitments in total commitments was the largest in the Washington summit (2008) at 62.1% and that for reform of IFIs’ commitments was the largest in the London summit (2009) at 22.48%. Noting the trajectory of the financial regulation commitments, Nikolaeva (2019) underscores that the urgency of the financial crisis was the reason that motivated 59 commitments from the first G20 summit. Indicating that there has been some uptick in commitments in some recent summits, Nikolaeva (2019) points out that 1

For the summits from 2008 to 2015: G20 Research Group 2015; for the Hangzhou summit (2016): Warren (2016); for the Hamburg summit (2017): Warren (2017); for the Buenos Aires summit (2018): Warren (2018); and the for the Osaka summit (2019): Warren (2019)

2.2 Understanding the Organisational Features (Working Groups, IOs, etc.) …

15

ORGANISATIONAL STRUCTURE OF THE G20 SUMMITS

G20 SUMMIT IOs (IMF, OECD, WORLD BANK, FSB) etc

FINANCE TRACK

FINANCE MINISTERS AND CENTRAL BANK GOVERNORS

DEPUTI ES

OTHER MINISTERIES (Agri, Labor, ICT , Trade, Energy, Tourism, Health etc)

SHERPA TRACK

WORKING GROUPS

Fig. 2.2 Organisational structure of the G20 summits. Source Adopted from G20 Germany 2017 (n.d.); Authors’ inputs

“this possibly reflects a response to potential threats to the security and stability of the international financial system from new technological challenges.”2

2.2 Understanding the Organisational Features (Working Groups, IOs, etc.) of the Finance Track The first G20 leaders’ summit in Washington was noteworthy for the key areas for global cooperation in strengthening economic growth and reforming international financial institutions followed by the London summit (Sheel, 2013). In the London summit, leaders adopted a strong resolve for avoiding a second depression and agreed on a significant financial package to limit the downside for developing economies (Sheel, 2013). In 2009, the Financial Stability Forum comprising mostly G7 countries was restructured as the Financial Stability Board after including all G20 countries to oversee and monitor progress on financial regulatory reform (Tsalikis, 2018). With the elevation to summit level, the Finance Track was now overlaid with a Sherpa (who represented G20 leaders) Track. The G20 now became a two-track process where the Sherpa Track would deal with all issues not covered by the Finance Track. Figure 2.2 presents the organisational structure of the G20 summits (See Annexure 2: The G20 and international organisations (IOs)). Over the years, the global economy and financial regulation have remained the main agendas of the Finance Track. However, each presidency has added new ideas from international finance, infrastructure spending, climate finance, development to 2

This has also been discussed in the section on Financial Regulation in the book.

16

2 Organisation of the G20 Finance Track

tax agendas, etc. Though the number of commitments to financial regulation has decreased, the compliance ratio to each of these commitments has gone up.

2.3 Finance Track Working Groups This section will discuss the organisational aspects of the Finance Track. It will be divided into four sections, covering the working groups of infrastructure, taxation, the financial sector, and the global economy.

2.3.1 Framework Working Group With the 2008 global financial crisis, the G20 was transformed and taken up to the leaders’ level (Buti, 2019). There was a list of agenda items that were suggested after the financial crisis of 2008. In the 2009 summit which was held in Pittsburgh, the leaders’ focus was on recovery and medium-term sustainable growth. The summit fostered a “Framework for Strong, Sustainable, Balanced Growth” in the twentyfirst century that was to become the flagship working group of the G20. This was facilitated by establishing sound macroeconomic policies that ensured the prevention of cyclical booms and busts through the process of mutual assessment process. To meet this goal, a Framework Working Group (FWG) was put in place. The FWG has been co-chaired by India and Canada since its inception. The FWG has made recommendations for macroeconomic policy coordination, addressing global imbalances, enhancing the resources of IFIs, and reforming them by increasing the IMF quota share of developing and emerging economies (Group of G20). It is widely considered to be the flagship working group of the G20. The remit of the Framework Working Group is growth and it is a well-structured working group with demarcated targets (Johns & Ruta, 2016). IOs, IMF, the World Bank, and OECD provide their inputs to the FWG (Johns & Ruta, 2016). In particular, OECD’s inputs through its Going for Growth report help to support the G20 countries’ growth (OECD, n.d. b).

2.3.2 Global Partnership for Financial Inclusion Global Partnership for Financial Inclusion (GPFI) was launched at the Seoul summit in 2010 (Dash et al., 2020).3 Dash et al. (2020) underlines the dual aim behind the launch of GPFI: to furnish a platform open to all the G20 as well as non-G20 countries and enforce the Financial Inclusion Action Plan. There are nine principles 3

GPFI and financial inclusion commitments in G20 in Annexure 3.

2.3 Finance Track Working Groups

17

(see Annexure Table 2.3) that underpinned the set-up of GPFI (GPFI, n.d.). These nine principles were put forth at the Toronto summit in 2010: “Leadership, Diversity, Innovation, Protection, Empowerment, Cooperation, Knowledge, Proportionality, and Framework” (GPFI, n.d.).4 World Bank data from Global Findex indicates that about 2 million adults around the world have no access to financial tools regulated by financial institutions, which accounts for half of the population (World Bank, n.d.). More importantly, for developing nations, there is a huge line of informal mechanisms of loans, savings, uneven cash flows, seasonal income, etc. The lack of access to appropriate funds has pushed these people to rely on moneylenders at much higher interest rates. The need for financial inclusion has been a major agenda for developing nations (World Bank, n.d.). At the G20 Seoul summit, it was felt that financial inclusion should be a core part of the international development agenda. The leaders’ declaration in 2009 underscored the idea of a Financial Inclusion Action Plan. The policy objectives of this group included financial stability, consumer protection, and financial inclusion. Leaders established the GFPI for institutionalising and continuing the work begun by the Financial Inclusion Experts Group (FIEG). The Alliance for Financial Inclusion (AFI), the International Finance Corporation (IFC), and the Consultative Group to Assist the Poor (CGAP) are GPFI’s three key implementing partners (Jouhari, 2017). In the Financial Inclusion Action Plan of G20, there were two major implementation steps that were decided along with seven actionable areas. The first one included establishing the GPFI, which was completed in 2010. GPFI’s structure is the same as that of the G20 Financial Inclusion Experts Group (2009–2010) (GPFI b, n.d.). The GPFI also retains the G20 troika countries as its overall Co-Chairs (GPFI b, n.d.). “The GPFI Co-Chairs ensure the continuity of the work of the GPFI under the G20 process and coordinate the work and outcomes between the Subgroups and the different G20 initiatives that are relevant to financial inclusion” (GPFI, 2020). The second implementation step was focused on mobilising funding for financial inclusion. This step included SME financing, establishing the SME Trust Fund, and structured investment fund. The G20 launched the SME Financing Challenge in 2010 to identify new ideas for financing small businesses and 14 winners who were provided funding based on their needs (GPFI Report, 2015). In 2011, the Financial Integrity Working Group (FINTWG) helped AFI directly engage with standard-setting bodies to find mutually beneficial approaches for financial integrity and inclusion. They helped them to identify metrics and methodologies involved in integrating financial inclusion data with the policy-making decisions. The list of GPFI’s implementing partners continued to widen as the World Bank Group and the SME Finance Forum joined in 2012, the OECD joined in 2013, and the Better than Cash Alliance and the International Fund for Agricultural Development (IFAD) joined in 2014 (GPFI c, n.d.). In 2012, the Global SME Finance Initiative was launched to finance access to finance for underserved SMEs. “Based on commitments to date, 214,000 SME loans 4

Table in annexure 4.

18

2 Organisation of the G20 Finance Track

will be provided by 2015 including 53,000 to women-owned SMEs” (GPFI FIAP Report, 2015). In 2013, the Financial Inclusion Support Framework (FISF) was established, which aimed at accelerating the expansion of the agenda of financial inclusion through country-specific commitments and targets. “The first full-scale FISF country programs have been launched for Rwanda, and two further programs are being finalised (Indonesia and Mozambique). The program is projected to expand to 15 countries” (GPFI FIAP Report, 2015) (Table 2.1). Progress under GPFI 1. Commitment to implement G20 Principles for Innovative Financial Inclusion under a shared vision of universal access Status—complete G20 leaders endorsed the principles of financial inclusion at the Toronto summit, 2010. In 2011, a case study was conducted on “Bringing Principles to Life” by studying data from 11 countries. The case study focused on accessing the implementation of principles challenges faced and lessons learned from it. The G20 launched G20 Peer Learning Programme along with AFI Maya Declaration in 2011–12 which focused on mobilising national commitments and developing financial inclusion strategies. The group also monitors the G20’s progress and reporting to the leaders’ summit. 2. Further Encourage Standard-Setting Bodies (SSBs) Status—ongoing With the remit of the G20, the GPFI promotes the progress of SSBs on financial inclusion (the National Treasury Republic of South Africa, n.d.). There has been progress made so far with financial inclusion within the SSBs. The SSB standards are embedded with the agenda of financial inclusion via the principle of proportionate regulation and supervision. “Similarly, there is increasing understanding of the interdependence of financial inclusion, stability, integrity and consumer protection throughout the SSBs” (GPFI FIAP Report, 2015). There has been greater recognition of financial inclusion by launching meetings of GPFI where recommendations for the same are provided for inclusive growth. 3. Work with the private sector Status—ongoing. “G20 Leaders recognise that the private sector is the key for extending financial inclusion and encourage further private sector activities to increase access to financial services, consistent with the G20 Principles for Innovative Financial Inclusion” (G20 FIAP Report, 2015). 2010 Financial Action Plan focused on three major areas for GPFI: information sharing; the knowledge base for SME financing knowledge base; and private sector engagement. The SME finance subgroup created platforms to increase funding via the SME Finance Challenge and Global SME Finance Facility. This forum ties together financial institutions, development finance institutions, and technology companies for augmenting the knowledge and sparking innovation

Australia and Mexico

Subgroup on markets and payment systems

Source GPFI Note: The subgroup on Financial Inclusion Data and Measurement has fulfilled its mandate and is not operational anymore

Germany and Turkey China and Russia

Subgroup on SME finance

India, Indonesia, UK

Subgroup on regulation and standard-setting bodies

Subgroup on financial consumer protection and financial literacy

Co-Chairs

GPFI subgroup

Table 2.1 GPFI’s subgroups

2.3 Finance Track Working Groups 19

20

2 Organisation of the G20 Finance Track

(SME finance forum, 2022). It uses an online platform to reach globally dispersed stakeholders in a cost-effective way. Along with this, multiple LinkedIn groups and discussion forums have been created to initiate more dialogues in this direction. “It acts as a convener and supports peer-learning activities among banks, policymakers, and financial technology providers” (G20, GPFI, 2015). The forum has been able to expand its services to women-run SMEs in emerging markets and launched a Women’s Finance Hub. GPFI caters to the needs of the private sector as well by gaining insights into their requirements and their initiatives to promote financial inclusion. In 2014, the G20 organised events by connecting with FinTech companies across the globe to understand views of the private sector on broader work aspects of GPFI work. 4. Improve Data Status—complete “G20 Leaders encourage improving the quality of measurement and data on financial inclusion (of households/individuals and MSME). A Financial Inclusion Task Force on Data and Measurement under the umbrella of the GPFI will take the lead in the development” (G20 FIAP, 2015). The data and management subgroup has been working on inclusive financial data and sharing among G20 countries. The subgroup has been successfully able to address data challenges through different initiatives such as the G20 basic set of financial inclusion indicators and a complete set of financial inclusion indicators and a common framework for data collection at the national level. GPFI has also played a role in encouraging use of financial inclusion data and peer learning for emerging economies. 5. Support capacity building and training Status—complete “G20 Leaders support capacity building and training including through technical assistance, peer-to-peer learning and regional and international training” (G20 FIAP Report, 2015). The objective here was to improve policy-makers and financial institutions’ knowledge and skills about policies on financial inclusion. Here, GPFI in 2010 was instructed with two plans: promote AFI and donors to increase advisory services’ efforts to member countries and financial assistance for technical support and peer learning. In 2012, Financial Inclusion Peer Learning Programme was launched to promote sharing learning experiences and their effectiveness. (i) encourage donors The capacity building and training and financial support have increased since 2010 (GPFI, 2015). 6. Improve national, regional, and international coordination Status—ongoing This is one of the objectives which is still ongoing but coordinating stakeholders’ consultation relevant to financial inclusion, and collaborating efforts at regional, national, and international levels for complementing the financial

2.3 Finance Track Working Groups

21

inclusion plan stays a major priority for GPFI. “The G20’s convening power brings together funders, researchers, and regulators in developing and developed countries to focus on the global issues which impact on financial inclusion” (G20 FIAP Report, 2015). During Turkey’s presidency, the focus was on low-income developing countries (LIDC) perspectives. To have continuous growth, the importance of inclusive growth was realised. 7. Integrate financial inclusion into all types of Financial System Assessments Status—ongoing “Recognising the complementarity between financial stability, financial integrity and financial inclusion, G20 Leaders call on governments and relevant national and international bodies to improve the way financial inclusion is built into assessments of financial system performance” (G20 FIAP Report, 2015). GPFI’s structure The structure of the GPFI has recently undergone change as has been indicated in the Report on G20 2020 Financial Inclusion Action Plan. Under the earlier structure, its subgroups were responsible for the Financial Inclusion Action Plan’s implementation. Consensus has been reached among its members to “appoint two long-term CoChairs for the duration of each FIAP” (GPFI, 2020). From the year 2021, the subgroups that earlier were part of the GPFI’s structure will cease to exist as “formal subgroups” and “the two appointed GPFI Co-Chairs, in cooperation with the incumbent G20 Presidency, and in consultation with the Troika, will manage and maintain the work of the GPFI under a three-year FIAP” (GPFI, 2020).

2.3.3 International Financial Architecture (IFA) Working Group The IFA working group was set up in 2012, the G20 Mexican Presidency. with the aim to “collaborate on key aspects to strengthen the IFA: to ensure that the IMF has the ability to provide financial support to its whole membership during financial crisis episodes, to strongly improve the current bilateral and multilateral surveillance of the IMF, to support the implementation of the 2010 IMF reforms on governance and quotas, and to supervise progress on the implementation of the G20 Action Plan to Support the Development of Local Currency Bond Markets” (IFA, WG, 2012). The IFA Working Group was formed to fulfil the objective of strengthening the IFA by detecting and addressing vulnerabilities in the system. This was further complemented by the enhancement of crisis prevention and management tools and safeguarding the adequacy of financial safety nets for an evolving global economy and reforming the international monetary system.

22

2 Organisation of the G20 Finance Track

2.3.4 Infrastructure and Investment Working Group In the global economy, infrastructure plays an important role. The IWG was set up at the fifth G20 Seoul summit with the rationale of “Recognising the essential role that long-term financing for investment plays in supporting strong, sustainable, balanced and inclusive growth.” In 2013, the finance and central bank deputies of the G20 started a Financing for Investment Study Group. This study group was first transitioned to Infrastructure Investment Working Group (IIWG) and then to Infrastructure Working Group (IWG) in 2014 and end-2017, respectively (OECD, n.d. a). Infrastructure investment has been considered an essential component for addressing long-term and short-term growth challenges facing the global economy by public and private sector bodies in emerging markets, and hence, the G20 came up with this group to mobilise big infrastructure investments.

2.3.5 Green Finance Study Group (GFSG) The GFSG was set up under the G20 Chinese Presidency in 2016 and aimed at identifying barriers, market, and institutional in nature, to green finance and encouraging private capital for green investment (OECD, 2016). The Sustainable Finance Study Group (SFSG), with a relatively broader remit including more sustainable development aspects, was set up in place of the GFSG in 2018. Its Co-Chairs are China and the UK. It works closely with the Task Force on Climate-related Financial Disclosures (TCFD), FSB, and the G20 Climate Finance Study Group (CFSG). (Mainstreaming Climate in Financial Institutions, n.d.) The group was put in place with the idea of bringing more initiatives to address the challenges of green finance. The objectives of this group focus on achieving sustainable and balanced growth. The five principles research topics of this group are (OECD, 2016): “greening the banking system; greening the bond markets; greening institutional investment; risk analysis, and measuring progress. During the G20 Finance Ministers and central bank governors’ meeting in 2016 in Washington DC, the GFSG was requested to develop “more specific options for developing green banking, scaling-up the green bond market, supporting the integration of environmental factors by institutional investors, and developing ways for measuring progress of green financial activities.” In 2018, this study group was named Sustainable Finance Study Group (SFSG), and its scope of work was widened to include more sustainable development dimensions under the G20 Argentinian Presidency. Recently, the group was set up again and was promoted to a working group status named, “G20 Sustainable Finance Working Group” under the 2021 G20 Italian Presidency (G20 SFWG, n.d.).

Annexure 2: The G20 and International Organisations (IOs)

Annexure 1 See Table 2.2.

Annexure 2: The G20 and International Organisations (IOs)

The different IOs are knowledge partners for the G20 based on their focus areas. IOs feed information inputs and analysis to the G20 (OECD, 2016) from time to time in response to requests from the G20 to explore information gaps in dealing with global issues, providing proposals for strengthening positions, and suggesting ways out of the crisis. For instance, the G20 called the IOs to facilitate a response to the 2008 global financial crisis. The IOs also seek to gain from this process (OECD, 2016). The inputs provided by the IOs have been far reaching in areas such as financial stability among G20 countries, employment and social policies, trade finance, global value chains (GVCs), including regard to SMEs, standards, technical regulations, conformity assessment procedures, climate financing, health financing, and information technologies, among others. Different IOs collaborate for tackling different issues. For instance, the OECD has partnered up with the IMF on the issue of growth. It is working with the ILO on youth employment. Source OECD (2016).

23

Leaders’ declaration: key finance track themes Financial sector reform and regulation IFI reform Global growth Monetary and fiscal policies and measures International taxation IFI reform Financial supervision and regulation Global growth Monetary and fiscal policies and measures International taxation Competitive currency devaluations Stable and well-functioning international monetary system Debt sustainability Global growth Monetary and fiscal policy and measures Structural reforms Financial sector reform and regulation IFI reform International taxation Climate change financing Financial inclusion Fossil fuel subsidies Global imbalances

Summit (Year)

Washington summit (2008)

London summit (2009)

Pittsburgh summit (2009)

Annexure Table 2.2 Key Finance Track themes in the leaders’ declaration of the G20 summits

(continued)

24 2 Organisation of the G20 Finance Track

Leaders’ declaration: key finance track themes Global growth Financial sector reform and regulation IFI reform Global financial safety nets Haiti Reconstruction Fund and debt relief Financial inclusion Climate finance Infrastructure spending Exchange rates Monetary and fiscal policy and measures Structural reforms Global demand rebalancing International taxation Macroeconomic policies Structural reforms Global growth External sustainability and global imbalances Reform of IFIs Global financial safety nets Financial sector reform and regulation Financial inclusion Stable and resilient international monetary system Fossil fuel subsidies Fossil fuel price volatility International taxation Infrastructure investment Climate change finance

Summit (Year)

Toronto summit (2010)

Seoul summit (2010)

Annexure Table 2.2 (continued)

(continued)

Annexure 2: The G20 and International Organisations (IOs) 25

Leaders’ declaration: key finance track themes Global growth Fiscal and monetary policy and measures Exchange rate Structural reforms Stable and resilient international monetary system Local currency bond markets Reform of IFIs Global financial safety net Financial sector reform and regulation International taxation Commodity price volatility Fossil fuel subsidies Climate finance Infrastructure Capital flows Financial consumer protection Anti-Money Laundering and Countering the Financing of Terrorism Debt Remittances Financial inclusion

Summit (Year)

Cannes summit (2011)

Annexure Table 2.2 (continued)

(continued)

26 2 Organisation of the G20 Finance Track

Leaders’ declaration: key finance track themes Global growth Imbalances reduction Infrastructure investment Fiscal and monetary policies and measures Exchange rate Structural reforms Policy spillovers Global financial safety nets Reform of IFIs Local currency bond markets Financial inclusion Financial sector reform and regulation International taxation Anti-Money Laundering and Countering the Financing of Terrorism Financial education Commodity price volatility Commodity markets Climate finance Fossil fuel subsidies Disaster risk management

Summit (Year)

Los Cabos summit (2012)

Annexure Table 2.2 (continued)

(continued)

Annexure 2: The G20 and International Organisations (IOs) 27

Leaders’ declaration: key finance track themes Global growth Fiscal and monetary policies and measures Financing for investment International taxation Financial sector reform and regulation Exchange rate Cooperation on policies and spillover management Structural reforms Global demand rebalancing Reform of IFIs Global financial safety net Debt Local currency bond markets Anti-Money Laundering and Countering the Financing of Terrorism Financial inclusion Financial education and consumer protection Infrastructure Commodity markets Fossil fuel subsidies Climate finance

Summit (Year)

St. Petersburg summit (2013)

Annexure Table 2.2 (continued)

(continued)

28 2 Organisation of the G20 Finance Track

Leaders’ declaration: key finance track themes Global growth Fiscal and monetary policies and measures Structural reforms Global rebalancing Policy impact and spillovers Infrastructure investment Remittances Financial inclusion Financial sector reform and regulation International taxation Sovereign debt Reform of IFIs Fossil fuel subsidies Climate finance Global growth Global rebalancing Macroeconomic policies Structural reforms Exchange rate Policy calibration and communication Small and medium-sized enterprise and infrastructure investment Financial sector reform and regulation International taxation Reform of IFIs Debt Remittances Financial inclusion Fossil fuel subsidies

Summit (Year)

Brisbane summit (2014)

Antalya summit (2015)

Annexure Table 2.2 (continued)

(continued)

Annexure 2: The G20 and International Organisations (IOs) 29

Leaders’ declaration: key finance track themes Global growth Fiscal and monetary policies and measures Structural reforms Exchange rate Policy calibration and communication Imbalances Capital flow volatility Global financial safety net Reform of IFIs Debt Local currency bond markets Financial sector reform and regulation Anti-Money Laundering and Countering the Financing of Terrorism International taxation Financial inclusion Green finance Fossil fuel subsidies Infrastructure investment Climate change finance

Summit (Year)

Hangzhou summit (2016)

Annexure Table 2.2 (continued)

(continued)

30 2 Organisation of the G20 Finance Track

Leaders’ declaration: key finance track themes Global growth Fiscal and monetary policies and measures Structural reforms Exchange rate Global imbalances Financial inclusion Infrastructure development Small and medium-sized enterprises Financial sector reform and regulation Global financial safety net Reform of IFIs International taxation Financial inclusion Africa Partnership (Investment-Compact with Africa) Global growth Monetary and fiscal policies and measures Structural reforms Exchange rate Infrastructure investment Sustainable finance and financial inclusion Reform of IFIs International monetary system Global financial safety net Debt Cross-border capital flows Financial sector reform and regulation International taxation Terrorist and proliferation financing and money laundering Compact with Africa Future of work

Summit (Year)

Hamburg summit (2017)

Buenos Aires summit (2018)

Annexure Table 2.2 (continued)

(continued)

Annexure 2: The G20 and International Organisations (IOs) 31

Global growth Fiscal and monetary policies and measures Structural reforms Exchange rate Excessive imbalances Quality infrastructure investment Global financial safety net Reform of IFIs International monetary system Capital flows Debt International taxation Financial sector reform and regulation Technology in finance Anti-Money Laundering and Countering the Financing of Terrorism Universal Health Coverage financing Disaster risk reduction Compact with Africa Fossil fuel subsidies

Osaka summit (2019)

Source Authors’ compilation

Leaders’ declaration: key finance track themes

Summit (Year)

Annexure Table 2.2 (continued)

32 2 Organisation of the G20 Finance Track

Annexure 3: GPFI and Financial Inclusion Commitments in G20

33

Annexure 3: GPFI and Financial Inclusion Commitments in G20 Summits

Financial inclusion commitments

2009, Pittsburgh summit

. Scaling up successful models for SME financing . Launch of Financial Inclusion Experts Group . Promote regulatory policies and approaches to financial inclusion, financial access, financial literacy, and consumer protection

2010, Toronto summit

. Commitment to improve financial services access for low-income groups and to scale up financing for SMEs . Launched SME Finance Challenge . Committed to mobilising funding through MDBs finance . Set of principles for financial inclusion was developed

2010, Seoul summit

. Action plan on financial inclusion was delivered . GPFI was launched along with a flexible SME finance framework . Reiterated commitment to financial inclusion . CGAP and GPFI work plans were framed in order to help countries to implement principles of financial inclusion and strengthen data for measuring financial inclusion . Recognised SMEs in employment and income creation welcomed SME Finance Challenge . Lauded models to increase private financing in SMEs from the emerging competition were lauded . The winners of this challenge were awarded through SME Finance Innovation Fund (continued)

34

2 Organisation of the G20 Finance Track

(continued) Summits

Financial inclusion commitments

2011, Cannes summit

. Carried out a study on 11 different countries on their implementation of nine principles in FIAP Action Plan . Case study of five countries was carried out on financial sector regulation-related concerns (A white paper was raised for the same raising awareness and framing issues) – SME finance subgroup developed SME Finance Policy Guide for policy-makers and regulators and a report on access to finance issues for women entrepreneurs. Further, an agriculture financing report was developed, case studies were conducted, and an outreach process was started in particular with the African partner countries which were supported by the Partnership “Making Finance Work for Africa.” . For exchanging knowledge and best practices, a Global SME Finance “Forum” was developed by the SME finance subgroup recommendations to the leaders: . Committed to implement the nine financial inclusion principles of further . Directed key standard-setting bodies (SSBs), including BCBS, CPSS, FATF, IADI, and IAIS, to examine synergies between the GPFI’s and their work . Launched forum for SME finance . Recognised the importance of access to finance for businesses owned by women and agricultural SMEs for employment and sustainable growth . Requested the IMF to continue supporting in collaboration with IFC and CGAP and generate and use requisite data for monitoring

2012, Los Cabos summit

. Welcomed the FSB and IMF’s study on financial regulatory reforms’ consequences for emerging economies . GPFI progress in setting five major recommendations in 2011 was welcomed by the group . G20 endorsed the basic set of financial inclusion indicators developed by GPFI . G20 launched SME Finance Compact . G20 welcomed GPFI conference on SSBs and the creation of a regulatory environment . Supported the fourth GPFI subgroup on consumer protection and financial literacy . G20 recognised G20’s and non-G20’s financial inclusion efforts under the Peer Learning Programme and encouraged Principles for Innovative Financial Inclusion’s implementation . G20 endorsed OECD/International Network on Financial Education (INFE) High-Level Principles on National Strategies for Financial Education and further promoted tools for financial education and an Action plan on Financial Consumer Protection . G20 welcomed the launch of Mexico Financial Inclusion Challenge—Innovations Solutions for Unlocking Access (continued)

Annexure 3: GPFI and Financial Inclusion Commitments in G20

35

(continued) Summits

Financial inclusion commitments

2013, St Petersburg summit G20 welcomed the developments made in the area of financial inclusion: 1. Progress made by FSB with SSBs, IMF, and World Bank on regulatory reforms for emerging markets 2. GPFI advancing financial inclusion through consumer empowerment via the establishment of a new subgroup 3. Enforcement of SME Finance Challenge and SME Finance Initiative in promoting growth and job creation 4. Tools for financial literacy by OECD/INFE Four recommendations were endorsed in the 2013 summit whose implementation reports were to be taken forward in the Australian summit, and those were: . Analyse the work done in Financial Inclusion Action Plan and update with increasing private sector engagement, developing innovative ways, and increasing incentives to the poor to get more inclusive in the financial institutions . Call upon relevant SSBs to take part . To overcome the SME finance gap, call upon IFIs/IDIs to support countries and governments in strengthening financial markets infrastructure . Using the G20 set of financial inclusion indicators to monitor the effects of policy interventions and for the same involve more government agencies and development partners (continued)

36

2 Organisation of the G20 Finance Track

(continued) Summits

Financial inclusion commitments

2014, Australia

FIAP introduced the results framework for assessment of the progress of the four subgroups on the following cross-cutting issues in 2014: “Innovation; Women’s economic empowerment; Data harmonisation; Cooperation with the private sector; and Outreach and promotion.” New actionable areas were updated from 2010 to 2014: “1. Accelerate and replicate successful policy reforms that facilitate the expansion of financial services to SMEs 2. Establish the SME Finance Forum as a global centre for good practice knowledge exchange and promotion 3. Improve financial access through the SME Finance Compact, SME Finance Initiative, and key development achievements 4. Mainstream financial inclusion in the work of the standard-setting bodies and other relevant global bodies and increase understanding of the interdependence of financial inclusion, stability, integrity, and consumer protection 5. Encourage effective and consistent incorporation of financial inclusion in financial sector assessments 6. Improve the capacity of public authorities and other relevant stakeholders to develop and implement financial literacy and consumer protection measures 7. Promote consumer protection and financial education good practices for digitally delivered financial products and services 8. Help to analyse and consider ways to address the MTO bank account closure issue 9. Reduce the cost of sending remittances 10. Expand opportunities for innovative technologies to grow responsible financial inclusion” (continued)

Annexure 3: GPFI and Financial Inclusion Commitments in G20

37

(continued) Summits

Financial inclusion commitments

2015, Turkey

. Country-specific investment strategies have been developed to boost investment through private sector participation including policies like improving the investment ecosystem, fostering efficient and quality infrastructure, and supporting SMEs . Developed guidelines for public–private partnership (PPP) models, considered models like asset-based financing, simple and transparent securitisation . Focus on promoting long-term SME financing. Further, they welcomed a Joint Action Plan on SME financing and the set-up of the World SME Forum (led by the private sector) . Inclusive global value chains (GVCs) were promoted especially for developing nations . Involvement of private sector in poverty eradication, G20 calls for inclusive business strategies in collaboration with GPFI . Acknowledged that measures such as enhancing credit reporting systems, and insolvency reforms can help with SME-related financial intermediation and welcomed principles on G20/OECD SME financing

2016, China

. Endorsed the G20 High-level Principles for Digital Financial Inclusion, G20 Financial Inclusion Indicators (updated), and implementation framework of the G20 Action Plan on SME financing . Promoted countries to include these principles in their policies

2017, Hamburg

. G20 promoted countries to oversee digital finance-related developments, both domestic and cross-border . G20 supported FSB’s work on the identification associated with FinTech . GPFI to advance financial inclusion for vulnerable groups through participation in GVCs . Emphasised financial literacy and welcomed consumer protection acts related to the OECD/INFE work . In 2017, GPFI Temporary Steering Committee (TSC) during the meeting which supported the inclusion of Forcibly Displaced Persons (FDP) as a new target in the 2017 financial inclusion plan. A special report for the same examining examples from 13 countries was prepared . Market and payment subgroup focused on five major key areas: updating the Financial Inclusion Action Plan, monitoring progress and updating G20 national remittances plan, a guidance note on digital payment ecosystems, coordinating approaches to improve the environment for remittances, and framing work under Argentina’s presidency (continued)

38

2 Organisation of the G20 Finance Track

(continued) Summits

Financial inclusion commitments

2018, Buenos Aires

G20’s main priority for GPFI was the interaction between digitisation and informality aimed at boosting access to financial services for unreserved classes by financial inclusion. Four key enablers focused in 2018 under GPFI were . Digital onboarding . Digital payment infrastructure . Use of alternative data for credit rating . Financial consumer protection, financial literacy, and data protection . Work undertaken in 2018 . Development of input to the G20 Financial Inclusion Policy Guide to advance digital onboarding systems . Conference was held in 2018 focused on the theme implications of FinTech and other regulatory and supervisory developments for SSBs and FI . Market and payment subgroup G20 followed action 9 from G20 Financial Inclusion Action Plan. Hence, the market and payment subgroups develop interoperable payment infrastructure to create incentives for consumers and retailers to shift to digital payment modes . The SME finance subgroup worked with other GPFI’s subgroups and a temporary steering committee on financial inclusion plans for FDPs. FCPFL developed guidelines for financial consumer protection to identify risks for consumers and raise awareness using digital financial services. And for financial literacy, the group suggested guidelines along the lines of opportunities and challenges of beneficial use of alternative data

Source Authors’ compilation from different sources

Annexure 4 See Table 2.3.

Knowledge

Proportionality

Framework

7

8

9

Source GPFI, 2010

Empowerment

Protection

4

Cooperation

Innovation

3

5

Diversity

2

6

Leadership

1

Principles of financial inclusion

Annexure Table 2.3 Principles of financial inclusion

. An appropriate, flexible, risk-based Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime; conditions for the use of agents as a customer interface; a clear regulatory regime for electronically stored value; and market-based incentives to achieve the long-term goal of broad interoperability and interconnection regime

. Build a policy and regulatory framework that is proportionate to the risks and benefits involved in such innovative products and services and is based on an understanding of the gaps and barriers in existing regulation

. Utilise improved data to make evidence-based policy, measure progress, and consider an incremental “test and learn” approach acceptable to both regulator and service provider

. Create an institutional environment with clear lines of accountability and coordination within government; encourage partnerships and direct consultation across government, business, and other stakeholders

. Develop financial literacy and financial capability

. Encourage a comprehensive approach to consumer protection that recognises the roles of government, providers, and consumers

. Promote technological and institutional innovation as a means to expand financial system access and usage, including by addressing infrastructure weaknesses

. Implement policy approaches that promote competition and provide market-based incentives for the delivery of sustainable financial access and usage of a broad range of affordable services (savings, credit, payments and transfers, insurance), as well as a diversity of service providers

. Cultivate a broad-based government commitment to financial inclusion to help alleviate poverty

Annexure 4 39

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2 Organisation of the G20 Finance Track

References Buti, M. (2019). G20 framework for growth working group meeting, May 15. https://ec.europa.eu/ info/sites/default/files/economy-finance/g20_fwg_speech_20190515.pdf CRS, Congressional Research Service. (2019). The G-20 and international economic cooperation: Background and implications for Congress. Dash, P., Shaw, P., & Khandelwal, A. (2020). Evolution of G20 process: From crisis management to development cooperation. G20 Digest. Federal Ministry of Finance. (2016). G20 presidency 2017: Finance track priorities. G20. (2014). Turkish G20 presidency priorities for 2015, December 1. http://www.g20.utoronto. ca/2015/141201-turkish-priorities.html G20. (2015a). G20 Leaders’ Communiqué, November 15–16. http://www.g20.utoronto.ca/2015/ 151116-communique.html G20 Germany 2017. (n.d.). About the G20. https://www.b20germany.org/nc/the-b20/about-g20/ G20 Research Group. (2015b). G20 summit commitments by issue: 2008 to 2015, December 14. http://www.g20.utoronto.ca/compliance/commitments.html GPFI (2010) Innovative financial inclusion. Principles and report on innovative financial inclusion from the access through innovation sub-group of the G20 financial inclusion experts group. G20 Financial Inclusion Experts Group—ATISG Report, May 25. GPFI. 2015. G20 Financial Inclusion Action Plan Progress Report 2010–2014. Retrieved from: https://www.gpfi.org/sites/gpfi/files/documents/G20%20FIAP%20Progress%20Report% 202010-2014.pdf GPFI. (2020). G20 2020 Financial Inclusion Action Plan, October. GPFI. (n.d. a). Principles and report on innovative financial inclusion. https://www.gpfi.org/public ations/principles-and-report-innovative-financial-inclusion GPFI. (n.d. b). Subgroups and Co-Chairs. https://www.gpfi.org/subgroups-and-co-chairs GPFI. (n.d. c). About GPFI. https://www.gpfi.org/about-gpfi IFA WG. (2012). International Financial Architecture (IFA) working group Co-Chairs’ report to G20 deputies. Johns, M. B., & Ruta, M. (2016). Putting trade and investment at the center of the G20. World Bank blogs. https://blogs.worldbank.org/trade/putting-trade-and-investment-center-g20 Jouahri. (2017). Opening remarks by Mr. Abdellatif JOUAHRI. Satellite Seminar on Financial Inclusion held in conjunction with the 61st World Statistics Congress, July 14. Mainstreaming Climate in Financial Institutions. (n.d.). What is climate mainstreaming? https:// www.mainstreamingclimate.org/what-is-climate-mainstreaming/ National Treasury Republic of South Africa. (n.d.). An inclusive financial sector for all. Draft for consultation. Nikolaeva, A. (2019). G20 performance on financial regulation. The Global Governance Project. https://www.globalgovernanceproject.org/2019/06/21/g20-performance-on-fin ancial-regulation/ OECD. (2016). G20 Status report. OECD contributions to the G20, July. OECD. (n.d. a). Infrastructure investment. OECD. https://www.oecd.org/g20/topics/infrastructure/ OECD. (n.d. b). Strong, sustainable, balanced and inclusive growth. OECD. https://www.oecd.org/ g20/topics/inclusive-growth/ Sheel, A. (2013). St Petersburg G20 Summit—Unintended consequences. Business Standard, September 10. SME Finance Forum. (2022). Ghazanfar Bank joins the SME Finance Forum to promote access to finance for MSMEs, May 13. https://www.smefinanceforum.org/post/ghazanfar-bank-joins-thesme-finance-forum-to-promote-access-to-finance-for-msmes Tsalikis, C. (2018). Can the G20 save globalization’s waning reputation? CIGI online. https:// www.cigionline.org/articles/can-g20-save-globalizations-waning-reputation?gclid=EAIaIQobC hMI5o-7mIiU5wIVTh0rCh1zuQSZEAAYASAAEgJJEvD_BwE

References

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Warren, B. (2016). The 2016 G20 Hanghzou summit commitments, October 5. http://www.g20.uto ronto.ca/analysis/commitments-16-hangzhou.html Warren, B. (2017). The 2017 G20 Hamburg Summit Commitments, October 4. http://www.g20.uto ronto.ca/analysis/commitments-17-hamburg.html Warren, B. (2018). The 2019 G20 Buenos Aires Summit Commitments, December 14. http://www. g20.utoronto.ca/analysis/commitments-18-buenosaires.html Warren, B. (2019). The 2019 G20 Osaka Summit Commitments, July 1. http://www.g20.utoronto. ca/analysis/commitments-19-osaka.html

Chapter 3

Political Economy Shapes Strategies of Countries

Abstract The trajectory of major issues discussed in the Finance Track with respect to the world’s political economy and position and strategies of different countries is documented in this chapter. As the G20 summits have worked their way forward, the role of a G20 President has undergone changes as well. A G20 President occupies a strategically important position in bringing about progress in the Finance Track issues. The agenda framed by the G20 President for the summit transforms discussion on the Finance Track issues. The future of a Finance Track issue also hinges upon whether the G20 President of a particular summit decides to take the issue forward. Many issues have been discussed only in a handful of summits, such as the future of work, whereas some have been a part of virtually every summit since they were taken forward by many G20 Presidents. The Finance Track issue of financial regulation that was forwarded strongly in the first summit has also been advanced in subsequent summits, which has not only kept the issue alive but has also propelled securing these financial regulations. While the crucial position occupied by the G20 during the global financial crisis in saving the world economy from a potential second Great Depression and the progress achieved by the Finance Track has been applauded, concerns have been voiced that the G20 emerging economies’ presidencies have not been always able to morph the agenda towards issues of their interest, particularly in case of global financial governance.

3.1 2008 Washington DC Summit1

The 2008 financial crisis, although beginning in the US, spilled far beyond the Western world. Before the crisis, emerging economies such as India, China, Brazil, and Russia had been engaged in strategies to both “decouple” them from the global economy and facilitate managed integration.

1

Refer to Annexure Fig. 3.1 for the G20 summits agenda highlights and key domestic drivers.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_3

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Prior to the Washington summit, the US economy’s growth slowed and the housing slowdown that fed through to household spending and financial markets further pulled the GDP growth down (IMF, 2008a). Notwithstanding decelerating growth, energy and food prices pushed up headline inflation (IMF, 2008a). Adding to that, spending dwindled on the back of diminishing wealth, plunging employment, high oil prices, and credit constraints (IMF, 2008a). US financial markets came under strain from the pressure of the crisis that was unfolding in the economy. The USA’s largest banks faced the heaviest pressure that was indicative of high leverage and dependence on wholesale funding (IMF, 2008a). The risks to asset quality were underestimated by the final investors in the USA reflecting excessive reliance on negligent credit ratings and on the geographically diversified US mortgage pools’ stability (IMF, 2008a). Weaknesses from excessively pro-cyclical financial lending, inadequate consumer protection in the mortgage origination process, and poor incentives inside the securitisation chain were uncovered by the financial boom (IMF, 2008a). This turmoil in the financial markets also in turn disturbed the capital inflows that plummeted, contributing to the depreciation of the dollar (IMF, 2008a). In September 2008, the crisis ventured into a new phase. Bankruptcy was declared by Lehman Brothers Holdings Inc., which spread default risk and eliminated a crucial financial counterparty, acutely decreasing liquidity in the derivatives market; liquidity became scant, and huge withdrawals and some closures were experienced by the prime money market funds, compelling asset liquidations and hoarding of capital, as well as calling into question the feasibility of the financial institutions reliant on wholesale funding (IMF, 2008b). With escalating flight-to-quality, yields on some US treasury bills temporarily turned negative and market-making decreased sharply (IMF, 2008b). As counterparty risk concerns increased, the credit default swaps market became illiquid (IMF, 2008b). More than the monetary policy, financial supervision and regulation failed to check the lending excesses (IMF, 2008a). The mayhem in the financial markets added exigency to the need to enhance the fragmented US regulatory system (IMF, 2008a). Since the US economy was at the centre of the crisis, the priority agenda for the Washington summit was that of generating consensus on the common principles for reforming the financial markets. This was evident even from the statement by Press Secretary Dana Perino (White House spokesperson): “The leaders will review progress being made to address the current financial crisis, advance a common understanding of its causes, and, in order to avoid a repetition, agree on a common set of principles for reform of the regulatory and institutional regimes for the world’s financial sectors.”2 Reflection of many elements of the common principles for financial market reform such as improving sound regulation, adequate oversight of the credit rating agencies, aligning incentives so as to discourage excessive risk taking, and investor and consumer protection in the financial markets (G20, 2008) that were on the G20 agenda in Washington can be seen in the challenges that the US economy was facing at that time and the reforms that were required domestically in the USA.

2

http://www.g20.utoronto.ca/2008/2008announcement.html.

3.1 2008 Washington DC Summit

45

The first G20 summit in Washington was successful tackling many previous issues in global governance. It expanded to overtake the G8 process wherein leaders of emerging market economies were given ad hoc invitations to join as part-time guests.3 Earlier debates on the optimal size and composition of an extended summit were also put to rest.4 The harsh reality of a global financial crisis pushed aside “the idea of a “League of Democracies” as an alternative to the G8 and G20 summits, as it was clear that all the key economic players had to sit at the table, irrespective of political regime.”5 The summit also ushered in a new, twenty-first-century reality of global governance, as the summit spoke for two-thirds of the world’s population, which controlled 90% of the economy, and consisted of leaders of both advanced as well as emerging economies. In fact, the communiqué “unmistakably attributes blame for the crisis where it belongs—to the advanced countries.”6 Before the crisis, emerging economies like India, China, Brazil, and Russia—which were increasingly integrating into the global economy—had been engaged in self-insurance strategies to both “decouple” them from the global economy and facilitate managed integration. They “kept a low profile or minimised their engagement in the Bretton Woods Institutions, did not bear significant costs in maintaining the global architecture, and could channel their resources instead to fostering hedging options.” Instead, these rising powers “put concerted attention into building interconnectivity within the developing world, fostering new institutionalised ties of goods exchange, capital, people and ideas. They directed resources at creating a parallel set of institutions that operate largely according to their own sets of rules and currencies of power.”7 The summit committed to reforming the financial market in the wake of the crash. Among the principles for reform, it was decided that the Bretton Woods Institutions would be transformed “so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness.” This is significant, as the earlier system, set up after the Second World War, was criticised by many world leaders who felt a need for a new system that was more equipped to meet the requirements of the current global economy. Furthermore, the crisis also changed the position of the IMF. Before the crisis, the G20 was “in clear ascendancy over other institutions, including the IMF. […] A strong case can be made that of all the international organisations, the IMF suffered from the deepest legitimacy ‘deficit’ over the past decade.”8 Through the Washington Plan of Action, the G20 “moved swiftly to position itself as the core crisis committee over other institutions by establishing Working Groups 3 and 4 to 3

https://www.brookings.edu/research/global-governance-breakthrough-the-g20-summit-and-thefuture-agenda/. 4 Ibid. 5 Ibid. 6 Ibid. 7 Chapter 1, India, G20 and the World, p. 3–4. Retrieved from http://www.mospi.nic.in/sites/def ault/files/Statistical_year_book_india_chapters/ch1.pdf. 8 CIGI G20 Papers | No. 3, June 2010.

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develop collective positions on reform efforts at the IMF, World Bank and other multilateral development banks (MDBs).”9 Consequently, the IMF re-emerged as a credible and pivotal institution, admittedly as one subordinate to the G20.10

3.2 2009 London Summit

The UK economy was facing its first recession since the 1990s. The primary focus of the summit was on economic recovery, by use of expansionary monetary policies. It was the first major attempt to address the global downturn.

At the London summit, the British Prime Minister Gordon Brown highlighted that “The primary focus of the G20 summit will be on the economic recovery, it will be on jobs and growth” (Reuters, 2009). The UK economy was at that time facing its first recession since the early 1990s as UK’s GDP declined in both quarters 3 and 4 of 2008, by 0.7 and 1.6%, respectively (GLA Economics, 2009). Adding to that, unemployment was climbing “with the ILO measure of unemployment hitting 6.5% in the three months to January 2009 in the UK, up from 5.2% a year earlier” (GLA Economics, 2009). In the Leaders’ Statement, it was stated that “our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.” This was consistent with the monetary policy stance prevalent in the UK during that time as the Bank of England aggressively slashed interest rates in view of the rapid slowdown of the UK economy, and with the interest rates very near to their “lower nominal band,” a great deal of the policy focus of the Bank of England moved towards attempting to stoke the economy via various types of “quantitative easing” (GLA Economics, 2009). US$1.1 trillion was sought to be injected into the economy of the low- and middleincome countries. It represented the first major attempt by the global community to handle the issues of a global economic downturn. Another significant political development was the fact that G20 leaders committed themselves to resisting protectionism and continuing the trade “standstill” to the end of 2010. They further agreed on the “rollback” of protectionist measures taken since the previous November.11 In fact, South Korean President Lee Myung-bak backed for the “standstill” in Washington and the “rollback” in London. Towards its end, the communiqué re-affirmed a “commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at 9

Ibid. Ibid. 11 https://www.cfr.org/blog/achievements-london-g20-summit-and-korea-troika. 10

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the UN Climate Change Conference in Copenhagen in December 2009.” Discussing the issue of climate finance in G20 made the BRICS uncomfortable, and they pointed out that the climate finance issue should be restricted to the UNFCC.12 British Prime Minister Gordon Brown also indicated that the issue of climate change and global poverty would be taken up at the summit (Reuters, 2009). The Department of Energy and Climate Change which was the single lead agency managing climate change at the UK level was created in 2008 (Sustainable Prosperity, 2012). “On June 27, 2007, Gordon Brown (2007–2010) replaced Tony Blair and implemented various climate change policies, including indexing the CCL to inflation.” (Sustainable Prosperity, 2012). Furthermore, the Climate Change Act (which was first introduced in 2005) came into force in 2008 (Sustainable Prosperity, 2012). In fact, there was a risk of the oil supply declining and prices rising over the next three years.13 As noted by Nick Mabey, “If oil prices rise to 2008 levels as global growth revives in 2011 then the oil import bill of US, Europe and Japan alone will rise by over US$ 800 billion a year. This is equal to nearly half of their total planned stimulus spending (tax cuts and public spending) from 2008–2010.” This could have a debilitating impact on recovering economies. Thus, there was a pressing need to move to a global low-carbon economy to prevent catastrophic climate change.14 At the summit, UK Prime Minister Gordon Brown did state his support for promoting low-carbon growth and the creation of green jobs on which our future prosperity depends, as well as a commitment towards “working together to seek agreement on a post-2012 climate change regime at the UN conference in Copenhagen in December.”15 Yet, environmental groups criticised the summit over fears it risked “locking the world into a high-carbon economy in which greenhouse gas emissions continue to rise.”16

3.3 2009 Pittsburgh Summit

The macroeconomic stimulus and financial market interventions had started to stabilise financial and economic conditions in the USA. General government deficits were anticipated to be large, increasing public debt to alarming levels that would make handling long-term fiscal problems difficult.

12

Based on interaction with the stakeholders. Mabey (2009). 14 Ibid. 15 https://www.theguardian.com/environment/2009/apr/03/g20-climate-change-stimulus-package. 16 Ibid. 13

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The third G20 summit took place in Pittsburgh in September 2009. The preamble of the Leaders’ Statement emphasised that although the forceful response of the G20 worked in increasing industrial output and the recovery of trade and confidence, the process of recovery and repair was not over. For example, in the USA, the recession had ended by mid-2009 and the economy had begun to grow, but job losses remained high.17 According to the preamble, unemployment remained “unacceptably high” in many countries, and the “conditions for a recovery of private demand [were] not yet fully in place.” One of the crucial items on the agenda for the summit was that of deliberating actions to set the foundation for balanced and sustainable economic growth. During that time, the enormous macroeconomic stimulus and financial market interventions had started to stabilise financial and economic conditions in the USA (IMF, 2009). The US economy was also in a similar situation with respect to fiscal responsibility and sustainability. General government deficits were anticipated to be large, increasing public debt to alarming levels that would make handling longterm fiscal problems difficult (IMF, 2009). Moreover, further macroprudential and regulatory policies were to be put in place for preventing credit and asset price cycles. Medium-term policy frameworks were set out based on the results of mutual assessment. The G20 launched the framework at its Pittsburgh summit in September 2009, despite the mixed history of such initiatives. This was the most comprehensive attempt at macroeconomic coordination since the creation of the Bretton Woods regime. The new framework for “strong, sustainable, and balanced growth” was created to address global imbalances and promote growth. The summit took a major step in the reformation of international financial institutions, with an agreement to support a shift of at least 5% in quota share from countries currently over-represented at the IMF to those currently underrepresented. This reform would “give dynamic emerging market and developing economies a say in the IMF more in line with their weight in today’s global economy. The G20 also delivered on its promise to contribute over US$ 500 billion to the IMF’s expanded New Arrangement to Borrow (NAB), dramatically increasing its financial firepower.”18 Furthermore, the G20 reached an agreement to increase the voting power of emerging markets and developing countries at the World Bank by at least 3%, to “strengthens the World Bank’s ability to fulfill its mission to reduce global poverty and its capacity to tackle challenges, such as climate change and food security, that require globally coordinated actions. These changes represent a major step forward in our effort to build global institutions that reflect 21st-century economic realities and can effectively address key economic and development challenges.”19 During this summit, the G20 was institutionalised as a permanent body, a “premier” forum “responsible for economic cooperation, meeting annually at the 17

https://www.cbpp.org/research/economy/chart-book-the-legacy-of-the-great-recession. https://www.cfr.org/international-finance/g20-leaders-statement-pittsburgh-summit-creating21st-century-international-economic-architecture/p20305. 19 Ibid. 18

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level of leaders, rather than just finance ministers.”20 This move symbolised the antiquation of the G8, which left out emerging economies of China, India, South Africa, Mexico, and Brazil21 and no longer seemed to serve the needs of the global economic order. In addition, this placed developing and developed countries on equal ground, as both were to host summits. This new G20 governance would “finally give the central role to the emerging and established powers, reflecting a predominance of capability and a broad array of the world’s diversity.”22 The Chinese president, Hu Jintao, acknowledged the broad principles of closer cooperation, but said: “We have taken active steps to adjust the overseas and domestic demand structure.” He said, however, the real problem that needed addressing persisted “the yawning development gap” between the developed and emerging economies and called for more tangible steps to assist developing countries.23 Also, France and Germany disagreed with the USA and Britain over bankers’ bonuses. The former advocated proposals limiting bonus payments and the risks taken by banks, which were intended to prevent a repeat of the financial crisis.24 During the summit, they failed to get their way in placing a “cap on multi-million pound pay packages for bankers,”25 with the USA opposing any limit that would seemingly meddle in Wall Street, and Britain arguing such a move would be difficult to enforce.26 Instead, “the G20 countries opted for a host of measures requiring banks to defer many bonuses for at least three years and to distribute the bulk of top executives’ remuneration in shares. The assembled leaders did agree to ban guaranteed bonuses, which are often dangled to poach staff by one bank from another.”27 As the issue of climate change was worsening, with 2009 the second warmest year on record and the decade being the warmest, the summit “made substantial progress on the critical issue of climate finance, putting in place principles to guide where the required money would come from, how it would be governed, and to whom it would go. This would help developing countries mitigate their carbon pollution and cope with the destructive consequences of the climate change already underway. This framework could be an essential step in breaking the current stalemate in climate negotiations, which have focused primarily on funding, just in time for the UN climate change conference in Copenhagen in December, where environment ministers from 192 countries will meet to put in place an effective successor to the failed

20

https://www.theguardian.com/world/2009/sep/25/g20-summit-economy-bonuses-deficits. Ibid. 22 http://www.g20.utoronto.ca/analysis/2009performance0925.html. 23 https://www.theguardian.com/world/2009/sep/25/g20-summit-economy-bonuses-deficits. 24 https://www.theguardian.com/business/2009/sep/01/france-germany-demand-bonus-sanctions. 25 https://www.theguardian.com/world/2009/sep/25/g20-summit-economy-bonuses-deficits. 26 Ibid. 27 Ibid. 21

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Kyoto protocol regime.”28 However, the summit was met with protests against corporate greed, lack of action on climate change and poverty, and the American war in Afghanistan.29

3.4 2010 Toronto Summit

Despite economic growth, serious challenges still remained, the recovery was uneven and fragile, unemployment in many countries was high, and the social impact of the crisis was still widely felt.

In June 2010, the fourth G20 summit was held in Toronto. It followed the smaller G8 meeting, in which the most developed economies of the world were greatly divided over the global economic crisis. Although the global crisis was alleviated to an extent, Europe was facing financial problems that had the potential to snowball into another crisis.30 European nations found themselves at odds with the USA, as the former faced a “sovereign debt crisis that is squeezing national budgets and prompting governments to make severe cuts in spending,” while the latter supported “continued economic stimulus spending to galvanise the recovery.”31 This conflict was not resolved by the G20 Toronto summit, due to which there was difficulty in reaching an agreement.32 There was also disagreement over a bank levy system, the lack of common consent which was a disappointment from the EU’s perspective.33 India, Australia, Mexico, Brazil, and Canada were in opposition to this34 ; however, levies could be imposed in the EU countries and in the USA.35 The summit’s theme was in a way consistent with the state of the Canadian economy at that time in terms of economic growth. Canada was able to tackle the global recession better compared to all other major industrialised economies (Department of Finance Canada, 2010). Following the deepest recession since the 1930s, the Canadian economy rebounded back to growth and started to recover (Department of 28

http://www.g20.utoronto.ca/analysis/2009performance0925.html. The G-20 and International Economic Cooperation: Background and Implications for Congress, Congressional Research Service. 30 Assessment of the Toronto G20 Summit and Tasks Ahead: in preparing for the upcoming Seoul Summit, IFANS. 31 https://web.archive.org/web/20110205064133/http://english.aljazeera.net/news/2010/06/201 0627114252622620.html. 32 Assessment of the Toronto G20 Summit and Tasks Ahead: in preparing for the upcoming Seoul Summit, IFANS. 33 Results of the G20 Toronto Summit, The Polish Institute of International Affairs. 34 https://web.archive.org/web/20100816181826/http://www.cfr.org/publication/22542/g20s_t wenty_agendas.html?breadcrumb=%2Fpublication%2Fby_type%2Fbackgrounder. 35 Results of the G20 Toronto Summit, The Polish Institute of International Affairs. 29

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Finance Canada, 2010). However, the following factors were believed to continue acting at that time as significant drag on Canada’s economic activity: “the persistent strength of the Canadian dollar, Canada’s poor relative productivity performance, and the low absolute level of U.S. demand” (Bank of Canada, 2010). It was stressed that despite economic growth, serious challenges still remain. According to the preamble, “the recovery is uneven and fragile, unemployment in many countries remains at unacceptable levels, and the social impact of the crisis is still widely felt. Strengthening the recovery is key.” There was an agreement “to deal with the policy alternatives of those aforementioned agreed matters within the perimeter of the ‘Framework’, and announce a comprehensive action plan in the upcoming Seoul Summit, thereby reconfirming the need for international cooperation and the G20’s value as a responsible body for such cooperation.”36 The challenge of unemployment was recognised by the leaders and the issue of job creation formed part of the discussions. Unemployment was also a point of concern for the Canadian economy (Department of Finance Canada, 2010), and the 2010 budget for Canada included measures for stoking job creation in the country. The 2010 budget for Canada put forth US$ 7.7 billion in infrastructure stimulus for generating jobs (Department of Finance Canada, 2010). It also provided thrust to green jobs and growth by encompassing measures that will promote investments in energy projects and clean energy generation (Department of Finance Canada, 2010). It was felt that Canada as the summit’s chair had a lead role to play in realising a global agreement on financial reform. Canada has been recognised for the resilience of its banks and insurance companies as the regulatory and supervisory authorities in Canada were relatively more conservative with regard to capital levels. In 2007 when the warning signs surfaced, they increased their requirements (Downe, 2010). “The diversified structure of Canada’s financial system, good management, and an effective regulatory and supervisory structure reinforced by good dialogue when it mattered most—plus a little bit of good fortune—produced the conditions that allowed Canada to weather the financial crisis” (Downe, 2010). Moreover, the Canadian budget 2010 aimed to further bolster the financial sector by moving ahead to a Canadian securities regulator with the majority of provinces and territories and improving disclosure and business practices of financial institutions to enhance consumer protection (Department of Finance Canada, 2010). The G20 leaders believed that international financial institutions played a constructive role in offsetting the consequences of the economic crisis and in reestablishing the stability of the global economy. This was “due to significant increases in these institutions’ capitals, by close to US$ 1000 billion in critical financing, and over US$250 billion in trade finance so as to restore access to credit at the time when private banks were cutting down lending.”37 Also, a decision on a new distribution of quotas and votes in the IMF was approved:

36

Assessment of the Toronto G20 Summit and Tasks Ahead: in preparing for the upcoming Seoul Summit, IFANS. 37 Results of the G20 Toronto Summit, The Polish Institute of International Affairs.

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“The G20 leaders called for stepping up work on this reform, including at least a 5% increase in the share of the emerging and developing markets in the quota system. Higher transparency of selection for senior positions in the IMF was also promised. These reforms (which are scheduled for completion before the November G20 summit) are a particularly difficult subject for the European states, which stand to see their quotas and votes reduced and whose representative usually held the position of the IMF chief.”38 The summit also saw a focus on international affairs. A recognition of the “acute development needs in Africa, the region the furthest behind on the Millennium Development Goals” was declared. As a result, the African Development Bank was to be “capitalised for substantial growth, with a 200% increase in its capital and corresponding tripling of its annual lending levels, to strengthen capacity to support the region’s long-term growth and development.” Furthermore, as Haiti was debilitated by a catastrophic earthquake in January of 2010, there was a full cancellation of its debt to the IMF.

3.5 2010 Seoul Summit

The G20 had to transition from crisis management to medium- to long-term sustainability and system management and push the development agenda on the international platform. The South Korean economy showed a spectacular recovery.

The G20 Seoul summit took place in November 2010. It was the first G20 summit which was hosted by a non-G8 member. Conscious of this fact, the Korean Presidency led a major new G20 initiative by injecting development into the core G20 agenda and setting up the Development Working Group in the Sherpa track. Many also considered this summit as a vital turning point,39 as the world leaders who were once united in the wake of the financial crisis were now confronted with tensions over currency exchange rates. The G20 as a body had to now make the transition from crisis management to medium- to long-term sustainability and system management.40 During that time, South Korea’s economy showed spectacular recovery (IMF, 2010). Private sector demand was increasingly driving the recovery (IMF, 2010). Motivated policy response and global trade normalisation also assisted in recovery as the rapid rebound in international trade greatly aided Korea’s export-dependent economy (IMF, 2010). The near-term policy challenge that lay ahead of Korea at that 38

Ibid. https://www.boell.de/en/economysocial/international-politics-g20-summit-seoul-turning-point10544.html. 40 https://www.cfr.org/blog/seoul-g20-summit-opportunity-and-challenge-strengthening-uskorea-relations. 39

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time was to cautiously handle an exit from supportive macroeconomic and financial sector policies along with making sure of an “an orderly transition to a self-sustained private sector-led recovery” (IMF, 2010). The IMF (2010) noted that the timing and pace of exit could be affected by the aggravation of the crisis in Southern Europe and the intensification of geopolitical tension in the Korean peninsula. Inflation pressures remained and banks still stayed wary of lending even though the financial market conditions normalised for a large part (IMF, 2010). “South Korea had a lot on its plate, tasked with the resolution of international tensions over policy as well as their loyalty to both China as their largest trade partner and their alliance with the USA.41 In the run-up to the summit, the media was firmly focused on the potential for ‘currency wars’ to drive divisions between the summit leaders and damage the overall cohesion of the G20.”42 There was a US-China impasse over the value of the Yuan.43 The Chinese government was devaluing it in order to promote its exports, while the USA was “indirectly devaluing the dollar through quantitative easing.”44 This was a source of conflict, as the German Finance Minister Wolfgang Schäuble stimulated the discussion ahead of the G20 summit by saying “it doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.”45 Thus, the G20 was looked to for the resolution of these tensions. While President Obama publicly criticised China’s “undervalued currency” after the G20 summit, “the leaders were able to leave Seoul with enough reason for all sides to claim victory.”46 Another key issue would be with regard to the position and role of various nations within the G20. It remained to be seen “whether the European participants are willing to give up their historically privileged position,” and if the “new” “non-G7 members would take on systemic management responsibilities.”47 Korea was considered well placed to push the development agenda on the international platform of the G20, “having recently and quickly made the transition to developed country status” (MacDonald, 2010). The agenda of the summit included “strong, sustainable, and balanced growth”; financial sector reform, reform of international economic institutions such as the IMF, “global financial safety nets,” trade, and development.48 With regard to the first topic, it should be noted that “many advanced countries face significant long-run

41

Ibid. Judith, and Dobson (2012). 43 Ibid. 44 https://www.boell.de/en/economysocial/international-politics-g20-summit-seoul-turning-point10544.html. 45 Ibid. 46 Judith and Dobson (2012). 47 https://www.cfr.org/blog/liu-xiaobo-and-nobel-peace-prize-beijing-should-seize-moment. 48 https://www.cfr.org/blog/seoul-g20-summit-opportunity-and-challenge-strengthening-uskorea-relations. 42

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fiscal challenges associated with publicly financed pension and health care costs.”49 Furthermore, unlike consensus on curbing long-term social expenditure, there was little agreement “with regard to advisable short-term fiscal policy.”50 On the topic of global economic growth, it was once again stressed by the leaders that despite strong results arising from efforts to manage the financial crisis, vigilance must be maintained as risks remained. Growth remained uneven and had to be tackled accordingly: Some of us are experiencing strong growth, while others face high levels of unemployment and sluggish recovery. Uneven growth and widening imbalances are fuelling the temptation to diverge from global solutions into uncoordinated actions. However, uncoordinated policy actions will only lead to worse outcomes for all.51

The declaration also mentioned a modernised IMF “that better reflects the changes in the world economy through greater representation of dynamic emerging markets and developing countries.” A politically tenacious challenge was that of completing the promised shift of at least “5% of the quota share at the IMF” from the declining, established continental European economies to the rapidly rising emerging Asian economies.52 “This needed to be done in a way that the legislatures of all IMF members, including the coalition governments in democratic polities that would lose influence, could ratify back home. Here the Europeans had initially shown few signs to make the necessary accommodations, even as the Americans had used their dominant position in the IMF to induce them to move. Making such a constitutional change in a zerosum game is usually what leaders alone are asked to do. Yet the finance ministers at Gyeongju importantly prepared the way by crafting a creative, balanced bargain that respected the basic needs of those that count. The leaders approved it at Seoul, thus avoiding the danger of breaking their bargain with a hitherto patient China, India, and Brazil.”53 With regard to fossil fuel subsidies, the leaders re-affirmed their “commitment to rationalise and phase-out over the medium-term inefficient fossil fuel subsidies that encourage wasteful consumption, with timing based on national circumstances, while providing targeted support for the poorest.” They asked the IEA, World Bank, OECD, and Finance and Energy Ministers to report back the achievement over the last two years. Although the G20 first approved to “rationalise and phase out over the medium-term inefficient fossil fuel subsidies that encourage wasteful consumption” at the Pittsburgh 2009 summit, they have been met with heavy criticism and protests at many summits over perceived lack of action on climate change, while progress on the same has remained glacial even a decade later.54 49

Ibid. Ibid. 51 The G20 Seoul Summit Leaders’ Declaration, 11–12 November 2010. 52 http://www.g20.utoronto.ca/analysis/101113-kirton-seoul-perf.html. 53 Ibid. 54 https://sdg.iisd.org/commentary/guest-articles/all-change-and-no-change-g20-commitment-onfossil-fuel-subsidy-reform-ten-years-on/. 50

3.6 2011 Cannes Summit

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Ultimately, the summit was successful in preventing serious disputes by addressing currency and exchange rate issues.55 The topic would remain a key issue in future, with France declaring that it would prioritise it.

3.6 2011 Cannes Summit

The Eurozone crisis showed the precariousness of the entire financial system. While France fared better than most advanced economies as well as the euro area taken together, output and employment were still below their precrisis levels.

The sixth G20 summit took place in Cannes in 2011. Although the global financial crisis was no longer an emergency, the recovery of the global economy was threatened by “unacceptable” unemployment as well as the Eurozone crisis. The global financial crisis had laid bare the precariousness of the entire financial system which could be destabilised by a single sector. An entire country defaulting on its debts would be far more disastrous.56 Hence, European economies facing mounting sovereign debt were a pressing issue, as “the market turmoil that started as a fiscal and banking crisis in a few peripheral countries, has now spread to larger sovereigns, such as Italy and Spain, through increasing spreads in their government bonds vis-à-vis the German Bund and a steady deterioration in the balance sheets of their financial institutions. This has triggered a wave of downgrades that are likely to feed into still higher spreads and a further weakening of financial institutions in Europe.”57 While France fared better than most advanced economies as well as the euro area (in terms of output and employment losses during the financial crisis), however, its real GDP growth of 1.5% in 2010 was less than that of other core euro area countries (IMF, 2011). Even with strong growth in the first quarter of 2011, output and employment in France were below their precrisis levels (IMF, 2011). In the middle of elevated sovereign risks in the euro area, France’s sovereign credit default swap (CDS) spread and its 10-year government bond yield spread (vis-à-vis German Bund) soared in 2010 (IMF, 2011). Strong consumption and stock-building steered recovery in 2010 and early 2011 in France (IMF, 2011). The unemployment rate started to fall but stayed high (IMF, 2011). As per IMF (2011), “the increase in the unemployment rate since 2008:Q2 has resulted in some further increase in its structural component, thereby holding back potential growth going forward.” The effect of the financial crisis on potential output was larger in France as opposed to Germany and lower than that of the USA (IMF, 2011). Furthermore, headway was 55

Dong-hwi Lee, G20 Seoul Summit: Assessment and Future Prospects, IFANS, Republic of Korea. Godby and Anderson (2016). 57 Domenico Lombardi, “The Euro Area Crisis: A Crucial Opportunity for European Leaders at the G-20,” Brookings. 56

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made in re-establishing fiscal sustainability post the fiscal stimulus in 2009–10 (IMF, 2011). Moreover, the IMF (2011) stated that “Achieving the envisaged consolidation is critical to put the public debt-to-GDP ratio on a downward path.” The Cannes summit was an opportunity for systemic management of the crisis by European leaders, as well as “a collegial assessment of the European response by non-European leaders and for escalating pressure on euro area leaders.”58 There was also excessive volatility in global markets, with investors moving towards the global south because of “loose monetary policy, low interest rates and a slow recovery in the North Atlantic, accompanied by high interest rates and rapid growth in emerging markets.”59 Europe too was passed over for the “safer” option of the USA.60 Thus, the global economy was still a matter of concern. The reformation of the international monetary system “to make it more representative, stable and resilient” as well as the management of capital flows to deal with volatility were addressed.61 The G20 also decided to enhance the IMF’s capacity to respond to and prevent future crises. Also, it tried to improve surveillance of its members and the world economy and acted in opposition to the IMF guidelines with regard to capital flows. In 2010, in “a significant reversal of past policy, 2010 the IMF began recommending that nations deploy capital controls to mitigate the effects of speculative capital. Indeed, IMF work in 2010 showed that those countries that deployed capital account regulations were among the least hard-hit during the worst of the global financial crisis. As numerous countries across the globe began using controls in 2010–2011, further IMF work showed that those measures showed signs of working, too.”62 In April, the IMF delivered guidelines recommending that “countries deploy capital controls only as a last resort—that is, after such measures as building up reserves, letting currencies appreciate, and cutting budget deficits.” These were met with resistance from the emerging market and developing countries which had been most successful in imposing capital controls. In the run-up to the Cannes summit, a working group headed by Germany and Brazil was formed to take the capital flows issue to the highest level. Finally, in stark contrast to the IMF guidelines, the G20 concluded that “there is no ‘one-size fits all’ approach or rigid definition of conditions for the use of capital flow management measures,” and that such measures should not be solely seen as a last resort. Instead, the G20 now calls on nations to develop their own country-specific approach to managing capital flows. President Sarkozy said in his final Cannes speech, “the use of capital controls, and this is very important, is now accepted as a measure of stabilisation.”63

58

Ibid. https://www.theguardian.com/commentisfree/cifamerica/2011/nov/29/imf-must-heed-g20-dec isions?fb=optOut. 60 Ibid. 61 http://www.g20.utoronto.ca/2011/2011-cannes-communique-111104-en.html. 62 https://www.theguardian.com/commentisfree/cifamerica/2011/nov/29/imf-must-heed-g20-dec isions?fb=optOut. 63 Ibid. 59

3.7 2012 Los Cabos Summit

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The summit also made agriculture and food security a priority. One outcome published by the G20 French presidency was on this topic: Protecting against the instability of agricultural prices: Price volatility poses significant problems to developing countries, penalising consumers when prices increase and producers when they fall, and creating uncertainty which is unfavourable to investment decisions, to increasing production and productivity, and ultimately to agricultural development.64

This was in light of the global food crisis. Food prices had hit peak levels since the 1970s, which impacted poor households and developing nations the most.65 Managing price volatility was also a major issue for policy-makers, as “when prices were low, there were high levels of suicides in India among farmers too indebted to provide for their families and sometimes violent protests in rural China against low government procurement prices. But, within a few months, prices spiked and the world saw demonstrations by urban consumers against high prices that may have contributed to the fall of some governments.”66

3.7 2012 Los Cabos Summit

Many countries including the USA, the UK, and France were facing challenges. Emerging markets, while performing better than these advanced economies, were experiencing slowing growth momentum. Mexico was witnessing an exports slowdown, and its growth was weak.

At the 2012 summit in Mexico, the world economy was still facing a number of challenges. The Euro crisis remained a matter of concern, and a slowdown was spreading across the globe.67 The USA was experiencing a slowdown, Japan faced weak growth, the UK and many other European nations were officially in recession, France was on the edge of recession, and even Germany seemed to be “showing signs of stumbling.”68 Emerging markets, while performing better than these advanced economies, were experiencing slowing growth momentum. China was facing “domestic policy challenges, an unexpectedly rocky political transition, and uncertainties in the global trade and financial environments,” while in India “industrial production growth hitting a wall, output growth slowing sharply, and the current account deficit widening and leaving the economy vulnerable to capital flow 64

http://www.g20.utoronto.ca/2011/2011-g20-france-outcomes.html. Homi Kharas, The G-20 and Global Food Crisis, Brookings. 66 Ibid. 67 https://www.brookings.edu/multi-chapter-report/the-G-20-los-cabos-summit-2012-bolsteringthe-world-economy-amid-growing-fears-of-recession/ 68 Eswar S. Prasad and Karim Foda, A Fragile And Fickle Recovery, https://www.brookings.edu/ wp-content/uploads/2016/06/g20_full-report.pdf. 65

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reversals.”69 With the global economy so closely linked, this demanded immediate attention from the G20 forum. Returning to economic stability for re-activating growth was one of the priorities for the Los Cabos summit as highlighted by President Felipe Calderon at the G20 meeting in Cannes on 4 November 2011 (Carlsen, 2012). Owing to the global slowdown pulling the exports down and an abrupt deceleration of the services sector, the Mexican economy’s growth rate in the fourth quarter of 2011 was the weakest since the second quarter of 2009 (Reuters, 2012). Mexico grew at 5.5% in 2010 and at 4.0% in 2011. It was projected to grow at an even slower rate of 3.6% in 2012 as per the April 2012 World Economic Outlook (IMF, 2012a). The Mexican economy was also facing a climate of political uncertainty during that time due to the upcoming presidential elections (Carlsen, 2012). Another priority set for the Los Cabos summit by the Presidency was that of climate change and sustainable development (Carlsen, 2012). Mexico itself was promoting green growth and implementing measures to that effect. Mexico set in motion the Special Climate Change Programme 2009–2012 (Programa Especial de Cambio Climático (PECC) 2009–2012) in the year 2009 (OECD, n.d.). The country was able to achieve “an annual reduction of 20.5 million tonnes of CO2 or its equivalent” in April 2010 (OECD, n.d.). Moreover, the private sector in Mexico invested US$ 5.8 billion in clean energy between 2006 and 2011, thus bringing about “a vibrant wind power market” (Kerr & Fidanza, 2012). Additionally, soon after the G20 Los Cabos summit on 18–19June 2012, the Mexican Senate implemented the Climate Change Law in October 2012 thereby “committing the country to a 30% reduction of greenhouse gas emissions by 2020” (Kerr & Fidanza, 2012). Mexico as the chair of the G20 aimed to give priority to financial regulation, “To strengthen the Financial Stability Board and continue to follow its recommendations to seek balance between financial stability and growth and to strengthen the international financial architecture, giving a key role to the International Monetary Fund” besides endorsing bolstering of financial inclusion for the purpose of growth (Carlsen, 2012). With respect to the banking system in Mexico, the IMF (2012) notes “the Mexican banking system is profitable, liquid, and well capitalised, and stress tests suggest that it is able to withstand severe shocks.” Further, the authorities planned to launch Basel III capital requirements in the year 2012 (IMF, 2012). However, the IMF (2012) pointed out that “the high level of concentration and conglomeration, as well as foreign ownership, in Mexico’s financial system, poses important challenges” (IMF, 2012). For the Mexican financial system, key macroeconomic risks were connected to US and European developments (IMF, 2012). The leaders’ declaration included “economic stability and supporting world economic recovery, promotion of growth and jobs, trade, fostering financial stability, reforming the financial sector and fostering financial inclusion, enhancing food security and addressing commodity price volatility, meeting the challenges of development, promoting longer-term prosperity through inclusive green growth, intensifying

69

Ibid.

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the fight against corruption.”70 Resources were raised for the IMF: the decision “to boost emergency funding for IMF to US$ 456 billion and through the decision to strengthen evaluation systems” was made.71 The IMF and financial regulatory reforms were also agreed upon. European leaders, with other G20 members’ pressure and support, “said they would move quickly toward a banking union, through the specific steps of pan-European supervision and deposit insurance. They also signalled their intention to produce a serious fiscal union, with effective sanctions for those who broke the agreed rules on deficits and debt.”72 Relieved by the political victory of pro-austerity Antonis Samaras in the Greek election, leaders promised to support Greece’s path to reform and sustainability, as speculation that Greece had one foot out the door of the EU was calmed.73 However, many pointed out the limitations of this summit. For one, the Mexican Presidency was unable to get buy-in from other developing countries to drive the green growth agenda, with the latter content to have this contentious issue handled within the UNFCCC. Also, “the summit merely asked for European countries to strengthen voluntary efforts to overcome the difficulties.”74 An absence of leadership that had the capability to strongly deal with the crisis was felt.75 There were many factors affecting this: “First, the US is currently more focused on domestic issues amid the economic downturn and the upcoming November presidential election. Second, emerging markets—such as China and Brazil—also could not afford to discuss economic support in other areas, due to the difficulties in their domestic economy. Third, conflicts between the UK and the Eurozone countries, between Germany and France, and between the old and new members are rising over the issue of support principles and prescriptions regarding economic woes in Greece and other countries, as well as contriving revenue. Fourth, within the G20, the G7 prefer the status quo while the emerging countries—particularly the BRICS—are trying to expand influences.”76 Mexican president Felipe Calderon made clear the importance of financial inclusion, as one of the main pillars of the G20’s development agenda. He oversaw the launch of the Financial Inclusion Challenge: Innovative Solutions to Promote Access to Financial Services competition, just before the Los Cabos summit began on 18 June 2012 (in partnership with Ashoka Changemakers to help countries meet their Maya Declaration commitments through innovation and policy coordination).77 Furthermore, “Mexico has been active on the development agenda by pushing financial inclusion into the main G20 agenda priorities. Mexico’s leadership was highlighted by its own actions to promote financial inclusion, including the creation of the National 70

Dong-hwi (2012). Ibid. 72 http://www.g20.utoronto.ca/analysis/120619-kirton-start.html. 73 http://www.g20.utoronto.ca/analysis/120626-preyma.html. 74 Dong-hwi (2012). 75 Ibid. 76 Ibid. 77 http://www.g20.utoronto.ca/analysis/120618-kabir.html. 71

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Council of Financial Inclusion, which articulates national policy on the issue. Mexico has also begun implementing cell phone banking and banking correspondents, as well as promoting financial education and protection schemes.”78 On 30 September 2011, the National Council for Financial Inclusion was established by a Presidential decree with the objective of the Council being “to ensure the commitment from financial authorities and private sector participants to design, coordinate and promote Mexico’s National Financial Inclusion Policy” (Valle, 2012). Moreover, the mandate of the aforementioned council is also in line with the G20 Principles on Financial Inclusion (Valle, 2012). In general, the focus on financial inclusion reflects “an advance for the interests of emerging and developing countries of the G20,”79 further highlighting the fact that the G20 is a group that truly includes developing nations of the world.

3.8 2013 St. Petersburg Summit

The global economy, which was recovering from the financial crisis, was still volatile due to downside risks. The Russian economy saw weak growth coupled with deterioration of fiscal outlook and bank balance sheets.

Growth prospects in Russia were positive but remained lower than in 2012. The slowdown in 2013 was caused by weak demand. The root of the weaker demand was attributed to external as well as internal factors, including cyclical and structural risks. The slower global economy, which was recovering from the financial crisis, was still volatile due to downside risks causing lower external demand. The cyclical risks were caused by higher dependence on oil and gas exports, which exposed the country to commodity price volatility. Moreover, the non-competitive markets and sectors added to the fall through structural incapacities. The weakness of demand was captured in lower consumption demand and moribund infrastructure investments. According to a World Bank report, investment was plummeting since mid-2012 and was growing around 0.2% (Reuters, 2013a).80 Sceptical business investments were impacted due to lower growth predictions by the World Bank and a slower global economy (World Bank, 2013).81 Investor sentiments were further downgraded due

78

Ibid. Ibid. 80 https://www.reuters.com/article/russia-economy-forecast/update-2-russias-stagnation-raisespressure-for-new-growth-model-idUSL5N0JI1QG20131203. 81 https://www.worldbank.org/en/news/feature/2013/10/01/russia-economic-update#:~:text=Des pite%20the%20slowdown%20this%20year,stable%20at%20about%20%24105%2Fbbl. 79

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to the situation in Cyprus which sought a bailout by imposing levies on big bank deposits, most of which were held by Russians (Reuters, 2013b).82 The global economy was growing at a subdued pace in its recovery phase. Europeans dealing with a debt crisis were caught between fiscal austerity and commitment to alternatives. On the other hand, emerging economies were adjusting to the new normal and their economies were most vulnerable to global uncertainties. The global recovery overall remained fragile due to large downside risks. Hence, a G20 response was needed to support the process of recovery. Multilateral coordination was needed, but a new crisis was imminent.83 The G20 was expected to demonstrate that an international platform based on international cooperation can offer practical solutions. The core objective which underlined the Russian presidency was based on developing growth that is sustainable, inclusive, and balanced. The G20 2013 presidency was concerned with prospects of weak growth coupled with the deterioration of fiscal outlook and bank balance sheets. It focused on adding impetus to the traditional agenda of the G20 by igniting a new cycle of economic growth. Three major areas looked upon in Russia’s presidency were: 1. “Growth through quality jobs and investment”; 2. “Growth through trust and transparency”; 3. “Growth through effective regulation.” The 2013 summit held in Russia was the first summit to be hosted by a member of the grouping of Brazil, Russia, India, China, and South Africa (BRICS). This further cemented equality between the G8 and emerging market country members of the G20.84 The summit was marked by discussions and tensions arising from the chemical weapons attack in Syria that took place on 21 August 2013, during the Syrian civil war.85 Responding to the attack, all G20 leaders acknowledged that it represented a breach of fundamental international norms.86 However, Russia and the USA were in a deadlock, with President Obama urging action and President Putin warning that military intervention would destabilise the region.87 Confusingly, both sides claimed victory on the issue.88 However, the widespread condemnation by the leaders indicated the G20’s role, once again, as a body equipped to address global crises. The global economy continued to face challenges at the time. As John Kirton puts it, these included “impending monetary policy contraction, rising interest rates and continuing fiscal deficits in a slowly growing United States; ongoing financial 82

https://www.cnbc.com/id/100636227. http://en.g20russia.ru/docs/g20_russia/outline##3. 84 Kirton (2013). 85 https://www.hrw.org/report/2013/09/10/attacks-ghouta/analysis-alleged-use-chemical-wea pons-syria. 86 http://www.g20.utoronto.ca/analysis/130906-kirton-performance.html. 87 https://www.bbc.com/news/world-us-canada-23999066. 88 https://www.bbc.com/news/world-europe-23999009. 83

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crises, recession, deficits and debts in Europe; ballooning deficits, debt and monetary easing in Japan; and slowing growth, financial fragility and social instability in the long vibrant emerging economies of China, India, and Brazil, and Turkey. They extend to socially and politically related threats from rising unemployment and economic inequality, tax evasion and avoidance, extreme weather events exacerbated by climate change, money laundering, corruption, and terrorist finance.”89 Overall, global recovery remained “fragile with weak, unbalanced growth and large downside risks.” According to Russia, these risks threatening advanced economies were largely self-inflicted and needed political compromise and long-term strategies to be resolved.90 Furthermore, complacency must be avoided, and “To provide an adequate response, concerted international efforts must be directed at addressing these vulnerabilities and ensuring that governments implement the required policies to restore inclusive and sustainable growth.” On the topic of stimulating growth for a slowing world economy, “the summit moved toward coherent growth strategies backed by credible medium-term fiscal consolidation and gave a new emphasis to jobs, as well as inclusion and the contribution of small and medium-sized enterprises, young entrepreneurs, and business startups. It also forwarded key financial regulatory reforms, resisted protectionism, and started innovative work on financing for investment with the private sector integrally involved.”91 Furthermore, the summit saw progress in tax fairness and transparency, an issue that was stressed in both the G20 Finance Ministers meeting in April 2013 and the Finance Ministers and Central Bank Governors Meeting in July 2013. The technique of tax optimisation used by MNCs to minimise their tax bills is a highly controversial one, becoming a hot topic, “particularly in countries where austerity measures are associated with tax increases and high unemployment.”92 With US giants such as Google, Amazon, and Starbucks in the spotlight recently for using “legal, but controversial, methods of booking profits in low-tax countries,” the issue demanded redressal—which the summit provided: To stimulate a slowing global economy, [the summit] offered a credible growth approach, backed by low-cost, structural stimulus in the short term and credible if country-specific plans for fiscal consolidation in the medium term. The latter were rendered more credible by the tax revenues that would flow from the G20’s agreement on tax fairness, to ensure rich individuals and firms pay the taxes they owe in a globalised world, and that automatic information exchange, adherence to a multilateral convention and new rules on multinationals’ transfer pricing would arrive in a few years.93

Furthermore, Japan offered a swap line of US$ 50 billion to India on top of the existing US$ 15 billion. Thus, “with access established to contingent pools of foreign 89

Ibid. http://en.g20russia.ru/docs/g20_russia/outline. 91 http://www.g20.utoronto.ca/analysis/130906-kirton-performance.html. 92 https://www.thehindubusinessline.com/economy/tax-evasion-faltering-global-economy-in-g20agenda/article23106858.ece#. 93 . Ibid. 90

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exchange, the likelihood of the rupee having to be buoyed by any actual tapping of any outside credit lines stands reduced.”94 The Leaders’ Statement made it clear that developing countries had to take responsibility for their own economies “for what could happen when the liquidity tap turned on in the US, Britain, Japan, and the EU to keep their economies afloat—after the crisis of 2008—is eventually turned off.”95

3.9 2014 Brisbane Summit

The Australian economy had unstable commodity markets and inflated housing prices along with plummeting export growth. The depreciation of currency weakened real income and impacted macroeconomic growth via lower household consumption growth.

Australia witnessed the largest mining boom in 2012, which was short-lived and went bust in 2014, taking growth rates and jobs down with it. China’s huge demand for coal in 2011 was met by Australia and became the biggest export factor in 2012.96 There were huge pressures on other sectors and local communities to compete with higher wages offered in the mining sector, and hence, mining became a major growth booster in 2012. However, this did not last, causing a ripple effect in all sectors. The mining sector investments declined further, causing a dent in the GDP numbers. Output was expected to increase by 2.5% against the predicted 3% (OECD, 2014).97 Gross public debt was also up from 20% of GDP to 30% of GDP. The budgetary decisions were susceptible to the volatile movements in global prices. The unemployment rates reached a peak after a modest recovery since the financial crisis in 2008. The past commitments of the G20 called for greater support through a fiscal channel which created a medium-term structural fiscal challenge for most countries including, Australia. Hence, in the G20’s 2014 agenda, the country pushed for growth through private investments. “Such investment presents an opportunity to contribute much needed demand, while also enhancing the productive capacity of the economy.”98 Also, the slashing of jobs due to mining sector losses pushed Australia to choose job creation as one of the major agenda items for its presidency in 2014. 94

https://economictimes.indiatimes.com/opinion/et-editorial/what-india-gained-from-the-st-pet ersburg-g20-summit/articleshow/22424542.cms. 95 Ibid. 96 https://www.abc.net.au/news/2014-04-28/boom-bust-moranbah/5353114. 97 http://www.oecd.org/economy/surveys/Overview_Australia_2014_Eng.pdf. 98 https://treasury.gov.au/speech/priorities-for-australias-presidency-of-the-g20-in-2014-and-therole-of-the-global-financial-safety-net.

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When the commodity boom was peaking in Australia, housing sector prices were increasing, and there were concerns about high prices in different segments of the market. With Australian export markets dominated by coal and iron ore, these key sectors were facing lower demand, leading to a weakening of trade and the exchange rate. Even though the world economy was recovering, downside risks attached caused uncertainty in the global environment. This was a strong base for Australia to push for a stronger and more resilient global economy. The IMF suggested that there was an overvaluation of the exchange rate, which was a persistent factor in pressurising the Australian economy to downside risks. The economy was bound to be affected by the unstable commodity markets and inflated housing prices along with plummeting export growth. The depreciation of currency due to overestimation was expected to ease export-oriented sentiments, but instead, it weakened real income, which ultimately impacted macroeconomic growth via lower household consumption growth.99 The summit did deliver real outcomes, as Australian PM Tony Abbott declared. With regard to the G20’s 2% growth enhancing target, leaders agreed to a “peerreviewed growth package that consists of more than 800 new country-specific growth strategies that would, if implemented, raise the growth projections by 2.1% by 2018.”100 G20 leaders also pledged to reduce the gender gap between female and male workforce participation by 25% by 2025. They also agreed on the main mechanism of the Global Infrastructure Hub, which would fructify their plan to develop a global infrastructure initiative that would address the $70 trillion gap in infrastructure over the next 15 years by 2030.101 Efforts to reform the international tax system were also accepted, with many leaders stressing the importance of transparency and tackling tax avoidance. The issue of climate change, however, remained a delicate one. The G20 had faced numerous critiques since its inception at the London summit over a perceived lack of commitment and change on the issue. Prior to the summit, US president Barack Obama “announced that the US will be spearheading a $3 billion campaign to the Green Climate Fund and encouraged other states to get on board. He firmly said there is no excuse for countries not to come together on this issue and praised Japan for pledging $1.5 billion to the fund.”102 However, the Australian presidency’s outlook on climate change was of concern, as despite mounting scientific evidence and warming temperatures (with 2014 on target to be the hottest year),103 Prime Minister Tony Abbott had earlier stated “…thought the science of climate change was ‘highly contentious’ and the economics of an emissions trading scheme ‘a bit dodgy’.”104 More recently, “just after a UN-backed expert panel warned fossil fuels 99

https://oecdobserver.org/news/fullstory.php/aid/4545/_Australia_92s_economy.html. http://www.g20.utoronto.ca/analysis/141117-analysis.html. 101 Ibid. 102 Ibid. 103 https://earthobservatory.nasa.gov/images/85083/2014-was-the-warmest-year-in-the-modernrecord. 104 https://www.bbc.com/news/world-australia-30034600. 100

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had to be phased out by the end of the century, the prime minister declared coal was still the ‘foundation of prosperity’ for ‘now and the foreseeable future,’ for Australia and the world.”105 Thus, when PM Abbott declared the summit would have a tight and narrow focus on economic issues (which did not include climate change), he was met by opposition from both the USA and EU.106 Both pushed for climate change to be discussed during the summit, and President Obama reminded the world that in the Asia Pacific region, there was a great deal at stake when it came to the issue, and “Australia was facing longer droughts, more wildfires, and the destruction of the Great Barrier Reef due to it.”107 With the world facing humanitarian crises such as the Ukraine war involving Russia and the Ebola outbreak, he penned a letter to PM Abbott highlighting that “any assessment of the G20 meetings should not just consider ‘global indices’ but seek real improvements in the living conditions of the world’s poorest people.”108 Finally, the topic of climate change was included in a session devoted to global energy issues.109 French President Francois Hollande said the inability to address global warming could lead to war. He called on G20 countries to act ahead of a climate change conference in Paris the next year (i.e. 2015) and stressed the importance of China’s full efforts in climate change initiatives globally.110 Furthermore, US$ 100 million were given to green funds in order to aid developing countries in combating climate change. These initiatives were taken to help in preventing an increase in the temperature of 3–4°. All the international organisations were behind the French government on climate change and its continued dedication to the UN Conference on Climate Change in 2015.111 The communique, too, stated the following: “We support strong and effective action to address climate change. Consistent with the United Nations Framework Convention on Climate Change (UNFCCC) and its agreed outcomes, our actions will support sustainable development, economic growth, and certainty for business and investment. We will work together to adopt successfully a protocol, another legal instrument or an agreed outcome with legal force under the UNFCCC that is applicable to all parties at the 21st Conference of the Parties (COP21) in Paris in 2015. We encourage parties that are ready to communicate their intended nationally determined contributions well in advance of COP21 (by the first quarter of 2015 for those parties ready to do so). We re-affirm our support for mobilising finance for adaptation and mitigation, such as the Green Climate Fund.”112

105

Ibid. https://www.reuters.com/article/us-g20-summit/u-S-eu-override-australia-to-put-climate-cha nge-on-g20-agenda-idUSKCN0IZ03C20141116. 107 Ibid. 108 https://www.bbc.com/news/world-australia-30034600. 109 http://www.g20.utoronto.ca/analysis/141117-analysis.html. 110 https://in.reuters.com/article/g20-summit-climatechange-hollande-idINKCN0J00KQ20 141116. 111 http://www.g20.utoronto.ca/analysis/141117-analysis.html. 112 http://www.g20.utoronto.ca/2014/2014-1116-communique.html. 106

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However, the clash between PM Abbott and President Obama remained, with the former arguing that “there could be no effective action on climate change without a strong economy and strongly endorsing fossil fuels,” ignoring calls to contribute to a global Green Climate Fund backed by the USA. Australia refused to commit to new emissions reduction targets (in the first quarter of the next year), despite being urged to do so in the final G20 communique agreed by all leaders.113 Saudi Arabia and Canada too opposed further cuts to emissions.114

3.10 2015 Antalya

Turkey was facing a slowdown due to long-term structural faults, including overdependence on foreign investment and capital inflows from abroad. The current account deficit was 6 per cent and increased due to the impacts of external shocks. Its economy shrank by 5 per cent in 2008–09 because of the global financial crisis.

The tenth G20 summit took place in Antalya, Turkey, in 2015. The summit took place in the aftermath of the 13 November Paris and the 10 October Ankara terror attacks. Consequently, G20 leaders were expected to discuss political and security crises.115 An official statement condemning the terrorist acts was released which emphasised that the fight against terrorism was a priority. It also stated the following: We also remain committed to tackling the financing channels of terrorism, particularly by enhanced cooperation on exchange of information and freezing of terrorist assets, criminalisation of terrorist financing and robust targeted financial sanctions regimes related to terrorism and terrorist financing, including through swift implementation of Financial Action Task Force (FATF) standards in all jurisdictions. We will continue to implement relevant FATF recommendations and instruments. We call on FATF to identify measures, including pertaining to legal framework, to strengthen combatting of terrorism financing and targeted financial sanctions and implementation thereof.116

Turkey faced many issues in 2015 starting with a global slowdown, the fallout from the Eurozone crisis, wars in neighbouring Iraq and Syria, terror attacks, the migrant crisis, political turbulence, etc. The currency was at an all-time low in September 2015, battered by political uncertainty, credit rating downgrade, and increased rates in the USA. Unemployment was nearing a 5-year low, coupled with constant GDP growth. This further decreased consumer confidence in the Turkish economy.117 113

https://www.couriermail.com.au/news/queensland/g20-brisbane-tony-abbott-clashes-with-bar ack-obama-over-climate-change/news-story/2b5afbfcb967fdae83715c8c60c43cba. 114 Ibid. 115 https://vestnikkavkaza.net/news/Summit-results-in-Antalya-G20-had-to-engage-in-politics-ins tead-of-economy.html. 116 http://www.g20.utoronto.ca/2015/151116-terrorism.html. 117 https://www.weforum.org/agenda/2015/11/4-things-to-know-turkey-economy/.

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All of this led to a fall in foreign equity holdings. Since the elections in 2014, Turkey encountered political uncertainty, which was seen as a major reason for the lower investments. The central bank of Turkey struggled with the inflation target and faced criticism for raising interest rates. The data released by IMF predicted Turkish growth would slow down and was expected to grow at only 3%. The Turkish currency lost value since the beginning of 2015 and was facing competition from rival emerging markets.118 It was pointed out that the Turkish slowdown was the consequence of longterm structural faults necessitating urgent fundamental changes, including overdependence on foreign investment and capital inflows from abroad. The current account deficit of Turkey was running at an all-time high of 6% and increased due to the impacts of external shocks. Turkey has always been susceptible to external factors, as its economy shrank by 5% in 2008–09 due to the global financial crisis. Hence, lifting global growth was one of the major agenda items of Turkey’s presidency. A low rank in ease of doing business, high labour cost, and lower productivity caused by inadequate human capital were some of the major concerns constraining growth. As the USA was expected to taper off the quantitative easing programme, this also led to negative sentiments for Turkey. The Turkish leadership adopted a comprehensive agenda “around the three pillars of decisive implementation of our past commitments to deliver on our promises, boosting investments as a powerful driver of growth and promoting inclusiveness in our actions so that the benefits of growth are shared by all.”119 They also emphasised that growth must be inclusive, job-rich, and beneficial to all of society.120 The challenges faced by low-income developing countries were made a priority by Turkey. As LIDCs are “important sources of current and future supply and demand, promoting their integration into the global economy as a path to their prosperity is not just a moral obligation, but also essential for the sustainable and balanced growth of the global economy.”121 According to the action plan, the “integration of lowincome developing countries into the global economy as a path to their prosperity is essential for sustainable and balanced growth globally.” Another key area was that of sustainable development, which included “energy access, food security and nutrition, human resource development, quality infrastructure, financial inclusion, and domestic resource mobilisation.” Thus, the G20 Action Plan on Food Security and Sustainable Food Systems was endorsed, and this underlined the pledge to improve global food security and nutrition and monitor that food is “produced, consumed, and sold economically, socially, and environmentally sustainable.” According to the communiqué,

118

https://foreignpolicy.com/2015/04/03/whos-going-to-save-turkeys-economy-erdogan-akp/ http://www.g20.utoronto.ca/2015/151116-communique.html. 120 http://www.g20.utoronto.ca/analysis/151116-analysts.html. 121 https://www.oecd.org/g20/topics/development/G20-Low-Income-Developing-Countries-Fra mework.pdf. 119

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3 Political Economy Shapes Strategies of Countries We remain focused on promoting responsible investment in agriculture and food systems, improving market transparency, increasing incomes and quality jobs, and fostering sustainable productivity growth. We will pay particular attention to the needs of smallholder and family farmers, rural women, and youth. We also commit to reducing food loss and waste globally. We welcome Expo Milano with the theme “Feeding the Planet – Energy for Life”. We also welcome our Agriculture Ministers’ decision to establish a new platform to improve the way we and other countries can measure and reduce food loss and waste.122

The improvement of food security as a sustainable development goal was important, as food security was still a global issue. The Food and Agriculture Organisation (FAO) estimates there are still 795 million people underfed, though more than half the developing countries had reached the Millennium Development Goal (MDG) target (which is aimed at halving the proportion of people suffering from hunger). The global food supply will need to increase by 60% to feed a projected world population of 9.7 billion people by 2050. The G20 recognised that “to improve food security and nutrition in the face of intensifying pressures on natural resources and the impacts of climate change, we will need to increase productivity while simultaneously building food systems that are more sustainable and resilient.”123 There was also economic turmoil in China. Recent developments in its asset and currency markets “have unquestionably rattled global investors and even markets like India, which are currently facing favourable macroeconomic conditions, have not been immune.”124 Following a global financial crisis, the potential of this could not be underestimated. It could, possibly, test the resolve of the strategy adopted by Pittsburgh of “forswearing of protectionist measures by countries to buffer domestic producers.”125 During this summit, there was a call to refrain from competitive devaluation of currencies, “which could precipitate currency wars and, inevitably, protectionist measures by individual countries. The fact that the Chinese yuan has stabilised after its three percent depreciation suggests that, at least for the moment, it will not trigger another round of currency instability. Of course, this does not preclude the possibility that other export-promoting measures will not be initiated, in which case, the consensus against protection will be tested.”126 Women’s participation was very low in labour markets, and hence, an inclusive approach to growth was much needed. With huge current account deficits and the lowest savings rates among emerging markets, Turkey needed to reduce its reliance on external factors. The country, mired in the “middle-income trap,” faced structural bottlenecks. For all these reasons, Turkey included 3is in its agenda focusing on inclusion, implementation, and investment.127 122

G20 Antalya communique. http://www.g20.utoronto.ca/2015/G20-Action-Plan-on-Food-Security-and-Sustainable-FoodSystems.pdf. 124 https://www.brookings.edu/opinions/from-pittsburgh-to-antalya/. 125 Ibid. 126 Ibid. 127 http://karakas.be.mfa.gov.tr/Content/assets/consulate/images/localCache/12/0e0f57ed-fe4a4024-98f3-bd0d0bc81a9a.pdf. 123

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3.11 2016 Hangzhou Summit

The beginning of 2016 saw China’s growth rates and manufacturing sector decline. Devaluation of currency was not helping the export sectors, and the world was seeing a rise of protectionist backlash.

The eleventh G20 summit was held in Hangzhou, China, in September 2016 amid significant public angst over “the failure of market economies to generate inclusive social outcomes and the failure of democracies to generate responsive political leadership.”128 In the backdrop of terrorist attacks in Paris, Brussels, Nice, and Istanbul, developments in the domestic politics of advanced countries in the last few months, such as the rise of the Independent Party in the UK, the National Front in France, Trump in the USA, and Action for Germany, pointed to underlying social and economic discontent.129 The Brexit referendum also left the world reeling. The beginning of 2016 saw an unexpected turn for China’s markets when its growth rates declined to 6.7% and the Shanghai Stock Index plunged by 7% in a day. The Chinese manufacturing sector was declining faster than expected and the devaluation of the currency was not helping the export sectors; rather, it was adding to the woes of declining growth rates (Best, 2018).130 Even though growth rates were lower, it was still in line with the country’s predicted official target rate. China has started the transition phase from an export and investment-oriented model towards growth from consumption demand, innovation, and service sector. According to the IMF, even with 3% global growth, China has contributed to more than one-third of the world’s growth.131 Foreign trade growth in China declined to 3.35% in 2016 from 9.1% in the previous year. “The country’s exports in yuan-denominated terms dropped 2% to 13.84 trillion yuan year on year in 2016, while imports rose 0.6% from the 2015 level to 10.49 trillion yuan.”132 There were multiple trade tensions surrounding the country which became a major agenda during its presidency. In order to achieve more benefits from the SDR basket of the IMF, China has been persistently pressing for the renminbi (RMB) to be included in the SDR basket. The country focused on two major areas: trade and development, since it is the largest trading partner in the world, and this aligns with the country’s needs and development. The main issues China presented in the G20 centred around macroeconomic policy

128

https://www.brookings.edu/blog/future-development/2016/09/06/2016-the-year-for-leader ship-that-wasnt-for-the-china-G-20/. 129 Ibid. 130 https://www.investopedia.com/articles/investing/012816/4-ways-china-influences-global-eco nomics.asp. 131 http://www.bjreview.com/CHINA_INSIGHT/Monday_January_30_2017/201702/t20170208_ 800086683.html. 132 http://www.chinadaily.com.cn/bizchina/chinaeconomy2016/index.html.

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coordination, financial regulatory reform, reform of IFIs, trade, and development with a focus on emerging markets (He, 2014). China’s theme for the summit was “Towards an Innovative, Invigorated, Interconnected and Inclusive World Economy.”133 According to the 2016 communiqué, though global economic recovery was progressing, growth was still weaker than needed. Downside risks remained due to “potential volatility in the financial markets, fluctuations in commodity prices, sluggish trade and investment, and slow productivity and employment growth in some countries.” Challenges originating from “geopolitical developments, increased refugee flows, as well as terrorism and conflicts, also complicated the global economic outlook.” The international monetary fund (IMF) had already reduced its global outlook after the Brexit vote, cutting forecasts for world GDP growth to 3.1% for 2016 and 3.4% for 2017.134 Ahead of the meeting, it warned that forecast for global economic growth was likely to lowered. The key areas in the summit were: The world was seeing a rise in protectionist backlash. The WTO warned that a surge in anti-trade rhetoric around the world was being “accompanied by a rise in the introduction of protectionist measures by the world’s leading economies.”135 Not wanting a repeat of the 1930s and 2008 crises, the communique stressed the following: “We will work harder to build an open world economy, reject protectionism, promote global trade and investment, including through further strengthening the multilateral trading system, and ensure broad-based opportunities through and public support for expanded growth in a globalised economy.”

Combating “populist attacks” against globalisation, the G20 re-iterated: “The G20 has said it is determined to fight “populist attacks” against globalisation by placing more emphasis in its speeches on the benefits of world trade for the people. This injunction is aimed above all at its own members, who have never adopted as many new measures to restrict trade as in 2016 when the growth of world trade stagnated below 3 per cent per year. IMF Managing Director Christine Lagarde thus responded to speeches calling into question international trade agreements, particularly in the United States, where Republican candidate Donald Trump, but also his Democratic rival Hillary Clinton, said they were opposed to the negotiations during a free trade agreement between their country and the EU.”136

Not only is overcapacity in the steel sector “relevant to growing anti-globalisation sentiment in developed countries, but, perhaps more important, it is a problem that China can solve almost on its own. According to the latest data from the World Steel Association, China has produced half the world’s supply of steel so far this year. In a communiqué delivered after their late-July meeting in Chengdu, the G20 finance ministers declared that ‘excess capacity in steel and other industries is a global issue which requires collective responses.’ China’s commitment to reducing 133

https://www.alwihdainfo.com/Moving-toward-an-inclusive-world-economy-President-Xi-Jin ping-on-G20_a39453.html. 134 https://www.bbc.com/news/business-37269954. 135 https://www.ft.com/content/2dd0ecc4-3768-11e6-a780-b48ed7b6126f. 136 https://www.lemonde.fr/economie-mondiale/article/2016/09/05/accord-du-g20-pour-S-opp oser-au-protectionnisme-et-lutter-contre-L-evasion-fiscale_4992783_1656941.html.

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its domestic capacity would demonstrate its willingness to, when necessary, prioritise global balance over domestic optimisation.”137 Thus, the G20 leaders committed to “enhance communication and cooperation, and take effective steps to address the challenges so as to enhance market function and encourage adjustment,” and called for “increased information sharing and cooperation through the formation of a Global Forum on steel excess capacity, to be facilitated by the OECD with the active participation of G20 members and interested OECD members.”138 The fight against tax evasion: leaders instructed the OECD to hand over to it “by June 2017” a blacklist of non-cooperative countries in the fight against tax evasion. This is a very strong message for non-cooperative countries to quickly comply with the OECD criteria, or risk a negative impact on their economy.139 Europe was seeing an ongoing refugee crisis. In 2015, there were 65.3 million forcibly displaced people and more than a million refugees and migrants fled to Europe, mainly from wars in the Middle East and Asia.140 In 2016, nearly 370,000 refugees and migrants arrived in Europe, most of them by sea. A record number died at sea while making the journey,141 and more were stuck in Greece and the Western Balkans after Hungary and other countries closed their borders.142 The G20 called on all countries to step up aid, while the communique stated the following: “Worldwide massive forced displacement of people, unprecedented since the Second World War, especially those generated from violent conflicts, is a global concern. We reiterate our call in Antalya for global concerted efforts in addressing the effects, protection needs, and root causes of the refugee crisis to share in the burden associated with it. We call for strengthening humanitarian assistance for refugees and refugee resettlement, and we invite all states, according to their individual capacity, to scale up assistance to relevant international organisations in order to enhance their capabilities to assist affected countries, intensifying efforts to find durable solutions, in particular for protracted refugee situations, and in this regard, strengthening the contribution of development assistance to host communities. We support the international efforts to respond to the ongoing crisis and note the upcoming highlevel meetings which will take place during the UN General Assembly. We note the World Bank’s effort to work with other international organisations and its shareholders to develop a global crisis response platform to provide support to refugees and host communities in both low and middle-income countries.”

The Paris Agreement of UNFCCC, in which countries agreed to cut emissions in a bid to keep the global average rise in temperatures below 2C, took place in December 2015. At a press conference prior to the opening of the summit, UN Secretary-General 137

https://www.brookings.edu/blog/order-from-chaos/2016/08/29/how-will-chinas-success-atthe-G-20-summit-be-measured/. 138 2016 Communiqué. 139 https://www.lemonde.fr/economie-mondiale/article/2016/09/05/accord-du-g20-pour-S-opp oser-au-protectionnisme-et-lutter-contre-L-evasion-fiscale_4992783_1656941.html. 140 https://www.weforum.org/agenda/2016/12/europes-refugee-and-migrant-crisis-in-2016-innumbers. 141 https://www.independent.co.uk/news/world/europe/refugee-crisis-2016-on-course-to-be-dea dliest-year-on-record-as-thousands-of-asylum-seekers-drown-in-a7164271.html. 142 Ibid.

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Ban Ki-moon stated that “The debate on the climate phenomenon is scientifically and ecologically over.”143 The agreement would only come into force legally after it is ratified by at least 55 countries, which between them contribute to over 55% of global carbon emissions. Before China made its announcement to formally join, the 23 nations that had so far ratified the agreement accounted for just over 1% of emissions. The US-China joint pact put pressure on G20 nations over the weekend to move faster with their pledge to phase out subsidies for fossil fuels.144 Furthermore, the communiqué mentioned the following: We reiterate our commitment to sustainable development and strong and effective support and actions to address climate change. We commit to complete our respective domestic procedures in order to join the Paris Agreement as soon as our national procedures allow. We welcome those G20 members who joined the Agreement and efforts to enable the Paris Agreement to enter into force by the end of 2016 and look forward to its timely implementation with all its aspects.145

The Chinese delegation emphasised the idea of increasing the voting percentage for developing countries in international financial institutions. They introduced the idea of setting up R&D cells for all developing and developed nations, which was in line with the country’s new approach to innovation (Moona, 2018).146

3.12 2017 Hamburg Summit

With a strong domestic economy driven by foreign demand, Germany brought an agenda to G20 of greater interconnectedness and financial inclusion.

Germany, with a strong domestic economy driven by foreign demand, grew at 2.2% in 2017 (which was above 2016’s growth rate of 1.6%).147 The country decided to go for the agenda of “shaping the interconnected world.” With geopolitical conflicts rising around the world, terrorism, natural disasters, and social inequality, Chancellor Merkel wanted an agenda that was a perfect balance of multilateral cooperation with financial inclusion. She believed that international cooperation offers an opportunity to shape interconnectedness for fairer distribution and benefits all.148 143

https://www.rts.ch/info/monde/7990565--le-debat-avec-les-climatosceptiques-est-termineselon-ban-ki-moon.html. 144 https://www.bbc.com/news/world-asia-china-37265541. 145 http://www.g20.utoronto.ca/2016/160905-communique.html. 146 http://www.ris.org.in/sites/default/files/China%20and%20Its%20Role%20in%20G20.pdf. 147 http://www.chinadaily.com.cn/bizchina/chinaeconomy2016/index.html. 148 https://www.bmas.de/EN/Our-Topics/Social-Europe-and-international-Affairs/International/ G20/german-g20-presidency-2017.html.

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The summit saw a shift in the atmosphere compared to previous summits which can largely be attributed to the American leadership of Donald Trump. While previous summits saw consensus on issues such as climate change and anti-protectionism, President Trump was in favour of a protectionist economic policy and the exit of the USA from the Paris Agreement.149 The former, in fact, was one of President Trump’s key campaign points. He had often highlighted perceived unfair trade practices, especially on the part of China when it came to devaluing currencies. In the course of his campaign, he said “that he would label China a currency manipulator, and impose a punitive tariff of 45% on Chinese imports into the US,”150 which could possibly trigger a trade war and negatively affect China and Hong Kong. Thus, although the Leaders’ Statement noted the following, America’s new position caused complications for the summit: We will keep markets open noting the importance of reciprocal and mutually advantageous trade and investment frameworks and the principle of non-discrimination, and continue to fight protectionism including all unfair trade practices and recognise the role of legitimate trade defence instruments in this regard.151

Dissent was openly acknowledged in the Leaders’ Statement, as despite the USA’s departure from the Paris Agreement, the other 19 partners declared the agreement to be “irreversible.” As the G20 tended towards non-crisis years, the focus was on sustainable, longterm, and balanced growth.152 The Africa Partnership was launched “in recognition of the opportunities and challenges in African countries as well as the goals of the 2030 Agenda.” The communiqué stated the following: Our joint efforts will foster sustainable and inclusive economic growth and development, in response to the needs and aspirations of African countries, contributing to creating decent employment, particularly for women and youth, thus helping to address poverty and inequality as root causes of migration. The Partnership includes related initiatives, such as #eSkills4Girls, Rural Youth Employment, and African Renewable Energy and facilitates investment Compacts, as outlined in the Annex.153

Although the main objective was indeed to encourage private investment in Africa, for high growth and job creation within Africa, many noted that “domestic pressures to stem migration from Africa also played an important role in the formulation of the CwA initiative. It was felt that creation of adequate economic opportunities for Africa’s youth within Africa would deter young Africans from seeking a better life in Europe.”154 149

https://www.zeit.de/politik/2017-07/g20-einigt-sich-auf-abschlusserklaerung-usa-beim-klimas chutz-isoliert. 150 https://www.scmp.com/business/global-economy/article/2044506/protectionist-policies-laidout-trump-campaign-add-major. 151 http://www.g20.utoronto.ca/2017/2017-G20-leaders-declaration.html. 152 https://www.brookings.edu/blog/future-development/2017/07/11/the-G-20-steadily-progre sses/. 153 http://www.g20.utoronto.ca/2017/2017-G20-leaders-declaration.html. 154 https://www.orfonline.org/expert-speak/g20s-compact-with-africa-how-beneficial-for-africais-it-really-52528/.

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At the partnership conference in Berlin in June 2017, OECD Secretary-General noted that despite African countries seeing a drop in commodity prices and a rise in interest rates, growth was picking up, at 3.4% in 2017, up from 2.2% in 2016 according to the latest African Economic Outlook. Furthermore, “Africa’s growth relies increasingly on domestic sources. Foreign investors now realise the potential of a rapidly urbanising middle-class and the high returns they can make investing in African markets.”155 To help female entrepreneurs access capital, financing, and other support, the First Daughter of the USA Ivanka Trump and the World Bank launched a fund. The World Bank Group President Jim Yong Kim said the Women Entrepreneurs Finance Initiative fund had raised US$ 325 million from other governments. President Trump announced his administration would make a US$ 50 million contribution.156 In order to enhance financial regulations with the changing times, Germany wanted to address the problems of harmful tax competition among different countries. This agenda came into the picture from the “Panama paper leaks.” This showed widespread tax competition used by companies and individuals with low taxes rates as a tax shelter. Hence, Germany wanted to include a strong message for financial regulation by regulating money laundering and corruption by pushing policies for information sharing and making the system more transparent (McBride, 2017).157 Germany wanted to re-iterate trade and growth plans since its growth was driven largely by foreign demand. This required an agenda that ensured globalisation for everyone. With Trump’s administration pushing for increased protectionism and trade tariffs, it was imperative for Chancellor Merkel to put this agenda item on priority (McBride, 2017). Hence, the first agenda of the German presidency concentrated on strengthening the global environment by using structural reforms for promoting dynamic growth. According to John Kirton, “The multilateral organisations led by the International Monetary Fund, the World Bank, and the Organisation for Economic Co-operation and Development, were performing well enough on the issues of global economic growth, financial regulation, and supervision, international financial architecture, tax and even the implementation of the 2030 Agenda for Sustainable Development to allow G20 leaders to pass lightly over these issues.”158 Another agenda item that received global attention was the Paris Climate Agreement. With President Donald Trump withdrawing from the Treaty, Germany was not happy. They expressed at the conference a need for collective action and responsibility towards this agenda. Hence, this became the second pillar of the German presidency and stood upon the action to improve sustainability.

155

https://www.oecd.org/development/g20-africa-partnership-investing-in-A-common-future. htm. 156 https://nypost.com/2017/07/08/ivanka-trump-world-bank-launch-fund-for-female-entrepren eurs/. 157 https://www.cfr.org/backgrounder/what-know-about-hamburg-g20-summit. 158 http://www.g20.utoronto.ca/analysis/170708-kirton-success.html.

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In 2017, Germany had a business summit called German-African Business Summit (GABS), which enhanced Germany-Africa relations. Politicians in Germany felt that Africa has the capacity to provide Germany with an interesting investment location and market.159 Hence, Germany made this a focus of the summit, by presenting a “Compact with Africa” initiative. It became the third pillar of the German agenda—“accepting responsibility” wherein Germany aimed to promote infrastructure development on the African continent and take concrete steps to improve people’s living conditions. One major reason behind this move was to mitigate the problem of excess migration from Africa to Europe. Therefore, by developing African markets, it was expected to provide investment benefits and create opportunities for people in their own lands.160

3.13 2018 Buenos Aires Summit

Argentina had huge fiscal deficits and was facing a drought, while the Argentinian Peso depreciated in 2018. The inflation levels were at an all-time high.

In 2018, the domestic economy of Argentina was running into huge fiscal deficits which could be corrected only by its reliance on foreign financing and monetary tightening. In April, the country recorded a drought which exacerbated the slowdown in the currency inflows. The Argentinian Peso depreciated in 2018, and market sentiments were abrupt, generating a liquidity crunch in domestic markets. Followed by a slowdown, the confidence of the investors was shaken, along with declining domestic demand. The inflation levels were at an all-time high and bringing them down posed a challenge due to weaker monetary transmissions.161 During such times, Argentina was expected to represent on a global platform the needs and prospects of Latin America and the Caribbean (LAC). Argentina’s presidency came up with the theme of “Consensus for Fair and Sustainable development,” where the country will focus on opening opportunities for the LAC region.162 Argentina has always pressed the issue of inclusive growth policy for the overall development of the economy. “Argentina seeks to position its presidency as a ‘southern point of view’ with a focus on inclusive, people-centered growth and sustainable development, in close alignment with the 2030 Sustainable Development Agenda” (Mabera, 2018). Hence, the presidency focused on a development agenda at the G20 2018 summit to convey South American sentiments. 159

https://www.dw.com/en/germany-pushes-for-renewed-africa-business-ties/a-37460876. http://www.g20.utoronto.ca/2017/161130-agenda.html. 161 http://www.oecd.org/economy/surveys/Argentina-2019-OECD-economic-survey-overview. pdf. 162 https://media.africaportal.org/documents/Argentina_s_G20_presidency.pdf. 160

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Mercosur wanted to achieve implementation of the traditional core of G20 issues which focused on financial and macroeconomic governance by promoting the completion of trade agreements with the EU. The presidency wanted to comply with the process of legacy issues of the G20 along with broadening the aim by including social inclusion through innovation. The use of transformative technology which is inclusive in everyday issues like health, education, and employment and aims at improving access to digital technology and digital skilling, became the first pillar for Argentina’s presidency. The 2018 summit hosted in Buenos Aires, Argentina was fraught with international political tensions. New developments in the investigation into President Trump’s possible Russian involvement during the 2016 campaign: new documents showed evidence that “Trump was in close contact with his lieutenants as they made outreach to both Russia and WikiLeaks—and that they tried to conceal the extent of their activities.”163 In addition, President Putin’s spokesperson publicly confirmed that Trump had indeed had business deals in Moscow and conversations with Russian representatives that Trump had previously denied. This resulted in President Trump abruptly cancelling the meeting between the two powers, citing [the previous] week’s Russia-Ukraine naval clash.164 President Trump and Premier Xi surprisingly agreed to temporarily halt the “rapidly escalating tariff war between the two largest economies in the world. […] Both sides agreed to a standstill on tariffs, so the United States will not increase the tariff applied to $200 billion worth of Chinese imports from 10 to 25% in January, but the existing tariffs and counter-tariffs imposed by both nations at the onset of the trade row will stay in place.”165 However, as Mireya Solís argues, the purpose of this was to “give another chance to structural negotiations over intellectual property protection, cyber theft, technology transfers, services, and agriculture”—which requires a swift agreement and confidence, which is unlikely.166 British Prime Minister Theresa May was “blindsided by the sudden resignation of her minister for science and universities, who said he could not support her Brexit deal with the European Union stick. This added to President Trump’s statement just before that the deal would make it difficult for the United States to have a trade deal or even trading relationship with the United Kingdom.”167 Her goal had been firm support and a clear path to future bilateral trade deals.168 However, as the Brexit deal was scheduled for a formal vote in a few days, the odds were not in her favour, and she “tried to reassure leaders that the United Kingdom could avoid the uncertainty 163

https://www.washingtonpost.com/politics/individual-1-trump-emerges-as-A-central-subjectof-mueller-probe/2018/11/29/e3968994-f3f7-11e8-80d0-f7e1948d55f4_story.html. 164 https://www.brookings.edu/blog/order-from-chaos/2018/12/06/the-G-20-summit-was-oversh adowed-by-other-news-but-there-wasnt-much-to-overshadow-anyway/. 165 https://www.brookings.edu/blog/order-from-chaos/2018/12/05/enjoy-the-trump-xi-trade-wartruce-while-it-lasts/. 166 Ibid. 167 http://www.g20.utoronto.ca/analysis/181201-kirton-second-day.html. 168 https://www.brookings.edu/blog/order-from-chaos/2018/12/06/the-G-20-summit-was-oversh adowed-by-other-news-but-there-wasnt-much-to-overshadow-anyway/.

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of a “no-deal” Brexit if her plan does not get through Parliament.”169 She further argued that the deal would be good for the economy.170 Another emerging issue was that China could potentially cause problems for the newly adopted goal of WTO reform as: “It intends to continue to claim developing country status in order to enjoy special and differential treatment, and has pushed back on what it deems discriminatory treatment of state-owned enterprises (SOEs). These are areas of core disagreement with the United States, Japan, and the EU who have launched a trilateral effort to provide a blueprint for WTO reform that includes, among other elements, criteria for graduation from developing country status and more effective rules to discipline industrial subsidies and curb unfair advantages for SOEs. But the undercurrents of WTO reform are even more complex with significant disagreements among allied nations on the legitimacy of U.S. tariffs on steel on national security grounds and its refusal to appoint new members to the Appellate Board citing judicial overreach. If no compromise solution on the latter is found by December of 2019, the ability of the WTO to adjudicate disputes among members will be compromised.”171 President Trump announced his intention to withdraw from the original North America Free Trade Agreement (NAFTA), which quickly deflated the optimism of the leaders of Canada and Mexico, who had signed their renegotiated trade agreement. This raised potential conflicts: “If Trump does indeed follow this path of confrontation with the new Congress featuring a Democratic majority in the House, the NAFTA withdrawal decision will be contested politically and legally at home. But it will also undermine relations with Canada and Mexico, who will have no sympathy for a brinkmanship approach that threatens the chances of their hard-fought trade deal.”172 The second priority for President Macri was infrastructure development as a major catalyst for growth. The country wanted to particularly pick this issue because it had “undertaken the most ambitious infrastructure plan in its history, instituting critical changes in regulation and risk mitigation including new laws on public–private partnerships” (Mabera, 2018). Infrastructure has been one of the major priorities of the country, and it is predicted that globally there will be a shortage of US$ 5.5 trillion in infrastructure by 2035.173 Even after these investment projects, the country actually faced an infrastructure crisis outside the bigger cities of Argentina. “Entire villages can be disconnected from the rest of their province due to unkept or non-existent roadways” (Labrousse & Losavio, 2018). Argentina’s current infrastructure funding shortage was estimated to be around $26 billion and was expected to rise further by 2050. A new project on public–private partnerships was implemented across the 169

Ibid. https://www.bbc.com/news/uk-46415567. 171 https://www.brookings.edu/blog/order-from-chaos/2018/12/05/enjoy-the-trump-xi-trade-wartruce-while-it-lasts/. 172 Ibid. 173 https://www.forbes.com/sites/worldeconomicforum/2018/11/30/how-argentina-aims-to-bri dge-its-358-billion-infrastructure-gap-as-investors-hesitate-to-return/#57d878f76d69. 170

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country, but the results were stalled due to heightened inflation. This posed a big infrastructural challenge for the country, and these experiences made it to the list as Argentina’s second pillar. The third major agenda of the Argentinian presidency was on sustainable food which has continued from previous summits. Argentina was the first country to ratify the Paris Climate Agreement by introducing biofuels law and renewable energy law. To evolve the approach to food security, Argentina came up with policies for public–private partnerships in sustainable food systems and soil management. The achievements174 of this summit are: 1. Gender equality: The Buenos Aires communiqué opened with four priorities, with “a gender mainstreaming strategy across the G20 agenda” now added to Argentina’s list. It was the first time a G20 summit had put gender equality at the centre of its governance. It was a significant step towards the G20 fulfilling its distinctive, foundational mission of making globalisation work for the benefit of all, including the women and girls who constitute half the people in the world.175 2. Authorising new resources for the international monetary fund (IMF): The passage in paragraph 23 of the communiqué read: “We reaffirm our commitment to further strengthening the global financial safety net with a strong, quota-based, and adequately resourced IMF at the centre.” This would enable the IMF with the resource to help the G20 meet its distinctive core mission of promoting financial stability. It was felt this was necessary should more G20 members or other countries require IMF support packages. Increase in US interest rates and the pull-out of emerging countries, leaving them without the convertible currency, needed to pay their international loans and bills.176 3. Climate change: This was a surprising achievement, given the new US stance. Paragraph 19 of the communiqué, agreed to by every 20 member, stated: “We note the latest IPCC [Intergovernmental Panel on Climate Change] Special Report on the Impacts of Global Warming of 1.5° centigrade … We look forward to successful outcomes of the UNFCCC [United Nations Framework Convention on Climate Change] COP24 [24th Conference of the Parties] and to engage in the Talanoa Dialogue.” This was a significant achievement that heeded the IPCC report: “In this passage Donald Trump and all his colleagues accepted the science behind and conclusions and recommendations of this UN report and that 1.5 ºC alone was the new target, rather than the more lenient 2 ºC one highlighted in the Paris Agreement. Trump and his colleagues further agreed to work on December 3, when COP24 begins, to write the rule book to implement the Paris Agreement, even if the United States was withdrawing from it. And by engaging in the Talanoa Dialogue the G20 leaders implied they might accept climate change control commitments more stringent than those in the Paris Agreement itself.”177 174

http://www.g20.utoronto.ca/analysis/181201-kirton-solid-success.html. Ibid. 176 Ibid. 177 Ibid. 175

3.14 2019 Osaka Summit

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3.14 2019 Osaka Summit

Japan’s rapidly ageing population was the biggest challenge, as well as the downside risks of escalating trade tensions and increased volatility.

A report by OECD stated that though Japan had managed to strengthen its growth prospects, it was dealing with long-term challenges. The major three agenda items under “Abenomics” included a “bold monetary policy, flexible fiscal policy, and structural reforms.” Prime Minister Abe stated that the rapidly ageing population of Japan was the biggest challenge in the country. According to the OECD report, “Japan’s working-age population (aged 20–64) has fallen by 12% since 2000, compared to a 2% decline in Germany and increases in other G7 countries. The share of the population over age 65 rose from 26% of the working-age population in 2000 to 50% in 2017” (OECD, 2019).178 The quality of services in Japan was reduced due to severe shortages in the working population and labour forces. It was projected that the ageing population in Japan is expected to reach 70% by 2050, with the longest life expectancy in the world. The biggest challenge of this demographic change was reflected in the working population. This demographic situation has also affected Japan’s fiscal standing. More than 80% of firms in Japan still have a mandatory retirement age of 60 years even though workers are allowed to work until 65; they are rehired at lower wages, and hence, this resulted in a reduction in private consumption expenditure due to lower wages for the aged population. Moreover, due to the greater old-age population, the public expenditure shifted towards pension plans and health care and causes the smaller young working population expense, thereby decreasing the aggregate saving rates.179 Hence, during Japan’s presidency, this became a major pillar for discussion in order to bring problems with demographic changes to the international platform. Japan has had many disasters, including a number of typhoons and the Hokkaido earthquake, which disrupted production and exports. This has slowed down the growth since 2018 and contributed to a decline in private consumption and business investment. Hence, disaster resilience and build back better became the strongest pillar with the Japanese presidency sharing its own expertise and getting more experience from others. At the Osaka summit, the digital economy was another important issue that was alluded to. The UN Secretary-General, Mr. Guterres spoke of the “huge impact” that digital cooperation—along with artificial intelligence—will have on the global economy. “We will see a massive destruction of jobs and the massive creation of jobs, but the jobs will be different,” he said, adding that there must be “a strong commitment” by countries to guarantee education, social protection, and job creation 178 179

https://www.oecd.org/economy/surveys/Japan-2019-OECD-economic-survey-overview.pdf. http://www.cries.org/wp-content/uploads/2018/11/014-Kawai.pdf.

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needed to “minimise the negative impacts” and “optimise the positive contributions of the fourth industrial revolution.”180 Another issue affecting Japan’s economy is the downside risks due to escalating trade tension and a volatile global economy. Japan is particularly vulnerable to USChina trade frictions, as they account for a huge export balance in Japan. Hence, uplifting the global economy through multilateral coordination and international cooperation became one of the pillars of Japan’s presidency. On the subject of trade and geopolitical tensions, world leaders at the Osaka summit were concerned about potential damage to the economy if a trade war escalates between the USA and China, as relations between the two countries had deteriorated significantly. Leaders of Russia and India, as well as the European Commission, called on Trump and Xi to sort differences out rather than risk economic disaster due to the USA applying further tariffs on Chinese goods. There was also concern over growing protectionist sentiment in many G20 member states and multilateral forums like the G20 are blamed for job loss and wealth inequality in these countries.181 Differences stemmed from the Trump administration’s divergence from the rest of the G20 on key policy issues, including trade and climate change.182 Furthermore, there were also tensions between the USA and Iran following attacks around the crucial oil shipping lanes of the Gulf.

Annexure

180

https://news.un.org/en/story/2019/06/1041531. https://www.japantimes.co.jp/news/2019/06/28/national/tensions-simmer-g20-summit-osakatrade-climate-change/. 182 https://www.washingtonpost.com/world/japan-aims-for-harmony-at-G-20-is-it-sidesteppingclimate-change/2019/06/28/c8da3c26-9998-11e9-a027-c571fd3d394d_story.html. 181

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Annexure Fig. 3.1 G20 summits agenda highlights and key domestic drivers

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Dong-hwi, L. (2012). Challenges for the G20 after the Mexico Summit. IFANS brief 2012-18. Downe, B. (2010). The Canadian banking model and lessons learned from the global financial crisis. Policy Options. https://policyoptions.irpp.org/magazines/g8g20/the-canadian-bankingmodel-and-lessons-learned-from-the-global-financial-crisis/ G20 information centre. (2008). Statement by press secretary Dana Perino. White House spokesperson. Washington DC, October 22. http://www.g20.utoronto.ca/2008/2008announce ment.html GLA Economics. (2009). London’s economic outlook: Spring 2009-The GLA’s medium-term planning projections, April. https://www.london.gov.uk/sites/default/files/leo-spring2009.pdf Godby, R., & Anderson, S. B. (2016). Misperception of European risk, market reactions and policy response—A timeline of the Eurozone Crisis. In Greek tragedy, European Odyssey: The politics and economics of the Eurozone Crisis, 121–166. Opladen; Berlin; Toronto: Verlag Barbara Budrich. Retrieved 6 August, 2020. https://doi.org/10.2307/j.ctvdf043j.8 He, A. (2014). China’s goals in the G20: Expectation, strategy and agenda, CIGI PAPERS, No. 39, September. IMF. (2008a). United States: 2008 Article IV Consultation—Staff Report; Staff Supplement; and Public Information Notice on the Executive Board Discussion, IMF Country Report No. 08/255, July. https://www.imf.org/external/pubs/ft/scr/2008/cr08255.pdf IMF. (2008b). Global financial stability report, October. https://www.imf.org/external/pubs/ft/gfsr/ 2008/02/ IMF. (2009). G-20 surveillance note (Global economic prospects and principles for policy exit), Group of twenty finance ministers and central bank governors’ meetings, November 6–7, 2009, St. Andrews, United Kingdom. https://www.imf.org/external/np/g20/pdf/110709.pdf IMF. (2010). Republic of Korea: Article IV Consultation—Staff Report; public information notice on the executive board discussion; and statement by the executive director for the Republic of Korea, IMF Country Report No. 10/270, September. IMF. (2011). France: 2011 Article IV Consultation—Staff Report; staff statement; and public information notice on the executive board discussion, IMF Country Report No. 11/211, July. https:// www.imf.org/external/pubs/ft/scr/2011/cr11211.pdf IMF. (2012). Mexico: Financial system stability assessment, IMF Country Report No. 12/65, March. https://www.imf.org/external/pubs/ft/scr/2012/cr1265.pdf IMF. 2012a. World Economic Outlook: Growth resuming, dangers remain. April. Retrieved from: https://www.imf.org/external/pubs/ft/weo/2012/01/#:~:text=The%20April%202012%20e dition%20of,policies%20in%20the%20euro%20area Judith, C., & Dobson, H. (2012). Seoul-searching: The 2010 G-20 Seoul summit. Global Governance, 18(3), 363–381. Retrieved 1 August, 2020 from www.jstor.org/stable/23269962 Kerr, T., & Fidanza, B. (2012). Mexico’s ‘green growth’ revolution gathers pace. World Economic Forum. https://www.weforum.org/agenda/2012/10/mexicos-green-growth-rev olution-gathers-pace/ Kharas, H. (2020). The G-20 and global food crisis, Brookings. https://www.brookings.edu/wp-con tent/uploads/2016/06/1026_g20_global_food_crisis_kharas.pdf Kirton, J. (2013). A summit of substantial success: Prospects for the G20’s St. Petersburg Summit. http://www.g20.utoronto.ca/analysis/130905-kirton-prospects.pdf Labrousse, K., & Losavio, K. L. (2018). How Argentina aims to bridge its $358 billion infrastructure gap as investors hesitate to return. https://www.forbes.com/sites/worldeconomicforum/ 2018/11/30/how-argentina-aims-to-bridge-its-358-billion-infrastructure-gap-as-investors-hes itate-to-return/#2309dc246d69 Lombardi, D. (2012). The Euro Area Crisis: A Crucial Opportunity for European Leaders at the G-20. In The G-20 Los Cabos summit 2012: Bolstering the world economy amid growing fears of recession, Brookings. https://www.brookings.edu/wp-content/uploads/2016/06/ 1026_g20_euro_area_crisis_lombardi.pdf Mabera, F. (2018). Argentina’s G20 presidency: Implications for the G20-Africa partnership. https:// media.africaportal.org/documents/Argentina_s_G20_presidency.pdf

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Mabey, N. (2009). Delivering a sustainable low carbon recovery: Proposals for the G20 London summit. Report. E3G. 8-11. Retrieved 17 July, 2020 from www.jstor.org/stable/resrep17712.5 MacDonald, L. (2010). South Korea puts development on the agenda for Seoul G20 summit. The Guardian. https://www.theguardian.com/global-development/2010/oct/04/south-korea-dev elopment-g20-summit McBride, J. (2017). What to know about the Hamburg G20 summit. CFR. https://www.cfr.org/bac kgrounder/what-know-about-hamburg-g20-summit Moona, A. (2018). China and its role in G20. http://www.ris.org.in/sites/default/files/China% 20and%20Its%20Role%20in%20G20.pdf OECD. (2019). OECD economic surveys Japan. https://www.oecd.org/economy/surveys/Japan2019-OECD-economic-survey-overview.pdf OECD. (n.d.). Green growth in action: Mexico. https://www.oecd.org/greengrowth/greengrowthi nactionmexico.htm Prasad, E. S., & Foda, K. (2012). A fragile and fickle recovery. In The G-20 Los Cabos summit 2012: Bolstering the world economy amid growing fears of recession, Brookings. https://www. brookings.edu/wp-content/uploads/2016/06/g20_full-report.pdf Reuters. (2009). UK’s Brown says G20 summit will focus on economy. https://www.reuters.com/art icle/us-davos-britain-brown-g20-sb/uks-brown-says-g20-summit-will-focus-on-economy-idU STRE50T60H20090130 Reuters. 2012. UPDATE 5-Mexico’s economy stumbles at end of 2011. Retrieved from: https://www.reuters.com/article/mexico-economy/update-5-mexicos-economy-stumblesat-end-of-2011-idUSL4E8DG45020120216 Reuters. (2013a). Russia’s stagnation raises pressure for new growth model. https://www.reuters. com/article/russia-economy-forecast/update-2-russias-stagnation-raises-pressure-for-new-gro wth-model-idUSL5N0JI1QG20131203 Reuters. (2013b). Russia cuts 2013b economic growth forecast by a third. https://www.cnbc.com/ id/100636227 Sustainable Prosperity. (2012). The United Kingdom (UK) Climate Policy: Lessons for Canada, Policy Brief , May. https://institute.smartprosperity.ca/sites/default/files/publications/files/The% 20United%20Kingdom%20Climate%20Policy%20Lessons%20for%20Canada.pdf Valle, J. M. (2012). Mexico’s national council for financial inclusion. Consultative Group to Assist the Poor. https://www.cgap.org/blog/mexicos-national-council-financial-inclusion World Bank. (2013). Russia economic update—September 2013. https://www.worldbank.org/en/ news/feature/2013/10/01/russia-economic-update#:~:text=Despite%20the%20slowdown%20t his%20year,stable%20at%20about%20%24105%2Fbbl

Chapter 4

Evolution of the Finance Tracks Agendas

Abstract This chapter discusses the agenda in the Finance Track in the summits from 2008 to 2019. The scope that a G20 Presidency allows for when a country takes up the Presidency is discussed further. This has primarily been analysed through the lens of agenda setting. Agendas are devised keeping in view the domestic economy; international political economy; global economy and growth prospects; economic trends and shocks in the G20 countries; consideration of bringing to the table agenda items that cater to counterparts’ issues and secure buy-in from other G20 peers. The process of agenda building among the G20 members envisioned that the group’s mandate would encompass all major economic issues related to long-term growth rates and ensure discussions surrounding financial stability. The four-core agenda discussed several times includes the global economy, fiscal and monetary policies; international financial institutions; financial sector reform and regulation; and international taxation. Others that have been discussed less include infrastructure investment and spending; exchange flexibility; climate change; structural reforms; financial inclusion; reducing imbalances; and global financial safety nets.

4.1 Process of Agenda Setting

Evolution of the finance track in terms of agendas covered

This section will help in understanding how consensus is built in the G20 and what the opportunities and challenges for India are leading up to its own presidency. The presidency in each summit is responsible for making preparations for the leaders’ summits and for organising the series of preparatory meetings that ensures G20 working throughout the year. The G20 has “no permanent staff or secretariat,” and it keeps rotating its chair annually to avoid dominance by any one group or country (European Parliament, 2015). The rotation of the chair is selected from the G20 members, subdivided into five regional groupings of countries based on geographical clustering. And, each country is selected from that group to ensure © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_4

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balance over the geographical region (European Parliament, 2015) “The present chair, together with the immediate past and future chairs, form the ‘Troika’, whose role is to ensure continuity in the G20’s work” (European Parliament, 2015). The working process of G20 changes every year, and it depends on the host to hold ministerial, working groups, and other expert group meetings. Removal and addition of each group are correlated with the agenda of each country. It hinges on the priority areas the host wishes to introduce, augment, or adjust from the previous agendas. The preparation for the summit is led by G20 personal representatives known as Sherpas. In fact, it was observed in one of the summits, the Sherpas of the host country held meetings with all the other Sherpas in order to understand the expectation of each country from the host country’s presidency which should fall in line with the conglomeration of international and domestic priorities. The finance ministers, their deputies, central bankers, and Sherpas are a recurring feature of each summit and they maintain contact with each other during the year to discuss agenda items for the summits. This helps in fostering international coordination, along with producing a multifaceted agenda that accommodates a combination of current as well as past experiences of the world economy in one place. Sherpas and the Finance Ministers of the presidency country bring together working groups and task forces who carry out the technical work in the policy areas to be covered. In addition to these, each presidency is further assisted by engagement groups who advise and inform G20s on specific area decisions. There are five recognised engagement groups academicians, business leaders, civil society, organised labour, think tanks, and young leaders participating in organising the summit. In identifying priority areas and policy areas, the G20 is supported by international organisations. “The G20 committed, in its fifth anniversary Vision Statement, to ‘listen carefully to all institutions and countries that are not in the Group’, since the impact of its actions far-reaching and affects countries at all stages of development” (European Parliament, 2015). Each country has its own outreach strategy which involves dialogues from various international organisations and invitations from some non-member countries as well. This outreach is aimed at improving the international understanding of G20 and increasing external transparency. The agenda is built keeping in mind the following points: 1. 2. 3. 4. 5.

Agenda which resonates with the domestic economy. International political economy. Global Economy and growth prospects. Close watch on economic trends and shocks in G20 countries over the year. Agenda which caters to the issues and concerns of other G20 counterparts and gets buy-in from other nations on various issues.

A successful G20 meet occurs due to a number of key work streams and meetings which lead-up to the G20 meet every year. “Related meetings take place to provide specific expertise and recommendations and produce deliverables for ministers, some of which will ultimately reach leaders via their personal representatives (Sherpas)” (Government of Canada, 2019).

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Annexure Table 4.1 depicts briefly a list of agendas that were discussed at each summit. During the first three summits, the agenda was mainly focused on enhancing financial stability. Since the global economy was shaken by the occurrence of the financial crisis, the reforms focused on stabilisation of the global financial markets. This was followed by a provision of macroeconomic stimulus packages like rate cuts, unconventional monetary measures, and expansionary fiscal support, along with IMF support to affected regions. From a core focus on financial agendas in the first three summits, the G20 felt the need to include development agenda to better represent the developing nations as part of this international forum. From there on, the G20 began focusing on narrowing the development gap and the impact of its policies on low-income countries. Hence, during the Toronto Summit, the creation of a development agenda and a working group on development was initiated, with a mandate with a multi-year action plan for the Seoul Summit. From the Seoul Summit, the creation of GPFI under the finance track was aimed to provide a platform for all G20 and non-G20 countries in order to facilitate financial inclusion. The Seoul Summit was the first summit organised by a developing nation, and hence, Korea made it a point to come up with an agenda that impacts policy actions for low-income countries. It was one of the few countries which have achieved success without the backing of IFIs but due to export promotion and targeting international trade. Hence, Seoul’s agenda tried to reflect upon evidence and outcomes derived from the negotiations (ODI, 2010). From the Seoul summit where the agenda was designed considering the developing nations in focus, in 2011, the agenda was again deflected towards the European crisis. And hence, the Cannes Summit focused more on financial tools to aid currency support through bond markets and filling the gaps in the financial sector. From 2012, the agendas became a mix of each presidency’s domestic agendas and a continuation of earlier commitments. In each of these presidencies, various issues were taken up which reflected strongly in each presidency’s beliefs and its economic situation in the particular year. For example, the Brisbane Summit was focused on creating employment because the unemployment levels were high in Australia in 2014. Many of the countries, like Australia, Turkey, and China, were affected due to volatility in the global economy because of excessive dependence on export money hence lifting global growth and anti-protectionist measures became their focal point. At the same time, Argentina’s agenda was influenced by taking in the views and demands of all Latin American countries, as it felt a responsibility to represent the cause of Latin Americans on the international forum. Hence, Argentina’s presidency designed its agenda for fair and sustainable development, where it used themes for digital inclusion, infrastructure development, and public–private sustainable food systems. Sometimes, countries also pick their agendas by highlighting domestic achievements. For example, Japan is a disaster-prone country, and it has built a resilient DRR structure in the country that can deal with up to 8-scale earthquakes. Hence, Japan during its presidency focused on disaster resilience. Also, Shinzo Abe in one of his interviews mentioned that anything that can drown Japan’s economy is the change in demographic dividend and shift towards the growing old age population.

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But this agenda was too domestic and hence did not receive much success. On the other hand, some of the milestones in the G20’s history can be dedicated to the 2008– 09 Washington and London summits where ensuring financial stability was picked based on the crisis which left an impact on the success of the G20 and Korea’s development agenda which represented a shift towards an acknowledgment of developing nations’ problems. Agenda setting should be built through comprehensive discussion with discussions with Sherpas of each country. Also, the presidency should hold meetings with local big businesses and heads of MSMEs to bring something to the table which represents the voices within the country. Reforms called for by the G20 after the global financial crisis are progressing and aiding the build-up of an open and resilient financial system that bolsters efficient credit provision to the real economy (FSB, 2019) (discussed in details in Chap. 5). Large banks are characterised by better capitalisation, less leverage, and more liquidity. Too-big-to-fail (TBTF) reforms are also progressing. Markets of OTC derivatives are now simpler and more transparent. The aspects of non-bank financial institutions (NBFI) that stoked the global financial crisis have reduced and generally do not pose a financial stability risk (FSB, 2019). However, it is imperative that this momentum is sustained and complacency is not allowed to set in for further stepping up the resilience as vulnerabilities are on the rise (FSB, 2019). However, this success of the G20 as a whole and its Finance Track is not without criticism. Triggs (2018) indicated that the G20’s success in decreasing structural deficits and stabilising debt-to-GDP ratios has been abysmal, though goals on macroeconomic stimulus have been met. He also states that the size of the safety net remains small and inadequate progress has been achieved with respect to the aim of decreasing global imbalances. Bery et al. (2019) advocate that though substantial efforts have been made in the G20 Presidencies of the emerging economies towards morphing the agenda in terms of issues of their interest, it has not always prevailed, particularly in the case of global financial governance issues.

4.2 Significance of Multilateral Engagement in G20 Agenda Setting The G20 process, essentially, consists of tabling issues for discussion, reaching an agreement on issues, and transforming that agreement in the form of commitments. Agreements reached on various issues and commitments made are key elements that make a summit successful. In order to maximise agreement and commitments on issues, it is crucial to bring on board as many G20 members as possible with regard to various issues. A key tool in this respect is that of multilateral engagement. It is also one of the key aspects of framing the agenda for the G20 summit. Engaging with member nations helps in comprehending their stance on various issues and their policy priorities. This process can make clear the extent of consensus that issues are

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likely to secure. Another aspect of multilateral engagement can be that of undertaking deliberations with international organisations. Here, we will look at two cases of multilateral engagement. The first is that of the German Presidency. During the German Presidency, Germany initiated talks with members. This process clearly delineated the positions that their G20 counterparts occupied with respect to various issues.1 The second case is that of the South Korean Presidency: “to gain support for the G20 Seoul Summit from the international community, non-G20 countries and international organizations, the Ministry held numerous summit-level meetings and foreign minister level dialogues to make various diplomatic efforts at both bilateral and multilateral levels.”2 The multilateral engagement has become all the more important in recent times, as global efforts and cooperation have taken a backseat, countries are increasingly looking inward, and there are elevated tensions between some of the G20 member nations. For the Indian Presidency, understanding the positions of its G20 counterparts on issues that the Indian Presidency is contemplating on raising is going to be extremely helpful. Prior discussion of the issues with the G7 has been recommended for the Indian Presidency.3

4.2.1 2008 Washington DC Summit

The first G20 summit, named the “Summit of Financial Markets and the World Economy”, aimed at dealing with the global financial crisis and the central point of the summit was supporting growth. The Leaders agreed to implement an Action Plan around three main objectives, namely: restoring global growth, strengthening the international financial system, and reforming international financial institutions. The summit was successful in terms of different domains such as domestic political management, deliberation, direction setting, and development of global governance.

The first Summit of G20 countries was held in Washington on 15 November 2008 with the aim of dealing with the ongoing financial crisis of the world economy and financial markets. The 2008 financial crisis, although beginning in the USA, spilled far beyond the Western world.4 It began with a downturn in American real estate,5 with millions of households “among those hit earliest and hardest.”6 The collapse 1

Based on interaction with stakeholders. http://www.mofa.go.kr/eng/wpge/m_5470/contents.do. 3 Based on interaction with stakeholders. 4 Adam Tooze, Crashed: How a Decade of Financial Crisis Changed the World (Viking, 2018), 11. 5 Adam Tooze, “The Coronavirus Crash Isn’t the 2008 Financial Crisis. It’s Worse,” Foreign Policy, March 18, 2020, https://foreignpolicy.com/2020/03/18/coronavirus-economic-crash-2008financial-crisis-worse/. 6 Tooze, Crashed, 11. 2

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of Lehman Brothers, one of the country’s largest investment banks, sparked severe panic in US banks. Over 8.7 million jobs were lost over the course of the recession, with around 750,000 per month during the worst period.7 Thus, although the massive financial shock did cause domestic economic activity to contract, it also “unleashed the largest contraction in international trade ever seen.”8 What was observed in 2008 was a crippled momentum of economic activity in major developed economies, reinforced by events in emerging market economies, which were experiencing some growth but were increasingly impacted by a slowing world economy. The first meeting of the G20 was officially named the “Summit of Financial Markets and the World Economy” with an agenda focusing on the financial crisis. The group came together with the objective of ensuring that in the future a global crisis like the one faced in 2008 does not recur. The group shared a belief “that market principles, open trade, and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction” (Munk School of Global Affairs & Public Policy, 2008).9 According to the 2008 communique, the leaders of the G20 were meeting “amid serious challenges to the world economy and financial markets.” In the wake of the 2008 financial crisis, the immediate goal was to “enhance cooperation and work together to restore global growth and achieve needed reforms in the world’s financial systems.” The communique listed the following as the root causes of the financial crisis. “During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators, and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, and inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption. Countries experienced a collapse in their exports, and a sudden stop in the funding of their bank sectors.10 As a result, “Countries with trade surpluses and huge 7

Adam Tooze, “The Coronavirus Crash Isn’t the 2008 Financial Crisis. It’s Worse,” Foreign Policy, March 18, 2020, https://foreignpolicy.com/2020/03/18/coronavirus-economic-crash-2008financial-crisis-worse/. 8 Ibid. 9 http://www.g20.utoronto.ca/2008/2008declaration1115.html. 10 Ibid.

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currency reserves—supposedly the essentials of national economic self-reliance— suffered acute currency crises. […] Hidden below the radar and barely discussed in public, what threatened the stability of the North Atlantic economy in the fall of 2008 was a huge shortfall in dollar funding for Europe’s oversized banks. And a shortfall in their case meant not tens of billons, or even hundreds of billions, but trillions of dollars. It was the opposite of the crisis that had been forecast. Not a dollar glut but an acute dollar-funding shortage. The dollar did not plunge, it rose.” However, despite this, the recession was not deep or prolonged. Due to massive intervention of monetary and fiscal policy, recovery began in the second half of 2009 after a contraction of 4.2% in global gross domestic product.11 The list of actions prepared for addressing long-term challenges included (Communiqué, 2008 Declaration)12 1. Continuous vigorous efforts for stabilising financial systems. 2. To control domestic conditions, recognise the importance of monetary policy support. 3. Maintaining fiscal sustainability, along with using fiscal measures to stimulate domestic demand. 4. Helping emerging and developing economies in giving access to finance in these difficult situations through liquidity support programmes. Pressing the IMF to release funds in response to the crisis, thereby ensuring flexibility in its policies. 5. Welcoming the introduction of new initiatives by the World Bank in the areas of infrastructure and trade finance and encouraging multilateral development banks (MDBs) to continue their support of the development agenda. 6. Ensuring sufficiency of resources with different IOs, regulating their activities, and ensuring their full support. The root causes of the 2008 crisis were thought to be that policymakers, regulators, and supervisors in advanced countries did not adequately heed the concerns in the financial markets and chose to ignore the risks piling up, in order to briskly keep up with financial innovations. Other reasons included an unprecedented bubble in the financial market, inconsistent and insufficient coordination of the macroeconomic policies, and lack of structural reforms, leading to severe market disruption. Strong actionable steps were taken to stimulate the economies by “providing liquidity, thereby strengthening the capital financial institutions, protecting saving deposits, addressing regulatory reforms, unfreezing credit markets,” and bolstering support to the global economy by working with International Financial Institutions (IFIs) (Munk School of Global Affairs & Public Policy, 2008). Addressing global imbalances was not part of the core agenda of the G20 at this initial phase.

11

Adam Tooze, “The Coronavirus Crash Isn’t the 2008 Financial Crisis. It’s Worse,” Foreign Policy, March 18, 2020, https://foreignpolicy.com/2020/03/18/coronavirus-economic-crash-2008financial-crisis-worse/. 12 http://www.g20.utoronto.ca/2008/2008declaration1115.html.

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Principle of Reform of Financial Markets To make sure no such crisis hits the global economy ever again, reforms of financial markets were outlined and initiated that would strengthen financial markets and regulatory regimes. It was felt that regulating cross-border agreements and regional and global developments were the need of the hour for protecting international financial stability. Further, Finance Ministers and central banks must ensure market discipline to safeguard economies, as the growing interlinkages between economies had intensified the impact. Some of the actions needed included regulating arbitrage and supporting competition, dynamism, and innovation in the marketplace. It was felt that financial institutions must be prepared for times like these by regulating losses, improving disclosures, and strengthening their governance and risk management practices’ (Munk School of Global Affairs & Public Policy, 2008). The policies implemented in Principles of Reform of Financial Markets were: . . . . .

“Strengthening Transparency and Accountability.” “Enhancing Sound Regulation.” “Promoting Integrity in Financial Markets.” “Reinforcing International Cooperation.” “Reforming International Financial Institutions.”

The action plan is summarised in Table 4.2 in the Annexure 2. The first summit was a successful summit in terms of different domains, like direction setting, domestic political management, debate, and development of global governance, etc. The G20 leaders were able to use the discussions from the summit to manage domestic policies. It helped countries in taking difficult fiscal decisions by using the justifications from the consensus in the G20. The G20 paved the way to set new principles and normative directions. The discussions on opening more markets intertwined with constant debates over government regulations and free market mechanisms were something striking (Kirton & Guebert, 2009). The biggest achievement of the first G20 summit was bringing reform within the mechanisms of the system rather than just reforming the system, which led to realigning the global economic system by building international consensus (Dong-Hwi, 2008).13 Ninety-five commitments were pledged in the first summit, and the delivery of these stood a very high chance due to awareness of their credibility in dealing with the crisis. The deadlines were set for a very short time, and most of the decisions focused on short-term decisions. “It also called for a new gathering of G20 trade ministers, to replace the G7’s old trade ministers quadrilateral and to extend beyond the trade caucus of developing states formed at the WTO’s 2003 ministerial at Cancun (and also referred to as the G20)” (Bradford et al., 2008). Among the many achievements of the G20 were its initiation, iteration, and bringing together a perspective for the G20, to govern the slowing world economy and bring financial stability (Kirton & Guebert, 2009). Kirton and Guebert hold that the G20 summits have “acted appropriately and ambitiously in producing immediate 13

http://www.g20.utoronto.ca/biblio/LEE-1st-20081121-en.pdf.

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decisions in areas that are controlled by the government.” But the subjects related to private sector driven finance were poorly understood and lacked policy force. The institutionalisation of the G20 depends heavily on the financial shocks that drive the world’s economy to vulnerability, which indirectly caused social and political instability. The G20 stands strong by bringing China, India, and Brazil, etc., into the group. It is a “much more legitimate summit group that can speak for over two-thirds of the world’s population and controls 90% of the world’s economy” (Bradford et al., 2008).14 The Washington Summit was an example of global leaders coming together in dealing with the financial and economic crisis which was responsible for halting the world’s economic growth. A need for broader policy response that focused on developing macroeconomic cooperation for restoring world growth was needed. By avoiding negative spillovers and taking support from emerging market economies and developing countries, this could be achieved in a platform like the G20, which gathered the developed and developing countries in one place (Munk School of Global Affairs & Public Policy, 2008). This summit focused on supporting growth by adding monetary easing and focusing on substantial financial easing. The summit discussed the need for money the emerging markets, and hence, the bodies created for providing countercyclical lending should always be equipped with sufficient funds. A conscious decision on improving the balance with the IMF in dealing with times like these was put forward in the meeting (Kirton & Guebert, 2009). Moreover, a new global architecture was required to be put in place to increase collaboration for early warnings. “The G20 gathering substituted for a G8 summit that had failed for several years to deal seriously with finance, macroeconomics and trade” (Kirton & Guebert, 2009).15 Altman in 2009 held that the G20’s actions and achievements represented the birth of a permanent leaders’ level institution which “marks a centre for global governance for the twenty-first century,” where finance was globalised (Kirton & Guebert, 2009). Different schools of thought agreed that the Washington Summit was effective in delivering policies on trade liberalisation, fiscal stimulus, and G20 institutionalisation on regulating exchange rates and financial regimes.16 14

https://www.brookings.edu/research/global-governance-breakthrough-the-g20-summit-andthe-future-agenda/. 15 http://www.g20.utoronto.ca/analysis/2008performance090307.pdf. 16 The four Working Groups (and discussed later) were set up by the Finance Track in accordance with the directions given by the leaders in para 10 of the Washington DC Leaders’ Communique. Four Working Groups were put in place at Washington: “WG1 Enhancing Sound Regulation and Strengthening Transparency; WG2 Reinforcing International Co-operation and Promoting Integrity in Financial Markets; WG3 Reforming the IMF; and, WG4 The World Bank and Other Multilateral Development Banks” (Cooper & Bradford Jr., 2010). “Reporting from each Working Group was then made to the leaders shortly ahead of the London summit, culminating in the aggressive leaders’ communiqué (2009), The Global Plan for Recovery and Reform” according to Cooper and Bradford, Jr. (2010). The reports of these WGs were presented to the Leaders at the second G20 summit in London. The recommendations contained in the reports of these four working groups set the forward-looking G20 agenda of the Finance Track.

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4.2.2 2009 London Summit

The London summit represented the first major attempt by the global community to handle the issues of global economic downturn, as US$1.1 trillion was injected into the global economy for the low- and middle-income countries. The summit also saw an agreement on increasing international financial institutions’ resources. The idea of actively involving the World Bank and the IMF in the summits was put forward.

The second G20 summit was held in London in 2009, against the backdrop of the global financial crisis. The Leaders’ Communiqué stated that the crisis was the greatest challenge “faced by the world economy in modern times, and had only worsened since the previous summit.” A global solution would be required, one that would feature shared and sustained growth. They asserted that “the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.” At the G20 2009 London summit, commitments were made to inject US$1.1 trillion into the economy of low- and middle-income countries that were seen as innocent bystanders of what was essentially a crisis emanating from the G7 countries. It represented the first major attempt by the global community to handle the global economic downturn. G20 leaders also recommitted themselves to resisting protectionist measures and agreed on further rollback (Sy, 2009). The agreement aimed at increasing IFIs’ resources and reforming the governance system, including expediting the reviewing process of quota so that developing and emerging economies were better represented in the IFIs. New reforms for financial regulation were proposed, including tax havens, hedge funds, Credit Rating Agencies (CRAs), etc., (Sy, 2009). Details are presented in Annexure Table 4.3. The global economy had to be salvaged at all costs. US$ 1.1 trillion was promised to be injected into the global economy, with the specific aim of assisting low- and middle-income countries. About 70% of this would go to the IMF, which was being reformed and brought back to the centre stage as the world’s principal lender of last resort.17 However, the IMF had been “finding it difficult to attract middle-income countries in Latin America and East Asia to even use their existing facilities.”18 This complicated the IMF assistance that was to be provided to crisis-hit countries via loans.19 The summit also saw an agreement on increasing IFIs’ resources, which would be used to support the developing and emerging economies that are affected most in these times of crisis.20 The G20 had proposed a stimulus of US$5 trillion and expansionary monetary policies, which stands out as the main reason for the Great Recession bottoming out 17

https://www.brookings.edu/opinions/the-april-2009-london-G-20-summit-in-retrospect/. https://voxeu.org/debates/commentaries/g20-declaration-london-summit-global-new-deal. 19 Ibid. 20 https://www.cfr.org/blog/achievements-london-g20-summit-and-korea-troika. 18

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in 2008–09. Also, “unlike the G7/G8 which has realistically focused on “dialogue” among the participating leaders, the G20 places a priority on actual “policy decisions” (Dong-Hwi, 2009).21 Looking back, the US$1 trillion stimulus is what made headlines at the time, rather than the combined stimulus of US$5 trillion.22 The reason for this was a spat between the USA and the UK on one side and the continental Europeans on the other over what exactly constituted additional fiscal stimulus. The US-UK argument was that only additional discretionary fiscal stimulus should count, and that “automatic stabilisers,” built-in social programmes like unemployment compensation, should not be counted because they were not deliberate, incremental actions but systemic responses not requiring policy decision. In the end, this was a false debate and a lesson to be learned for the future. IMF figures prepared for the March 2009 G20 finance ministers meeting revealed that if discretionary fiscal stimulus actions and systemic automatic stabiliser expenditures were combined, the total impact of all G20 countries would be at an average annual rate of 2.6 per cent of the 2007 GDP for 2008-2010. This was well above the 2 per cent of GDP fiscal stimulus target set out. There was no economic reason whatsoever for distinguishing between the discretionary fiscal stimulus of expenditure increases and tax cuts on the one hand and unemployment compensation and systemic social expenditures triggered by economic downturns, on the other. Both add to aggregate demand. And both did, which is the fundamental reason why the London Summit can already be seen to be such a success even though it was not seen to be so in its immediate aftermath.23

In 2009, South Korea was given the privilege to participate in the troika alongside the UK and Brazil. The idea of actively involving the World Bank and the IMF in the summits was put forward. The Korean ministry also submitted a “Korean Proposal” on South Korea’s 1997–98 crises based on resolving the impaired asset problem (Sy, 2009). The Korean delegates had also shown a capacity to act as a perfect mediator between advanced and developing countries. The London Summit served as a successful platform by reducing the difference of opinions across a gamut of issues on the agenda with different countries coming up with different ideas, and this helped in “peer group” learning across nations. For example, the USA hoped for increased public spending, and European nations called for preventing the spread and recurrence by supervising and regulations (Dong-Hwi, 2009). The Chinese discussed various causes related to the financial crisis and discussed problems related to “herd behaviour” due to limited credit rating companies. The financial crisis in 2008 originated due to the accumulation of bubbles. It was suggested that there was a lot of stress on procyclicality on the macrolevel but this was missed on the microlevel, and hence, it needed emphasis on pro-cyclical features embedded in the market structure (Xiaochuan, 2009).24 Another significant political development was the fact that G20 leaders recommitted themselves to resisting protectionism and continuing the “standstill” to the end of 2010 and that they further agreed on the “rollback” of protectionist measures 21

http://www.g20.utoronto.ca/biblio/LEE-2nd-20090417-en.pdf. https://www.brookings.edu/opinions/the-april-2009-london-G-20-summit-in-retrospect/. 23 Ibid. 24 https://www.fmprc.gov.cn/ce/ceun/eng/zt/g20_london_summit/t554949.htm. 22

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taken since the previous November.25 In fact, South Korean President Lee Myungbak advocated for the “standstill” in Washington and the “rollback” in London. Towards this end, the communiqué reaffirmed a “commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change Conference in Copenhagen in December 2009” (G20, ). Despite significant achievements, the 2009 summit came up against critics who suggested a way forward for the third summit (Chowdhury, 2009).26 There was criticism regarding insufficient attention given to regional and local solutions in contributing to the potential of developing countries in combating the financial crisis. Moreover, the policy reform of IFIs was delayed until 2011, and hence created unresolved confusion in the system. Also, funds provided in the fiscal stimulus package were inadequate, too small to fill the output gaps in various countries (Chowdhury, 2009). The G20 summit served as a juncture in steering global efforts to prevent future crises, which must encompass a wide range of unsettled issues concerning the international financial infrastructure.

4.2.3 2009 Pittsburgh Summit

In the third summit, the framework for strong, sustainable, and balanced growth was launched and medium-term policy frameworks were set out based on the results from mutual assessment. Sustaining commitment to fiscal responsibility and sustainability and the point of exit strategies also found place in the leaders’ discussion. Stepping up funding from the IMF to emerging markets and developing countries was committed to and a move towards equitable voting power in the World Bank over time was stressed. The summit moved towards strengthening internationally coordinated domestic financial regulations by improving banking capital and liquidity. The historic decision of institutionalising the G20 was finally taken with the agenda of giving a central role to emerging economies.

The third summit took place on 24–25 September 2009 at a time of strong global recovery, prompting the G20 leaders to declare that their efforts had worked. They also sent a message that they would stay the course of stimulus until the private sector driven economy recovered. Two kinds of demand rebalancing were envisaged for the global economy, from countries that consumed more to those that saved more and within countries from the public sector to the private. To achieve these twin objectives, it formulated and launched a framework to encourage the global economy based on balanced foundations, with consumers as key economic powers generating domestic demand. It was recognised that while the economies were becoming normal, more 25 26

https://www.cfr.org/blog/achievements-london-g20-summit-and-korea-troika. https://voxeu.org/debates/commentaries/g20-declaration-london-summit-global-new-deal.

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steps were needed, as the unemployment rates were high, and recovery of private demand had not fully recovered. The policies adopted were set to achieve sustainable and balanced growth in the twenty-first century and experience growth without cycles of boom and bust. The major items on the agenda were: . . . .

A framework for strong, sustainable, and balanced growth. Strengthening the international financial regulatory system. Reforming the mandate, mission, and governance of the IMF. Reforming the mission, mandate, and governance of development banks.

Framework for strong, sustainable, and balanced growth A framework for strong, sustainable, and balanced growth was launched at the third summit with the idea of ensuring that fiscal, monetary, trade, and structural policies were in line with the sustainable global growth agenda. Moreover, further macroprudential and regulatory policies were to be put in place to prevent credit and asset price cycles. Medium-term policy frameworks were set out based on the results of mutual assessment (G20 Leaders’ Statement, 2009b).27 A related aspect that found place in the discussion of the leaders was that of continuing their commitment to fiscal responsibility and sustainability. Strengthening the International Financial Regulatory Framework One of the key items on the agenda for the summit was that of deliberating actions for setting the foundation for balanced and sustainable economic growth. During that time, the enormous macroeconomic stimulus and financial market interventions had started to stabilise financial and economic conditions in the USA (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). The US economy was also flailing with respect to fiscal responsibility and sustainability during that time. General government deficits were anticipated to be large, increasing public debt to alarming levels that would make handling long-term fiscal problems difficult (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). Moreover, further macro prudential and regulatory policies were to be put in place to prevent credit and asset price cycles. Medium-term policy frameworks were set out based on the results of mutual assessment. The unwinding of extraordinary support that was extended during the crisis was a challenge facing the US policy-makers (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). This was consistent with the point of exit strategies that was raised at the summit, “Credible exit strategies should be designed and communicated clearly to anchor expectations and reinforce confidence” (G20, 2009a). A challenge that lay ahead of the policymakers in the USA at that time was that of tackling the longer-term legacies of the crisis in the form of huge imbalances in the fiscal, household, and financial sectors against the background of lower potential growth (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). In this context, implementing “rigorous, far-reaching reforms of financial regulation” to avoid a recrudescence of 27

https://www.imf.org/external/np/sec/pr/2009/pdf/g20_040209.pdf.

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the financial market excesses was a key challenge (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). This issue that the USA was facing at home was also in some way mirrored in one of the key areas on which the leaders agreed as per the Leaders Statement, which was “To make sure our regulatory system for banks and other financial firms reins in the excesses that led to the crisis” via implementing requisite financial sector reforms. At the initiative of the G20, the Financial Stability Forum, a club of G7 countries, was restructured into the Financial Stability Board by including all G20 countries in September 2009, and its charter was endorsed by the Leaders at Pittsburgh. It was tasked to monitor progress of financial regulatory reform and report back to the G20. The discussions revolved around strengthening prudential oversight, risk management, transparency, market integrity, and reinforcing market coordination. It was realised that there was still more needed to protect consumers, depositors, and investors against abusive market practices. The commitments in this area focused on conducting robust, transparent stress tests and called on banks to retain a greater proportion of capital from the current profits in order to support the lending process. Securitisation sponsors were also asked to retain a part of risk underlying assets in order to encourage them to act prudently. The reform process of the G20 was based on the core principles of ensuring stronger capital standards with clear incentives to mitigate excessive risk-taking behaviour. In this framework, four major critical areas were emphasised in order to strengthen IFIs: (G20 Leaders’ Statement, 2009b).28 1. Building high-quality capital and mitigating procyclicality: This involved improving the quality and quantity of capital with banks and discouraging excessive leverage. . Implementation of better and stricter quality standards for the capital requirement at the national level, counter cyclic capital buffers, and higher capirequirementsment for risky products. . Strengthening liquidity risk requirements and forward-looking provisions to strengthen the supervision and regulation of the banking sector. . Supporting leverage ratio as a supplementary measure to the Basel II riskbased framework. “All major G20 financial centres commit to have adopted the Basel II Capital Framework by 2011” (G20 Leaders’ Statement, 2009).29 2. Reforming compensation practices to support financial stability: Implementing FSB standards aimed at aligning compensation with long-term value creation, by avoiding multi-year guaranteed bonuses, deferring variable compensation, ensuring compensation of senior executives is aligned with performance and risk, firms’ compensation policies and structures are transparent through disclosure requirements, limiting variable compensation as a percentage of total net revenue, etc. 28 29

https://www.imf.org/external/np/sec/pr/2009/pdf/g20_040209.pdf. Ibid.

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3. Improving over-the-counter derivatives markets: Over-the-counter (OTC) contracts should be reported to trade repositories and these contracts should be carried through electronic trading platforms. 4. Addressing cross-border resolutions and systemically important financial institutions by end-2010: Financial firms’ contingency and resolution plans which are consistent with international laws and regulations. G20 to establish crisis management groups and a legal framework for major cross-border firms and for crisis intervention. A range of initiatives was taking place in the USA at that time related to incentive alignment, disclosure, and rating agencies: Retention of five per cent of the credit risk of securitised exposures by the originators was proposed by the Treasury’s June 17 Regulatory Reform paper; industry efforts for enhancing disclosure practices were being steered by the American Securitisation Forum; Rating agencies seconded the New York Attorney General to enforce a fee-for-service revenue model for mortgagebacked securities (MBS) ratings wherein the originators were required to pay the agencies irrespective of whether they were eventually selected for rating the security in 2008 (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). The International Accounting Standards Board’s (IASB) institutional framework was constituted for achieving a single set of high global accounting standards. The IMF was instructed to consider options for financing burdens associated with government interventions in repairing banking systems. Expansion of the Global Forum on Transparency and Exchange of Information. The main focus of the Forum’s work will be to improve tax transparency and exchange of information so that countries can fully enforce their tax laws to protect their tax base. These rules were implemented in the G20 countries, and progress made by the Financial Action Task Force (FATF) in the fight against money laundering and terrorist financing was also assessed. Reforming the Mandate, Mission, and Governance of the IMF and Development Banks The G20 committed to increasing the funding from IMF to emerging markets and developing countries. Funds were delivered to a newer section of IMF—namely New Arrangements to Borrow (NAB)—and a policy of Special Drawing Rights (SDR) allocations was put in place to supplement the capacity of available funds for emerging and developing economies (this is discussed in detail in Chap. 6). The IMF’s support was requested for the Framework for Strong, Sustainable, and Balanced Growth and through surveillance of countries’ policy frameworks and their collective implications for financial stability and the level and pattern of global growth was assessed. Further discussion was based on a quota shift to 5% to let emerging and developing countries benefit from it (G20, 2009a).30 Moreover, there was stress from the G20 on moving towards equitable voting power in the World Bank over time through the adoption of a dynamic formula 30

http://www.g20.utoronto.ca/analysis/2009performance0925.html.

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that primarily reflects countries’ evolving economic weight and the World Bank’s development mission. This was expected to generate at least 3% increase in voting for developing and transitioning countries. Sufficient resources were to be provided to keep in check the development mandate. The G20 gave the IMF the responsibility to investigate. The G20 platform was a place to keep the IMF and other multilateral development banks in check so that there are sufficient funds available with these international organisations and these funds are provided appropriately to different emerging and developing countries. This platform has helped various developing economies in the G20 to borrow easily using mechanisms such as temporary callable and contingent capital (G20, 2009a). The 2009 Pittsburgh summit was held with the aim of achieving stability and prevention of a future crisis. Among the various accomplishments that the third summit achieved, the major ones were first, the G20’s agenda on private sector growth and to design market sensitive exit strategies; second, setting up a framework for the global economy which is more balanced in generating domestic demands and imports. Third, the summit moved towards strengthening internationally coordinated domestic financial regulations by improving banking capital and liquidity. Fourth, a major step towards reforming IFIs was taken, as also a shift in the quota share in order to include developing and emerging economies (G20, 2009a). The major aim of this summit was to reduce the consumption of resources by the USA and share that quota with emerging economies. The third summit focused on this by strengthening and coordinating with domestic financial regulations starting with the core issue of improving banking capital and liquidity. The historic decision of institutionalising the G20 was finally taken with the agenda of giving a central role to emerging and established economies. The G20 took on the task of discovering the “Tobin Tax” on banking transactions to calculate the cost of future crises by speculative short-term capital movements (Wintour & Clark, 2009).31 The issues with the swap markets were discussed in the third summit, which included problems related to swaps that were not traded on platforms and exchanges; instead, they were carried out bilaterally and hence go unrecorded, causing uncertainty regarding the value of assets in the market. A major discussion in Pittsburgh was concerning the derivatives market, especially with an emphasis on swapping. It was realised that improving derivatives is a solution to accomplish future safety (Wharton, 2018).32 Moreover, most of these swaps were cleared centrally, thereby exposing them to the risks of default by the counterparty. Also, since this process was done in a market system, most regulators were unaware of the chaotic market spaces when the crisis hit. Hence, the need for a stringent regulatory system was felt. The G20 called for standardised OTC contracts traded on exchanges and electronic

31

https://www.theguardian.com/world/2009/sep/25/g20-summit-economy-bonuses-deficits. https://webcache.googleusercontent.com/search?q=cache:JQVjJYbjTCEJ:https://publicpolicy. wharton.upenn.edu/live/news/2666-2009-pittsburgh-g20-summit-a-look-back-at-its+&cd=1&hl= en&ct=clnk&gl=in. 32

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trade platforms. These were further cleared by counterparties regularising the whole system (Wharton, 2018).33 This summit was deemed to be a transformational success because first, this summit went beyond short-term goals of immediate crisis and put in place global economic operations based on mid-term and long-term agendas and the G20 was institutionalised into a premier forum (Lee, 2010). It gave a concrete shape to the measures that were proposed in the London summit, thereby overcoming the global financial crisis by raising capital standards, implementing a stringent and strengthened regulatory system as prescribed by the FSB, and reiterating its commitment to the Doha development agenda. However, no agreement was reached on how high capital reserves should be used to reduce risk taking, and there was no concrete plan introduced to deal with hedge funds and private equity funds. It did not discuss practices involving short selling. Sanctions for tax havens to comply with international tax governance standards were missing. It was also felt that impetus was missing for targeted taxation and absolute capping (Cohn-Bendit & Harms, 2009).34

4.2.4 2010 Toronto Summit

With the theme of “Recovery and New Beginnings”, the summit’s goal was based on defining obstacles to global growth and nascent recovery of the global economy. A decision was taken in the Toronto summit to increase the capital base for multilateral banks for increasing funding to the Africa Development Fund and this was initiated. The agenda for setting up of a Haiti Reconstruction Fund in the wake of the earthquake was taken up. Moreover, SME Finance Challenge was launched.

The theme of the fourth summit was “Recovery and New Beginnings,” which aimed at achieving growth with the agenda of sustainable recovery at the heart. The summit’s goal was based on defining obstacles to global growth and the nascent recovery of the global economy. A meeting held in Washington in April briefly noted that emerging markets were the drivers of growth in developing countries, whereas it was driven by fiscal support in developed countries. But the risks of the budget deficit and sovereign debt at significant levels stayed in developing countries, thereby making the recovery fragile, and hence, recapitalisation of the banking system remained necessary. And hence, the 2010 summit was expected to endorse

33

https://webcache.googleusercontent.com/search?q=cache:JQVjJYbjTCEJ:https://publicpolicy. wharton.upenn.edu/live/news/2666-2009-pittsburgh-g20-summit-a-look-back-at-its+&cd=1&hl= en&ct=clnk&gl=in. 34 https://www.greens-efa.eu/en/article/document/outcome-of-the-g20-summit-in-pittsburgh-2425-september-2009/.

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bank support measures until private demand strengthened. It was given the responsibility of developing the mutual assessment process operationalising balanced growth (Sakong, 2010). Framework for strong, sustainable, and balanced growth A new “Framework Working Group” (FWG) was set up within the G20, co-chaired by Canada and India, with technical support from the IMF, in pursuance of the directions given by Leaders for a Framework for Strong, Sustainable, and Balanced Growth. The Toronto Summit discussed the progress of the new Framework of sustainable growth based on the report submitted by the IMF. Though the overall growth prospects were improving after financial shocks, the recovery remained fragile, as the social impact of the crisis had worsened the situation. “To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand” (G20, 2010a). Hence, the push for privatisation was a constant reminder, along with sustaining public finances. “The most important decisions of the G20 Toronto summit (26–27 June 2010) address the necessity to combine the fostering of economic recovery with repairing public finance” (Gradziuk & Koczor, 2010). The global economy was recovering fast, but there remained vulnerabilities and risks in the market. And, the summit was set up against a background of conflicting trends in global development. The risks of the budget deficit and sovereign debt were on the cards with complementary unemployment rates and global imbalances. Financial Sector Reform: Progress on financial sector reform rested on four pillars, namely strong regulatory framework, effective supervision, resolution and addressing risks arising from systemically important financial institutions (SIFIs) to avoid taxpayer bailouts, improving cooperation between jurisdictions for effective monitoring of systemically important financial institutions, and transparent international assessment and peer review. The G20 followed the first pillar, thereby imposing the Basel Committee on Banking Supervision (BCBS) as a new global regime over bank capital and liquidity. A new capital framework was laid upon in the Seoul summit and was to be implemented by all member countries by the end of 2012. These measures were to be phased over a timeframe consistent with sustained recovery and limited market disruption. The transitional horizon was well assessed and informed by the BCBS and the FSB. Financial market infrastructure was to be made stronger by implementing strong measures improving transparency and regulatory oversight of hedge funds, credit rating agencies, and over-the-counter derivatives, maintaining international consistency. The pillar of effective supervision was complemented by effective oversight and supervision. The third pillar was designed to restructure financial institutions in crisis without burdening the taxpayers. The FSB was called on to suggest measures related to financial institutions at the Seoul summit. A need was felt for a policy framework including effective resolution tools and core financial market infrastructure. The financial sector was involved to make a substantial contribution to the burden of government interventions. The FSB was given the task of validating the process of peer review to support the fourth pillar of regulatory reforms (G20, 2010a).

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International Financial Institutions and Development The commitments in the earlier summits were discussed, focusing on the Pittsburgh Summit commitments. The new reforms were to bring developing countries a share of a total 4.59%, by agreeing to the proposals given by shareholders at the IMF. A decision was taken at the Toronto summit to increase the capital base for multilateral banks to increase funding to the Africa Development Fund, and this was initiated. For example, for EBRD, the capital resources were increased by 50% from $5.3 billion (pre-crisis annual lending) to $11 billion. For IBRD, there was a 30% increase from $12.1 billion to $15 billion. There was a 200% increase for AfDB and AsDB from $1.8 billion to $ 6 billion and $5.8 billion to $10 billion, respectively.35 Overall, there was an 85% increase in MDB capital from $37 billion (pre-crisis annual lending) to $71 billion (new annual lending). (G20, 2010a).36 The major purpose of the Toronto Summit was to act as a transitional summit to check on the progress of the upcoming agendas at the Seoul summit. A push towards private sector investment was highlighted, as the global economy was recovering and the summit focused on reducing public debts by reducing public spending and shifting towards more private investments for sustaining activities in the markets (Gradziuk and Koczor, 2010). The focus was diverted to increasing financing to Small and Medium Enterprises (SMEs) in developing countries through MDBs and other financial institutions. The SME Finance Challenge was launched with the aim of discovering the most promising models public–private partnerships which were to be used as a catalyst for financing SMEs. An action plan for Financial Inclusion was decided, to be released at the Seoul summit. By changing the quota shares, the G20 attempted to modernise the IMF’s governance in order to reflect the changing economic weights of countries in the global economy. The aim was also to reach a consensus on the New Arrangements to Borrow (NAB) that could be rolled into the enhanced quota shares. Setting up the Haiti Reconstruction Fund in the wake of the earthquake was another agenda item. The position of the G20 with respect to the G8 was still uncertain. It was expected that “the G8 and the G20 would co-exist over the short to mid-term, based on the principle of effectively dividing the roles among themselves.”37 The two summits that year were closely related, although since the G20 had declared itself a premier forum for economic relations, the G8 began to focus on the non-economic sector, such as security, peace and stability, development, and maternal and child health, in order to “differentiate itself from the G20.”38 There were also outside concerns over the composition of the G20, as it included a multitude of European nations, which could result in the problem of over-representation and excessive participation.

35

For IFC, there was $200 million selective capital increase from $5.4 to $17 billion. http://www.g20.utoronto.ca/2010/g20_declaration_en.pdf. 37 Ibid. 38 Ibid. 36

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There was also the possibility that “the G20 would be faced with internal competition between groups, including the G7 or the so-called BRICs.”39

4.2.5 2010 Seoul Summit

The Seoul Summit was a transition from crisis management to a systematic form of management, and included the agenda of climate under its ambit. It also focused on the idea of financial safety nets to help countries cope with financial viability and reducing economic disruption. In the summit, GPFI was launched and BASEL III version of revised rules on liquidity and capital changes were adopted in this summit along with “Seoul Development Consensus for Shared Growth” and the “Multi-Year Action Plan”.

This was the first G20 summit held in Asia, and hence, a great deal of focus was on bridging gaps between developed and developing countries (Lee, 2010). This was also the first summit delivered in tandem with the Asia Pacific Economic Cooperation (APEC) leaders’ meeting (Kirton, 2010).40 The Seoul summit was important in the history of the G20, as the world economy was approaching another Euro crisis and with fears of “a currency war.” While the recovery from the global financial crisis was underway, due to excessive public sector policy measures, it remained vulnerable (Sakong, 2010). For this reason, the new challenge ahead of the G20 was to build exit strategies from public policy support towards private investment. Also, global cooperation and discussion of policies would help in the recovery. This summit was a transition from crisis management to a systematic form of management and included the agenda item of development (in the Sherpa track) and climate. Owing to the inception of the then sovereign debt crisis in Europe, there was renewed risk aversion among investors and some increase in risk premia, along with raised exchange rate volatility in South Korea. At the Seoul summit, a new action plan was launched in order to ensure commitment, and outline an action-oriented plan delivering objectives for strong, sustainable, and balanced growth. The five areas outlined under this were monetary and exchange rate policies, fiscal policies, financial reforms, structural policies, and Multi-Year Action Plan. The Seoul Action Plan was adopted, along with a quota shift agreement, reaching a total of 6% share of quota and doubling quotas for IMF members (Lee, 2010). The Basel III version of revised rules on liquidity and capital changes was adopted at this summit, along with the “Seoul Development Consensus for Shared Growth” and the “Multi-Year Action Plan.” The committee of finance ministers and central bankers resolved to adopt more market determined exchange rates,

39 40

Ibid. http://www.g20.utoronto.ca/analysis/101113-kirton-seoul-perf.html.

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enhancing exchange rate flexibility, and agreed to refrain from competitive devaluations. In addition, it focused on implementing the mutual assessment process, in order to promote external sustainability. Recognising the benefits of the framework, the leaders continued to expand and refine country led consultative Multi-Year Action Plan by including monitoring of the implementation of commitments and assessment of progress towards achieving shared objectives (G20, 2010c).41 The summit worked on doubling quotas, with a corresponding rollback NAB, with the aim of preserving relative shares (G20, 2010c). It appreciated the decision of making financial stability assessments under the financial sector assessment program (FSAP). In order to control the volatility of capital flows, the idea of strengthened global financial safety nets was introduced. “It will also be effective in reducing the economic disruption from sudden swings in capital flows and the perceived need for excessive reserve accumulation” (G20, 2010c). The agenda of global financial safety nets held relevance for South Korea as well since there were concerns that Korea was vulnerable to the “potentially destabilising effects of volatile international capital flows” (IMF, 2010a). Also, the mandate for the enhancement of a flexible credit line (FCL) was completed and welcomed. This included the removal of the access cap along with the creation of a precautionary credit line (PCL) as a preventive tool to allow countries with stable policies but moderate vulnerabilities to operate under the IMFs precautionary liquidity provision. More dialogues were initiated in line with enhancing collaboration between RFAs and the IMF. This summit stands out as a transitioning point towards more mid-term policies away from short-term crisis goals, and hence, a landmark agreement was reached by the BCBS on the new bank capital and liquidity framework. The new framework introduced capital buffers to be used in times of crisis; an internationally harmonised leverage ratio for risk-based capital measures and reduce banks’ incentive to take excessive risks. This summit also welcomed a policy framework by the FSB to reduce the moral hazard of taxpayer-funded bailouts by focusing on systemically important financial institutions (SIFIs). SIFIs and globally systemically important financial institutions (GSIFIs) were expected to adopt higher loss absorbency capacity to risks in case of failure of financial systems (G20, 2010c). Also, non-cooperative jurisdictions were scrutinised under the FSB, Global Forum on Tax Transparency and Exchange of Information (Global Forum), and the FATF. It was recognised that with the new system of banking, the problem of shadow banking could aggravate, and hence, the FSB was called to work in tandem with international bodies to come up with strengthened regulations and supervision of shadow banking. A platform for financial inclusion was launched at the Seoul summit called the Global Partnership for Financial Inclusion (GPFI). “Its over the next year will include helping countries put into practice the Principles for Innovative Financial Inclusion, strengthening data for measuring financial inclusion, and developing methodologies for countries wishing to set targets” (G20, 2010c).

41

http://www.g20.utoronto.ca/2010/g20seoul.pdf.

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“The G20 Seoul Summit successfully couched the problems arising from individual countries’ exchange rate adjustment within the global imbalance issue, thereby producing a “ceasefire” in the currency war as well as initiating discussions on an ultimate “peace treaty.” Thereby, the G20 Seoul Summit made a significant contribution to maintaining a driving force for international cooperation” (Lee, 2010). The G20 was successful in prohibiting trade in Credit Default Swaps on government bonds in the Eurozone, except for hedging purposes.

4.2.6 2011 Cannes Summit

The Cannes summit focused on economic and political uncertainty around sovereign debt risk, the future of the Eurozone, and Greek insolvency. The G20 agreed on integrating financial integration, management of capital flows, and deepening domestic capital markets to reap benefits from financial globalisation; shifting towards market determined exchange rates and enhanced flexibility of exchange rates in order to reflect the economic fundamentals; and integration of financial consumer protection policies into regulatory and supervisory frameworks, contributing to strengthening financial stability. An action plan on supporting development and deepening local currency bonds was adopted. The FSB and the IMF were given new authority and resources for better delivery.

The leaders met in November 2011 in Cannes, and the summit focused on economic and political uncertainty around sovereign debt risk, the future of the Eurozone, and Greek insolvency (EY, 2011). The agenda was hence dominated by macroeconomic concerns and fiscal reform. “In 2011, the global recovery has lost considerable traction with both headwinds and downside risks increasing” (Jenkins, 2011). Even though France was until that time not much impacted by the turmoil in European sovereign debt markets, concerns over euro area sovereign debt remained (IMF, 2011a). Risks to the outlook for the French economy stayed skewed to the downside, being especially related to renewed distress with regard to euro area sovereign risks in view of the high public debt of France and substantial exposure of banks in France to the euro area periphery (IMF, 2011a). Commodity price swings risked the growth rates at places (G20, 2011a).42 As well, a world oil and food price increase triggered by strong commodities demand by emerging market economies, together with events in the Middle East and North Africa and the disaster in Japan propelled annual headline inflation to 2% in March 2011 in France (IMF, 2011a). Even though the core inflation stayed muted, elevated headline inflation posed a potential threat to consumer confidence and purchasing power (IMF, 2011a). The G20 in 2011 agreed on integrating financial integration, management of capital flows, deepening domestic capital markets, etc. to reap benefits from financial 42

http://www.g20.utoronto.ca/2011/2011-cannes-declaration-111104-en.html.

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globalisation. An action plan on supporting the development and deepening local currency bonds was adopted, on which a progress report was requested from different IOs at the next meeting. This included43 : . Financial deepening: Increasing the risk-sharing capacity by expanding the range of instruments and liquidity options combined with sound macroeconomic and prudential policies. . Creating efficiency in dealing in regulated public and private local currency bond markets (LCBMs) by developing a domestic investor base; facilitating a lengthening of maturity of debt stock, and reducing dependency on short-term foreign debt. . In most emerging and developing countries, the efficiency and liquidity of bond markets remained uncertain, and hence, these countries were advised to diversify their portfolios to make investments more attractive. . Along with dealing with financial crises, it was felt that LCBMs also helped in improving domestic and global financial stability by managing capital flows. . It was inferred that the development of financial markets in emerging and developing markets will make them prone to greater risks, and hence, it is crucial to develop a domestic investor base and a sufficiently robust regulatory framework along with the development of bond markets in order to have developed in a sustainable way. “Finally, with deeper and more developed LCBMs, debt sustainability—concerning both foreign and local currency denominated debt—remains an important consideration” (G20, 2011a). . For a better understanding of LCBMs, various organisations were instructed to collect qualitative and quantitative data on the key aspects and to provide a comparative perspective. This would enhance transparency, accountability, and coordination of the initiatives on bond market development. The G20 countries agreed on shifting towards market-determined exchange rates and enhanced flexibility of exchange rates in order to reflect the economic fundamentals. “The Leaders’ Action Plan outlines actions both to address short-term national and regional economic vulnerabilities and strengthen the foundations for growth in the medium term. In the Action Plan, the leaders set out country specific measures to address deficits and promote growth, including through spending reduction and tax reform” (EY, 2011). In the case of the French economy, “Closer EU integration and globalisation have led to pressures to reform France’s labour and business income taxation.” (IMF, 2011b). A crucial first step was that of local business tax (taxe professionnelle) reform that took place; however, in order to enhance incentives for employment and growth “a more comprehensive tax overhaul” was required (IMF, 2011b). The FSB and the IMF were given new authority and resources for better deliverables. Moreover, there was a guiding map to decide common principles for cooperation between the IMF and RFAs, which was a step towards crisis prevention and was expected to foster rigorous surveillance and build regional capacity for crisis 43

G20 (2011a).

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prevention. The SDR basket review was decided to be done in 2015, to reflect upon the changing world economy and valuations of different currencies. “The leaders welcomed IMF’s new Precautionary and Liquidity Line (PLL) based on the idea of providing a case by case basis increased and more flexible short-term liquidity to countries with strong policies and fundamentals facing exogenous shocks” (G20, 2011a).44 The FSB produced a list of GSIFIs, comprising 29 banking entities (EY, 2011). “This list will be updated annually including suggestions from relevant IOs. These GSIFIs will face capital surcharge at starting at 1% of risk weighted assets and rising to 2.5% for the biggest, most interconnected banks. This surcharge will be phased in over three years beginning in 2016. The requirement is on top of new Basel III rules imposing a 7% minimum core capital buffer for all banks” (EY, 2011). Most crisis legacies were overcome by the French banking sector, and it returned to strong profitability, but it was recommended that banks in France should quickly adapt to emerging international regulations (IMF, 2011b). Though capital adequacy improved, major French banks stayed less capitalised as compared to their European counterparts (IMF, 2011b). The G20 reiterated its declaration on the issue of OTC derivatives as stated in 2009, with an additional commitment to finish clearing all the trade contracts under OTC to be cleared centrally by the end of 2012. The International Organisation of Securities Commissions (IOSCO) was assigned the task of handling the functioning of swap markets. The G20 committed to implementing recommendations by IOSCO on market integrity and efficiency, addressing high-frequency trading and dark liquidity. The G20 further asked the organisation to come up with a framework for better assessment of credit default swaps (CDS). The G20 supported the creation of a global legal entity identifier (LEI) in order to uniquely identify parties for financial transactions. Moreover, the G20 endorsed the FSB’s comprehensive policy framework which comprised a “new international standard for resolution regimes, more intensive and effective supervision, and requirements for cross-border cooperation and recovery and resolution planning” (G20, 2011a).45 An initial list of GSIFIs was posted by the FSB, which was scheduled to be updated every November. The importance of shadow banking for regulatory arbitrage was realised, and it was felt that it was outside the scope of the regulated banking sector. Hence, the G20 endorsed strengthening regulation and oversight of shadow banking, building on direct and indirect approaches including money markets, funds, securitisation, lending, and repo activities, etc. The leaders committed to enhancing market transparency, via cash and financial commodity markets. It was suggested that proper regulation and supervision of participants should be done in these markets, along with OTC and correction in disorderly markets. The G20 agreed on the integration of financial consumer protection

44 45

http://www.g20.utoronto.ca/2011/2011-cannes-communique-111104-en.html. http://www.g20.utoronto.ca/2011/2011-cannes-declaration-111104-en.html.

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policies into regulatory and supervisory frameworks contributing to strengthening financial stability.46 The G20 reviewed the progress in tax havens and non-cooperative jurisdictions, in order to protect public finances and the global financial system from risks. To keep pace with the growing phase, the FSB’s capacity was strengthened by giving it a strong political mandate and an institutional standing.

4.2.7 2012 Los Cabos Summit

Financial inclusion was an issue of importance for the Presidency. The Los Cabos summit came up with the Los Cabos Accountability Assessment Framework, along with the Growth and Job Action Plan. The plan was built on two major agendas: addressing near-term risks, restoring confidence, and promoting growth and strengthening the medium-term foundations for growth.

“The G20’s Los Cabos Summit has gotten off to a strong start on its central challenges of controlling the escalating Euro crisis, producing a credible plan to boost global growth and jobs, and raising resources for any rescues the International Monetary Fund (IMF) might need to be called on to take” (Kirton, 2012).47 Working to mitigate the Euro crisis, the G20 agreed to support Greece. In 2012, the tension in the financial markets was high due to the scare of the Euro crisis, Greek solvency, and vulnerabilities in emerging economies. Hence, the G20 welcomed the efforts taken by the Eurozone to tackle the crisis situation through a more integrated financial architecture, encompassing recapitalising the banking system, and financial restructuring. To move away from austerity and spur growth, they supported measures to bring European stability mechanisms for strengthening European firewalls, the Economic and Monetary Union, the European Investment Bank, etc., were put in place to take control of any other eruption of unprecedented bubbles. There were various pilot project bonds, and structural and cohesion bonds, to make a more targeted investments (Preyma, 2012).48 The G20 members were determined to overcome any crisis by breaking the feedback loop between sovereign countries and banks. Emerging surplus economies were recommended to carry out actions to increase domestic consumption by removing price and tax distortions and strengthening social safety nets. And advanced surplus economies or ones with weak private demand are instructed to promote domestic demand through liberalisation of service sectors and promotion of investment (G20, 2012a). 46

The G20 reasserted their aim “to achieve a single set of high quality global accounting standards and meet the objectives set at the London summit in April 2009, notably as regards the improvement of standards for the valuation of financial instruments” (G20, 2011a). 47 http://www.g20.utoronto.ca/analysis/120619-kirton-start.html. 48 http://www.g20.utoronto.ca/analysis/120626-preyma.html.

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“All G20 members have put forward structural reform commitments to strengthen and sustain global demand, foster job creation, contribute to global rebalancing and increase growth potential. From product market reforms working towards increasing competition to stabilising the housing sector, to labour market reforms, and to increasing investment in infrastructure” (G20, 2012a). Moreover, the G20 was committed to minimising negative spillovers by reiterating its interest in stabilising the international financial system through the monitoring of disorderly movements in exchange rates. In order to check transparency and accountability, Los Cabos came up with the Los Cabos Accountability Assessment Framework, along with the Growth and Job Action Plan. The Growth and Job Action plan was an extension of the Cannes Action Plan, which starts from the premise that cooperation and coordination will result in better economic outcomes (G20, 2012a). The plan was built on two major agendas which were Addressing Near-term Risks, Restoring Confidence, and Promoting Growth and Strengthening the Medium-term Foundations for Growth. There were various commitments from implementing medium-term fiscal plans, rebalancing global demand, fostering job creation, strengthening financial sector regulation, resisting protectionism, maximising growth that is balanced and sustainable, to minimising negative spillovers on other countries due to policies adopted for domestic purposes. The plan covered a comprehensive statement to put global growth back on track devoid of vulnerabilities by aiming for a strong base. “To further the work already done on global systemically important financial institutions (GSIFIs), the G20 leaders tasked the FSB, together with the International Association of Insurance Supervisors (IAIS), to complete their work on identification and policy measures for global systemically important insurers by April 2013. Likewise, the FSB and the International Organisation of Securities Commissions (IOSCO) will look at methodologies for identifying non-bank entities as well as important market infrastructures by the end of 2012” (Preyma, 2012). Before the Mexico Summit, the Mexican president launched the Financial Inclusion Challenge which covered: National Strategies for Financial Inclusion, Financial Education, and Consumer Protection. It was particularly an issue of importance for Mexico’s presidency, as it represents progress on the development agenda (Kabir, 2012).49 In 2012, another interesting factor that emerged was the division of the agenda for advanced and emerging countries. For example, for advanced countries, the agenda focused on implementing medium-term fiscal consolidation plans, whereas emerging markets adjusted their macroeconomic policies to support domestic demand ensuring price stability. Moreover, there was a distinction between medium-term, short-term, and long-term policies in order to get a better solution to different problems. For example, the European crisis needed immediate care, while at the same time advanced countries which are on track with medium-term commitments were advised to calibrate the pace of their fiscal consolidation by ensuring that their public finances are

49

http://www.g20.utoronto.ca/2012/2012-0619-loscabos.pdf.

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placed on a sustainable long-run path. Moreover, a country specific path was decided at this summit by giving commitments according to their financial environment.

4.2.8 2013 St. Petersburg Summit

The major themes for the St. Petersburg summit were: strengthening growth through quality jobs and investment; trust and transparency; and effective regulation plus the host additions with financing for investment and government borrowing and public debt sustainability. In St. Petersburg, the major agenda focused on long-term investment for sustainable growth and job creation and long-term financing for investment in infrastructure and small and medium sector enterprises. The base erosion and profit sharing programme was introduced. The G20 was also committed to tackling financial risks, increasing transparency and market integrity, and filling regulatory gaps and risks arising from shadow banking.

The eighth summit of the G20 took place in St. Petersburg, Russia, the first hosted by a group of members of BRICS and being a bridge between the group of established G8 and emerging country members of the G20 (Kirton, 2013). It was held at a time when the world economy was facing challenging issues: monetary policy contraction, rising interest rates, fiscal deficits, deficits, and debts in Europe, debt and monetary easing in Japan, and financial fragility and social instability in emerging economies like China, India, Brazil, and Turkey. The major themes for the St. Petersburg summit were: strengthening growth through quality jobs and investment; trust and transparency; and effective regulation plus the host additions with financing for investment and government borrowing and public debt sustainability (G20, 2013a). “St. Petersburg promises to be a summit of substantial success. It will continue to control the continuing Euro-crisis through another stage, help implement overdue G20 commitments on financial regulation and IFI reform, further tax fairness and transparency, launch the two Russian priorities onto the G20 agenda and strengthen the G20 process through its troika system, civil society involvement and accountability assessment” (Kirton, 2013). It was also claimed that the success in Russia will be driven by considerable shock induced vulnerability in finance and terrorism, through convergence on domestic economic, social, and political openness for stability, and by domestic political cohesion. Various policy actions were taken to contain key risks in areas with slower growth rates. The main challenges for global growth were unemployment among the youth, financial market fragmentation in Europe, insufficient level of private investment due to market uncertainties and internal rigidities, high public debt, volatility of capital flows, and incomplete rebalancing of global demand, etc. To deal with these challenges, an action plan was designed, to encourage economic activity and job creation, and cater to strong balanced growth. Continuing with the legacy, country specific measures were put in place. The action plan was divided into two parts,

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one dealing with supporting the recovery and addressing near-term risks and the other focused on strengthening the foundations for strong, sustainable, and balanced growth (G20 Action Plan, 2013c). To support the recovery and addressing near-time risks, advanced countries have committed to maintaining a flexible approach in their fiscal strategies while maintaining the stance for sustainable public finances. A flexible stance will allow automatic stabilisers to operate within the pace and composition of fiscal consolidation to economic conditions and fiscal space. Some countries promised measures to support growth by repurposing spending or allowing activities that could crowd in more private investment (G20 Action Plan, 2013c). On the other hand, with increased financial volatility, emerging markets agreed on necessary steps to create a resilient financial system by strengthening financial systems and supporting growth through balanced fundamentals.50 Central banks in Pittsburgh had committed that future changes in the monetary policy will be carefully calibrated and communicated. All advanced countries agreed to develop an ambitious and country specific medium-term fiscal strategies process to be adopted in the near future to lower the debt as a share of GDP to put the economy on a sustainable path. In St. Petersburg, the major agenda focused on long-term investment for sustainable growth and job creation and long-term financing for investment in infrastructure and small and medium sector enterprises. To boost jobs and investment, the leaders decided to come up with a country specific plan tangible in improving domestic investment environments which are more inclined towards long-term investment financing. G20 leaders made commitments to identify measures by the next summit to facilitate domestic capital market development and improve the intermediation of global savings. Regional development banks and the World Bank were motivated to come out with a plan to mobilise and catalyse additional financing for infrastructure investment. The leaders welcomed the focus on base erosion and profit sharing (BEPS), a project which was aimed at taxing economic activities which were generating profits and value. All leaders are committed to check for the application of this program in their respective countries and ensuring that tax rules should not encourage multinational enterprises to shift to low tax jurisdictions. The commitment to come up with a new single global standard for automatic exchange of information by February 2014 and to finalise technical modalities of effective automatic exchange by mid-2014 was put up for G20 countries and the OECD. The global forum was encouraged to complete the allocation of comprehensive country ratings for the effective implementation of information exchange upon request and monitored well (G20 Declaration, 2013a). 50

With respect to the monetary policy, the G20 highlighted that the “monetary policy will continue to be directed towards domestic price stability and supporting the economic recovery according to the respective mandates of central banks” (G20, 2013a). The G20 restated pledge “to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments” and “refrain from competitive devaluation” (G20, 2013a). The G20 stated that they “will continue to monitor financial market conditions carefully” (G20, 2013a).

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“G20 call on the Development Working Group in conjunction with the Finance Track, to work with the OECD, the Global Forum, and other IOs to develop a roadmap showing how developing countries can overcome obstacles to participation in the emerging new standard in automatic exchange of information, and to assist them in meeting the standard in accordance with the action envisaged in the St Petersburg Development Outlook” (G20 Declaration, 2013a).51 The G20 supported the implementation of the IMF-World Bank Debt Sustainability Framework for LowIncome Countries.52 In the area of financial regulation, the leaders discussed agendas completed in the previous five years, which included: 1. Implementation of new global capital standards (Basel III). 2. Necessary frameworks for OTC derivatives to be traded on exchanges or electronic trading platforms, centrally cleared, and reported. 3. Identified global systemically important banks and insurers, and agreed to subject them to heightened prudential standards to mitigate the risks they pose. 4. Implemented agreed on tools and procedures for the orderly resolution of large, complex financial institutions without taxpayer loss. 5. Progressed in addressing potential systemic risks to financial stability emanating from the shadow banking system. The reforms in the areas of building a stable financial regulatory framework are continuous and need regular updates according to the changing times. The G20 was committed to tackling financial risks, increasing transparency and market integrity, filling regulatory gaps, and addressing the risks from shadow banking, etc. The leaders were committed to establishing a resilient global financial system.53 The G20 welcomed a report by BCBS on regulatory consistency of risk-weighted assets.54 Newer actions on resolving cross-border obstacles were called for with the key recommendations by the IMF and the OECD. The G20 underlines the work on accounting standards convergence in order to enhance the resilience of the financial

51

“G20 continue to support the IMF Executive Board’s decision to integrate the process of reaching a final agreement on a new quota formula with the 15th General Review of Quotas. Leaders reiterate that Regional Financing Arrangements (RFAs) can play an important role in the existing global financial safety net. We reaffirm the common principles for cooperation between the IMF and RFAs that was adopted in Cannes.” 52 “G20 2013 reiterates that well developed local currency bond markets (LCBMs) play an important role in improving the resilience of the domestic economy and financial systems.” 53 “G20 encourages the FSB to continue to monitor, analyze and report on the effects of evolving regulatory reforms on EMDEs as a part of its overall implementation monitoring framework. Leaders will continue to cooperate on all financial regulation issues and look forward to further progress by our Finance Ministers, Central Bank Governors and the FSB when we next meet. They will also continue to monitor and assess the impact of financial regulatory reforms on the robustness of the financial system, stability and on economic growth, and on the availability of long-term finance for investment.” 54 “G20 reiterates commitment to implement Basel III according to internationally agreed timelines and welcome the progress that has been made since Los Cabos.”

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system and urges the International Accounting Standards Board and the US Financial Accounting Standards Board to complete it by the end of 2013.55 The G20 welcomed progress on “advancing financial inclusion and integrating consumer empowerment and protection” by GPFI and endorsed the extension of the G20 Basic Set into a more holistic set of the G20 Financial Inclusion Indicators, thereby enabling more informed financial inclusion target setting and monitoring (G20, 2013a). It also welcomed tools by the OECD/International Network for Financial Education (INFE) and the World Bank Group to measure financial literacy and evaluate financial education programmes.

4.2.9 2014 Brisbane Summit

Australia’s presidency structured discussions around two major themes: promoting stronger economic growth and employment outcomes and making global economy more resilient to deal with future shocks. The leaders resolved to adopt realistic policies aimed at lifting global GDP by almost 2 per cent and the Brisbane plan was adopted. It was also decided that the G20 will follow a structured approach in developing comprehensive growth strategies. The G20 took policy measures accommodating both near-term and medium-term challenges that could further strengthen the recovery. In order to lift employment, the major element that was identified at the St. Petersburg summit was global investments and the global infrastructure initiative was endorsed.

Building on the St. Petersburg summit, Australia’s presidency structured discussions around two major themes: promoting stronger economic growth and employment outcomes, and making the global economy more resilient to deal with future shocks. Though global growth recovered from the crisis, it is not back at its potential level, and the IMF revised its global growth forecasts downwards for two years (Australian G20, 2014). Many countries relied heavily on fiscal and monetary policies to foster growth after the crisis but such heavy dependence comes at a risk to the stability of the system; hence, G20 sought to achieve growth through a sustainable process, which is balanced for the long run. The framework for growth challenge as decided is shown in Fig. 4.2 in Annexure 3. During the 2014 summit, the finance ministers and leaders met four times a year. The very first meeting of the summit was held in February in Sydney. G20 leaders welcomed the signs of improvement in the global economy. But it was realised that despite the growth prospects, achieving a sustainable path was difficult, as the global economy faced weak demand due to higher unemployment. Volatility in financial markets was still high, and the level of public debt was higher. Hence, the leaders resolved to adopt realistic policies aimed at lifting global GDP by almost 55

“Leaders reiterated our call for further progress and encourage adherence to international cooperation and information exchange standards for financial supervision and regulation.”

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2%. To achieve this, the Brisbane Plan was adopted with the aim of increasing investments, lifting employment, enhancing trade, etc. (G20 February 2014).56 Moreover, strengthening and refining domestic macroeconomic, structural, and financial policy frameworks was necessary. “G20 will undertake reforms to remove constraints to private investment by establishing sound and predictable policy and regulatory frameworks and emphasising the role of market incentives and disciplines” (G20, 2014c). By the Brisbane summit, it was committed that the applicability of these measures practically and effectively will be delivered to counter base erosion and profit shifting (BEPS) across all industries. The G20 endorsed a Common Reporting Standard for the automatic exchange of tax information on a reciprocal basis. Along with this, the exchange of information on tax matters among the G20 members was to begin by the end of 2015. The G20 committed to cooperation across all jurisdictions for timely implementation of meaningful peer reviews including OTC derivatives (G20, 2014). The meeting of finance ministers and central bank governors was held in April 2014, with the aim of ensuring ambitious, realistic, and concrete measures to achieve strong, sustainable, and balanced growth (G20 April, 2014). These measures were decided to be reviewed in the September meeting. The ministers reaffirmed their attention to the area of lifting investment for reviving sustainable growth. Countryspecific actions would be discussed and reviewed at the 2014 summit. As part of their commitment to the problem of too-big-to-fail, the proposals would be developed by the Brisbane Summit (G20 April, 2014). At Brisbane, the leaders decided to lift the global economy by 2% at the end of 2018 from the trajectory of 2013. Second, it was decided that the G20 will follow a structured approach to developing comprehensive growth strategies. Third, by strengthening policy cooperation, the G20 was determined to step up the efforts to provide new momentum to the global economy. The state of the global economy, which was recovering in most advanced and developing countries, was studied, but most economies were still vulnerable to shocks, financial fragility remained, and existing risks were exacerbated by geopolitical tensions. “Economies are grappling with slower potential growth reflecting weaker investment, slower productivity growth, higher unemployment, and lower labour force participation” (G20, 2014a). Hence, the G20 decided to take policy measures accommodating both nearterm and medium-term challenges that could further strengthen the recovery by building confidence and increasing demand. The leaders’ summit was held on 15–16 November 2014 where the communiqué was broadly divided into three sections: 1. Acting together to lift growth and create jobs. 56

“Central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated. They will continue to implement our fiscal strategies flexibly to take into account near-term economic conditions. G20 continues full support for the G20/OECD BEPS Action Plan, and looks forward to progress as set out in the agreed timetable.”

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2. Building a stronger, more resilient global economy. 3. Strengthening global institutions. First, in order to lift employment, the major element that was identified at the St. Petersburg summit was global investments. The G20 endorsed the Global Infrastructure Initiative which aimed at a multi-year work programme, working towards lifting the quality of public and private infrastructure investments. The leaders agreed on voluntary lending practices to promote quality investment, particularly in infrastructure57 and that the G20 will work on data gaps and improve information on project pipelines to help better communicate between investors and their projects. Leaders decided to launch a Global Infrastructure Hub which will have a four-year mandate and will contribute to developing a knowledge-sharing platform and network between governments, the private sector, development banks, and other international organisations. The G20 welcomed the launch of the World Bank Group’s Global Infrastructure Facility which was expected to strengthen private sector investment. Leaders agreed on the goal of reducing the gap in participation rates between men and women in the member countries by 25% by 2025 in order to fulfil the agenda of reducing poverty and inequality. Second, to strengthen the resilience of the global economy and stability of the financial system, the G20 welcomed the FSB proposal for G-SIBs to hold additional loss-absorbing capacity, thereby protecting taxpayers in case of bankruptcy. Progress made in the area of shadow banking was commended and measures were put in place to reduce the risk for banking and non-banking institutions. However, the critical work of finalising a framework for resilient financial systems remained unfinished. The G20 committed to complete the work of the BEPS Action Plan along with the transparency of taxpayer-specific rulings by the end of 2015. “And to prevent cross-border tax evasion, G20 endorses the global Common Reporting Standard for the automatic exchange of tax information (AEOI) on a reciprocal basis” (G20, 2014a). The leaders welcomed the Financial Centre’s commitments and engagement of developing countries in the BEPS process. Third, the last area of focus that G20 was committed to, was maintaining a strong and quota-based adequately resourced International Monetary Fund (IMF).58 The G20 welcomed the increased representation of emerging economies in the FSB. In the end, leaders resolved towards implementing comprehensive growth strategies with the agenda of sustainability.59 57

G20 will continue to work with multilateral development banks, and encourage national development banks, to optimise use of their balance sheets to provide additional lending. 58 They reaffirm commitment in St Petersburg and in this light we are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed in 2010 and the 15th General Review of quotas, including a new quota formula. 59 IMF governance—2010 Quota and Governance Reform—In Cannes, leaders committed to “expeditiously implement in full the 2010 quota and governance reform of the IMF.” For the 2010 reforms to enter into force, acceptance of the board reform amendment by three-fifths of the Fund’s 188 members (i.e. 113 members) having 85% of the Fund’s total voting power is required. As of 25 October, 124 members having 68.6% of voting power had accepted the amendment. Four G20 members having 21.3% of voting power have yet to complete their domestic procedures for

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4.2.10 2015 Antalya Summit

In the 2015 Antalya summit, 2 per cent growth rate agenda was taken forward and the focus was on shifting to inclusive and robust growth achieved through collective actions. The presidency’s priorities were based on three i’s: inclusiveness, implementation, and investment for growth. The Antalya action plan encompassed growth strategies along with implementation schedules. Special focus was given to promoting long-term financing for SMEs.

The 2015 Turkey summit took a step forward and furthered the commitments made by the Australian presidency. The ambitious 2% growth rate agenda was taken forward, and the focus was on shifting to inclusive and robust growth achieved through collective actions. The presidency’s priorities were based on three is, which are inclusiveness, implementation, and investment for growth. The agenda of the 2015 summit was built on three pillars: strengthening the global recovery and lifting potential, enhancing resilience, and buttressing sustainability (Kirton, 2015).60 ,61 Strengthening the Recovery and Lifting the Potential Even after major economies were on the path of recovery, there was unevenness in the global economic growth and risk and uncertainties in financial markets.62 The leaders’ top priorities were to effectively implement growth strategies, support structural reforms to lift potential growth, and promote inclusiveness to reduce inequality. “The leaders committed to strive more and take prompt action to expedite implementation of our remaining commitments” (G20, 2015a, 2015b). A robust framework to keep a check on implementation of policies was developed in 2015. The Antalya Action Plan encompassed growth strategies along with implementation schedules. Though growth was occurring in different G20 countries, this amendment. Quota Formula Review—Contributing to the comprehensive review of the quota formula was a key focus of the IFA Working Group during 2012. In June, the Working Group reported its initial discussions on the quota formula review to Leaders, who committed to “completing the quota formula review by January 2013 and the next general review of quotas by January 2014,” agreed that the formula should be consistent with the principles identified in the 2008 review, and reaffirmed “that the distribution of quotas based on the formula should better reflect the relative weights of IMF members in the world economy, which have changed substantially in view of strong GDP growth in dynamic EMDCs.” Following the Los Cabos summit, the Working Group agreed that IMF governance reform should be the priority issue for the second half of 2012 (see also Annexure 6). 60 http://www.g20.utoronto.ca/analysis/151116-analysts.html. 61 See Annexure 4. 62 Reiterate: sound macroeconomic policies in a cooperative manner, ensure price stability and support economic activity, implement fiscal policies flexibly, global rebalancing, mitigate uncertainty, minimise negative spillovers and promote transparency, adequate global financial safety net, lift collective G20 GDP by an additional 2% by 2018.

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the constant fear of increasing inequality was hovering over the world economy. To deal with this issue, the leaders in this summit wanted to bring a comprehensive and balanced set of economic, labour, education, and social policies. Sustainable growth depends on investments. The leaders developed guidelines and best practices for public–private partnership (PPP) models. Alternative financing structures like asset-based financing, and transparent securitisation to facilitate better intermediation for SMEs were also encouraged. New toolkits were to be developed for financing infrastructure projects. Special focus was given to promoting long-term financing for SMEs, and hence, the Joint Action Plan on SMEs Financing was welcomed at this summit. Enhancing resilience To continue with the legacy of enhancing the resilience of financial institutions, the G20 completed the core elements of the financial reform agenda, finalised the common international standard on total loss absorbing capacity (TLAC) for global systemically important banks, and agreed on the first version of higher loss absorbency requirements for global systemically important insurers (G20, 2015a).63 The FSB’s report on the implementation of reforms was welcomed and an agenda for full commitment and consistent implementation of the global financial regulatory framework was initiated. G20 leaders endorsed the ambitious G20/OECD Base Erosion and Profit Shifting (BEPS) project but also understood that widespread and consistent implementation was critical to the effectiveness of this project. The exchange of information on crossborder tax rulings was urged for all countries. The OECD was called on to come up with an inclusive framework to monitor the progress of implementation of BEPS in different countries.64 The G20 reaffirmed the Special Drawing Rights (SDR)-based composition will continue to reflect upon the role of currencies (G20, 2015a). The G20 welcomed the progress of “pari passu” clauses in international sovereign bond contracts which will contribute to bringing order and predictability to sovereign debt restructuring processes. The G20 called upon the IMF to come up with more such clauses in consultation with other parties. “Strong emphasis was on the importance of the full implementation of the 2010 IMF Quota and Governance Reform” (G20 Fact Sheet, 2015).

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Reiterate: monitor and, if necessary, address emerging risks and vulnerabilities in the financial system, many of which may arise outside the banking sector expedite efforts to make further progress in implementing the over-the-counter (OTC) derivatives’ reforms to review the robustness of the global regulatory framework and to monitor and assess the implementation and effects of reforms. 64 G20 reaffirms previous commitments to information exchange on-request as well as to automatic exchange of information by 2017 or end-2018. Reaffirms: commitment to maintaining a strong, quota-based and adequately resourced IMF, agreement that the heads and senior leadership of all international financial institutions should be appointed through an open, transparent and merit-based process, reiterate the importance of enhancing staff diversity in these organisations.

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Buttressing Sustainability For sustainable development, the G20 called for an action plan in 2016 to discuss Sustainable Development Goals (SDGs) and the Addis Ababa Action Agenda. In order to bring the global economy on the path of development and poverty eradication, the G20 called for a strong role of the private sector through inclusive business. This stressed promoting opportunities for low-income people and communities so that they can participate in markets. The G20 National Remittance Plan was developed, which included concrete actions towards reducing the global average cost of transferring remittances to 5%. “G20 promoted financial inclusion by helping to open up access to payments, savings, credit and other services” (G20, 2015a).

4.2.11 2016 Hangzhou Summit

The Chinese presidency focused on the four major agendas: strengthening the G20 growth for catalysing new drivers of growth; innovative growth by forging synergy among fiscal, monetary, and structural policies; working harder to build an open world economy and rejecting protectionism; and inclusive growth. In the summit, the Hangzhou action plan was launched. Further, the G20 blueprint on innovative growth including policies and actions in innovation, industrial revolution, and digital economy was endorsed; a new industrial revolution action plan was released; enhanced structural reform agenda was promoted; stable and resilient international financial architecture was endorsed; and the G20 initiative on supporting industrialisation in Africa and less developed countries was launched for strengthening inclusive growth.

Even after growth picked up in most areas, there remained a downside risk to growth due to volatility in financial markets, fluctuations in commodity prices, sluggish trade and investment, and slow productivity and employment growth in some countries. Also, geopolitical tensions added to it.65 The Chinese presidency focused on the four major agenda items with the narrative of sustainable growth in the background which is set out in Annexure 5. The Hangzhou Action plan was launched with updated policy actions for each country including new and adjusted macroeconomic and structural policy measures (G20 Communique, 2016a).66 The G20 endorsed the G20 Blueprint on Innovative Growth as a new agenda. This comprised policies and actions in the area of innovation, industrial revolution, and digital economy.

65

http://www.g20.utoronto.ca/2016/160905-communique.html. Reiterated commitments—Monetary Policy, Fiscal Policy, exchange rate commitments, implementation of growth strategies, reduce excessive imbalances by promoting greater inclusiveness.

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Breaking a new Path for Growth A G20 Task Force supported by the OECD was to be put in place to take forward the agenda of innovation. The G20 2016 Innovation Plan was formulated to pursue pro-innovation strategies and lead to investment in science, technology, and innovation (STI) and enhance skills development in STI. The G20 supported voluntary knowledge diffusion and technology transfers and supported the efforts of promoting open science. The G20 released a New Industrial Revolution Action Plan committed to strengthening communication and cooperation among G20 countries and relevant research on a new industrial revolution. The new plan was to address employment skill challenges, encourage more cooperation, and support industrialisation, and new industrial infrastructure. The G20 supported this new industrial era in developed and low-income countries and ensured the benefits were extended to youth, women, and disadvantaged groups in order to support an inclusive growth plan. An enhanced structural reform agenda was to be delivered with nine priority areas.67 Efficient Global Economic and Financial Governance The G20 endorsed the Stable and Resilient International Financial Architecture and continued to monitor excessive capital flow volatility. Some elements of this were: . The IMF’s review of country experiences and emerging issues in handling capital flows. . Ongoing work on the review of the OECD Code of Liberalisation of Capital Movements. . Strengthen the Global Financial Safety Net (GFSN), with a strong, quota-based, and adequately resourced IMF. . More effective cooperation between the IMF and regional financing arrangements (RFAs), respecting their mandates. . Completion of the 15th General Review of Quotas, including a new quota formula, by the 2017 Annual Meetings.68 . Broader use of SDR, such as issuance of SDR bonds. The leaders remained committed to finalising the last critical elements of total loss absorbing capacity (TLAC) as well as effective cross-border solutions. The G20 supported the Paris Club’s discussion on a range of sovereign debt issues (G20 Communique, 2016). Inclusive and Interconnected Development The G20 launched the G20 Initiative on supporting industrialisation in Africa and less developed countries to strengthen inclusive growth. Some of the voluntary 67

Reiterate the essential role of structural reforms in boosting productivity and potential output, as well as promoting innovative growth in G20 countries, debt restructuring process, contractual based sovereign bonds, Basel Committee on Banking Supervision (BCBS). 68 Reaffirm that any realignment under the 15th review in quota shares is expected to result in increased shares for dynamic economies in line with their relative positions in the world economy.

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policy actions that were offered included “promoting inclusive and sustainable structural transformation; deepening, broadening and updating the local knowledge and production base; promoting investment in sustainable and secure energy, including renewables and energy efficiency; exploring ways to develop cooperation on industrial production and vocational training and sustainable and resilient infrastructure and industries; supporting industrialisation through trade in accordance with WTO rules; and leveraging domestic and external finance and supporting equitable access to finance—with a focus on women and youth; and promoting science, technology and innovation as critical means for industrialisation” (G20, 2016b). Illicit activities like deliberate trade mis-invoicing were to be monitored along with cross-border financial flows.69 The G20 supported the action by eleven MDBs, investing in high-quality infrastructure projects in order to improve the quality and strengthen the project pipelines. This would lead to infrastructure investment in developing countries as well as catalyse private resources. Quality infrastructure not only ensures economic efficiency but reduces loss during the occurrence of any catastrophe and hence addresses the social and economic impacts aligned with development strategies. “We note that infrastructure connectivity is the key to achieving sustainable development and shared prosperity” (G20, 2016b). The G20 endorsed the G20/OECD Guidance Note on Diversification of Financial Instruments for Infrastructure and SME and welcomed the Annotated public–private partnership (PPP) Risk Allocation Matrices completed by the GIH to help developing countries better assess infrastructure risks (G20, 2016b).

4.2.12 2017 Hamburg Summit

At the summit, the Hamburg Action plan was embraced that included policy actions for tackling challenges in economies, fostering inclusive growth, and enhancing resilience. The German Presidency launched “Compact with Africa” as part of the summit. New measures were taken to strengthen the international financial architecture, improve financial sector regulation and development, and collaborate on international taxation.

In 2017, the growth prospects were improving. In fact, investment also picked up, but the downside risk always remained due to weak productivity and income inequality. Hence, the pace of growth was still lower than the potential level. The Hamburg Action Plan included policy actions for tackling challenges in economies, focusing on initiatives that foster inclusive growth, and enhance resilience.70 The 69

G20 will continue to support qualitative infrastructure development. G20 reiterates—policy tools—monetary, fiscal and structural, structural reform in order to achieve sustainable growth, excess volatility and disorderly movements in exchange rates can have adverse

70

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new measures were taken to strengthen the international financial architecture, and improve financial sector regulation and development and collaborate on international taxation. An initiative called “Compact with Africa” was launched to foster private investment. It was demand-driven and formulated policies respecting country-specific priorities. It provided instruments that could be applied to tailor-made investment packages by the multi-stakeholders, IFIs, bilateral partners, etc. Moreover, the importance of global supply chains was realised for achieving balanced growth, and to achieve inclusive supply chains, the leaders promoted labour, social, and environmental standards in the international framework in tandem with the UN, the ILO, etc. Building resilience “In 2017, Finance Ministers and Central Bank Governors agreed on a “Note on Resilience Principles in G20 Economies” (G20 Action Plan, 2017)71 which was to be used to foster the agenda of resilience in economies. The measures that were put forward were: . achieve sustainable growth in the face of risks and pressures related to structural challenges. . avoid excessive build-up of risks, imbalances, and vulnerabilities in the face of shocks. . absorb and overcome severe shocks and return quickly to a sustainable economic growth path. Resilient Global Financial System The leaders remained committed to the agendas for reforming the global financial system, including the G20 financial reform agenda. The leaders planned to finalise the Basel III framework without increasing capital requirements across banks, instead allowing for a level playing field. The G20 continued to monitor volatility in financial markets and emphasise the need for progress in transforming shadow banking into resilient market-based finance. International Financial Architecture In continuation with the earlier strengthening of IFIs, the G20 continued to work towards the completion of the 15th quota review and to encourage partnership between RFAs and the IMF. Operational Guidelines for Sustainable Financing reflecting responsibilities of borrowers and lenders were welcomed in order to ensure debt sustainability. The MDBs’ study on mobilising private capital was welcomed

implications for economic and financial stability, exchange rate commitments, calibrate and clearly communicate our macroeconomic policy actions and structural reforms to reduce policy uncertainty, minimise negative spillovers and promote transparency. 71 http://www.g20.utoronto.ca/2017/2017-g20-hamburg-action-plan.html.

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by the leaders and the G20 endorsed the MDBs’ Joint Principles and Ambitions on crowding in private investment. This included: . providing a common framework among MDBs and quantifying MDBs ability to crowd-in private funds. . setting a target of a 25–35% increase in mobilisation over the next 3 years. The G20 fostered sound and sustainable financing properties to contain the buildup of sovereign debt in low-income countries while allowing adequate access to foreign financing.72 Capital Flows The G20 endorsed open capital markets. It recognised the importance of improving the system of international capital flows, enhancing monitoring of capital flows, and management of risks. The G20 supported the importance of data collection and hence braced for the second phase of the Data Gaps Initiative (DGI-2), including its timely implementation. “G20 welcomes the IMF’s recent review of experience with the Institutional View on the Liberalisation and Management of Capital Flows and its work on the role of macroprudential policies in increasing resilience to large and volatile capital flows and welcomes the ongoing review of the OECD Code of Liberalisation of Capital Movements, including work on appropriate flexibility, while maintaining the Code’s current strength and broad scope” (G20 Action Plan, 2017). International Tax Cooperation and Financial Transparency The G20 welcomed the framework of the Common Reporting Standard (CRS) under the OECD for creating the first automatic exchange of financial information. It called on jurisdictions to sign the multilateral Convention on Mutual Administrative Assistance in Tax Matters and to commit to implementing CRS in their domestic legislation. The OECD was tasked to look into the implementation of CRS in these jurisdictions and come up with a report in 2018. The G20 continued its support to supporting BEPS and welcomed the Inclusive Framework on BEPS. All the countries were called on to implement four minimum standards, including on the automatic exchange of Country-by-Country reporting. The G20 requested all jurisdictions to consider the applicability of practical tools for enhanced tax certainty as proposed in a report submitted by the IMF and the OECD.

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The G20 will continue to promote the incorporation of enhanced collective action and pari passu clauses in new issuances of sovereign bonds and explore options for incorporation into existing stock where feasible. G20 reaffirms the importance of the development of local currency bond and capital markets, along with the monitoring of associated risks and appropriate supervision, to improve the resilience of the domestic economy and financial system.

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4.2.13 2018 Buenos Aires Summit

With the theme of “Building consensus for fair and sustainable development,” the 2018 G20 Summit identified three key issues for the agenda: the future of work, infrastructure for development, and a sustainable food future. At the summit, the G20’s own Principles for the Infrastructure Project Preparation Phase were promoted; a framework for LICs’ debt distress was discussed; more commitments for regulating crypto assets were made; and international cooperation to advance pro-growth tax policies was welcomed.

At the time of the 2018 Buenos Aires Summit, while global economic growth was picking up, unemployment remained at risk. Moreover, the downside risk to growth in the short and medium term remained high. These included rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality, and structurally weak growth, particularly in some advanced economies. The G20 continued to move on a sustainable growth path by monitoring the fiscal, monetary, and structural tools.73 The Argentinian presidency selected the theme “Building consensus for fair and sustainable development,” for the 2018 G20 Leaders’ Summit, and identified three key issues for the agenda: the future of work, infrastructure for development, and a sustainable food future (IISD, 2018).74 The G20 endorsed the Menu of Policy Options for the Future of Work which would be involved harnessing technology for strengthening growth and productivity. It would support people during transitions and address distributional challenges, and secure sustainable tax systems. It reiterated the importance of international cooperation and promoting gender equality. On the infrastructure front, the G20 welcomed the progress on the Roadmap to Infrastructure as an asset class. The G20 endorsed its own Principles for the Infrastructure Project Preparation Phase which were put in place to deliver a pipeline of bankable projects and achieve greater standardisation in the contract making in order to attract private investors by working on assessments of project rationale, appraisal, commercial viability, long-term affordability and deliverability (G20, 2018). Moreover, the MDBs’ Infrastructure Cooperation Platform was welcomed for strengthening and promoting MDBs as a system. The G20 was regularly monitoring cross-border capital flows and reaffirmed its commitment to strengthening global safety nets. The IMF was recognised as the major initiator of the global safety net; hence, the G20 pledged to provide adequate 73

“Monetary policy will continue to support economic activity and ensure price stability, consistent with central banks’ mandates. Fiscal policy should be used flexibly and be growth-friendly, prioritise high quality investment, while enhancing economic and financial resilience and ensuring debt as a share of GDP is on a sustainable path. Continued implementation of structural reforms will enhance growth potential. G20 reaffirms exchange rate commitments made in March. G20 will communicate macroeconomic and structural policy action. International trade and investment are important engines of growth, productivity, innovation, job creation and development.” 74 https://sdg.iisd.org/events/2018-g20-leaders-summit/.

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funding and to meet a goal of finalising new national quotas in time (The Hindu Business Line, 2018).75 A new quota formula was agreed upon under the 15th General Review of Quota for the realignment of quota shares in line with relative positions in the world economy (G20, 2018a). The G20 continued to monitor debt vulnerabilities in low-income countries (LICs) and welcomed the operational guidelines for sustainable financing. A framework for debt distress LICs was discussed focusing on building capacity in public financial management, strengthening domestic policy frameworks, and enhancing information sharing. The G20 supported the ongoing work by the IMF, the WBG, and the Paris club on LICs debt towards the broader inclusion of emerging creditors (G20, 2018b). The G20 wanted an open financial system that is resilient and supportive of growth. Evaluations by the FSB and SSBs of the reforms on infrastructure financing and incentives to centrally clear over-the-counter derivatives were welcomed.76 “G20 looks forward to continued progress on achieving resilient non-bank financial intermediation and stepped up efforts to ensure that the potential benefits of technology in the financial sector can be realised while risks are mitigated” (G20, 2018b). More commitments were made to regulate crypto-assets, and they were welcomed as new technological innovations for broadening the economic prospects. Though crypto-assets do not at this point pose a global financial stability risk, the G20 welcomed updates provided by the FSB and the SSBs and looks forward to their further work to monitor the potential risks of crypto-assets (G20, 2018a).77 The G20 continued to support its stance on international taxation and transfer pricing rules. It welcomed international cooperation to advance pro-growth tax policies. The G20 was expected to follow consensus-based solutions for the impact of digitalisation of the economy on the international tax system, add updates from 2019, and be finalised by 2020. The G20 welcomed the commencement of the automatic exchange of financial account information and defensive measures to be considered for jurisdictions that have not implemented tax transparency standards. The G20 updated growth strategies in 2015, 2016, 2017, and 2018 with new measures aimed at raising the effectiveness of original actions and further boosting growth (OECD, 2018).

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https://www.thehindubusinessline.com/news/world/g20-summit-A-highlight/article25646 867.ece. 76 “G20 will continue to monitor and, if necessary, tackle emerging risks and vulnerabilities in the financial system; and, through continued regulatory and supervisory cooperation, address fragmentation”. 77 “G20 reiterate our March commitments related to the implementation of the FATF standards and we ask the FATF to clarify in October 2018 how its standards apply to crypto-assets.”

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4.2.14 2019 Osaka Summit

The Japanese Presidency focused on three themes: risks and challenges to the global economy; concrete actions to strengthen medium-term growth potential; and policy responses to the economic and social technological changes stemming from both innovation and globalisation. The G20 Action Plan on Adaptation and Resilient Infrastructure formed part of the discussions; the G20 Principles for Quality Infrastructure Investment were endorsed; commitments on strengthening global safety nets were reaffirmed; and commitments on debt transparency and secure debt sustainability along with the commitment on BEPS were reiterated.

By this summit, the G20 had successfully completed 10 years since the global financial crisis and though the summit managed to steer the global economy from the financial crisis, downside risks due to global tension from trade wars and geopolitical issues still remained. With the G20 covering 85% of global GDP, Japan focused on three themes: . Risks and challenges to the global economy; . Concrete actions to strengthen medium-term growth potential; and, . Policy responses to the economic and social changes stemming from both technological innovation and globalisation. The agenda of free trade and innovation was used in order to tackle future economic and financial crises. Global Economy Though growth had recovered in most regions, downside risks persisted, partly due to financial volatility and rising geopolitical tensions. The G20 reaffirmed its fiscal and monetary commitments.78 The G20 acknowledged that though there has been a narrowing of the gap in global imbalances in emerging and developing economies, they still remained large and persistent as stock positions continued to diverge. The G20 calibrated macroeconomic and structural policies which are country specific to address these imbalances. Fostering Robust Global Economic Growth In order to realise the potential of growth at its peak, it is important to bring the tool of innovation into the picture with the aspect of advanced digitalisation and application of emerging technologies. Effective use of data acts as an enabler of growth and development. Though cross-border flow of data generates higher productivity, it raises issues of privacy at the same time. The G20 continued to address these challenges by facilitating data flows freely for gaining consumer and business trust. “G20 78

In 2019, the G20 reiterated commitments on fiscal and monetary policy, providing public finance, engaging the private sector, and mobilising private finance and investment (G20 Action Agenda, 2019).

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supported the sharing of good practices on effective policy and regulatory approaches and frameworks that are innovative as well as agile, flexible, and adapted to the digital era, including through the use of regulatory sandboxes” (G20 Declaration, 2019).79 G20 Action Plan on Adaptation and Resilient Infrastructure This was taken forward by the leaders on the basis of the outline from the G20 Adaptation Work Program (2018–2019). “The Action Agenda contains a variety of actions on climate change adaptation, disaster risk reduction, and quality and resilient infrastructure at multilateral, bilateral, regional, national, and local levels” (G20 Action Agenda, 2019).80 The actions included in this plan were: . Comprehensive approach in adopting disaster risk reduction (DRR), sustainable development plan, adaptation. . Accumulate and sharing of knowledge information, and best practices for adaptation planning. . Enhancing the enabling environment and developing capacities. . Providing public finance, engaging the private sector, and mobilising private finance and investment. . Promoting ecosystem-based approaches. Along with these, a country specific plan comprising commitments according to requirements was designed and discussed by the leaders. Each country was reviewed on the basis of these five major approaches, and the design was planned accordingly. The G20 endorses the G20 Principles for Quality Infrastructure Investment as a common strategic direction and high aspirations. In order to reduce the infrastructure gap, the G20’s efforts are in line with the Roadmap to Infrastructure as an Asset Class and stress the importance of maximising the positive impact of infrastructure while promoting private investment. Global Finance The G20 supported the progress made on the Eminent Persons Group (EPG) proposals, including on country platforms, and efforts by the World Bank Group (WBG) to enhance risk insurance in development finance. The G20 reaffirmed commitments to strengthening global safety nets with a strong quota by IMF along with concluding the 15th General Review of Quotas by the end of 2019 (G20, 2019). The G20 reiterated its commitments to debt transparency and secure debt sustainability and called on the IMF and the WBG to continue their efforts in strengthening borrowers’ capacity in the areas of debt recording, monitoring, and reporting, debt management, public financial management, and domestic resource mobilisation, under their multi-pronged approach. It urged the IMF and the WBG to continue 79

https://www.mofa.go.jp/policy/economy/g20_summit/osaka19/en/documents/final_g20_osaka_ leaders_declaration.html. 80 https://www.mofa.go.jp/policy/economy/g20_summit/osaka19/pdf/documents/en/annex_15. pdf.

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their efforts to deepen their analysis of collateralised financing practices. The G20 welcomed the completion of the voluntary self-assessment of the implementation of the G20 Operational Guidelines for Sustainable Financing and the IMF-WBG note on the survey results and policy recommendations and applauded the countries that have completed the survey.81 The G20 also supported the work of the Institute of International Finance on the Voluntary Principles for Debt Transparency to improve debt transparency and sustainability of private financing. Recent achievements in tax transparency, including the progress on automatic exchange of information for tax purposes, were hailed. The G20 reiterated its commitment to BEPS and welcomed progress on addressing tax challenges arising from digitalisation under BEPS. A list of jurisdictions that have not satisfactorily implemented the internationally agreed tax transparency standards was updated, and it was suggested that defensive measures will be taken against the defaulters. The G20 welcomed the United Nations Security Council Resolution 2462 and stressed the role of the FATF in combating corruption. The G20 reiterated its commitments to fight these issues and to reports given by the FATF in monitoring risks and opportunities of financial innovation. Moreover, G20 countries reaffirmed their commitments to applying FATF standards for virtual assets and cryptocurrencies. The G20 welcomed the IOSCO’s work on crypto-asset trading platforms related to consumer and investor protection and market integrity along with the FSB report on potential gaps relating to these assets. The FSB was directed to continuously monitor risks from these assets in order to reap its benefits. Since 2008, the G20 has remained committed to an open and resilient financial system and has been timely in implementing financial regulations based on the world economy. The G20 continues to monitor the progress of the FSBs reporting on SME financing and address vulnerabilities and emerging risks to financial stability, including with macroprudential tools. The G20 will address the negative effects of market fragmentation with regulatory and market supervision. “Mobilising sustainable finance and strengthening financial inclusion is important for global growth. We welcome private sector participation and transparency in these areas” (G20 Communique 2019).82

4.3 Scope of the G20 Presidency The scope that a G20 Presidency allows for when a country takes up the Presidency is discussed in this section. This has primarily been analysed through the lens of agenda setting. Annexure Table 4.1 shows this across summits and Annexure Table 4.5 shows this across the agenda. Annexure Table 4.6 presents a snapshot of the various 81

G20 supports the ongoing work of the Paris Club, as the principal international forum for restructuring official bilateral debt, towards the broader engagement of emerging creditors and welcome India associating voluntarily with the Paris Club to cooperate in its work on a case-by-case basis. 82 https://www.mof.go.jp/english/international_policy/convention/g20/annex.htm.

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summits and the global and domestic political economy (of the country with the presidency) at the time of the summit. Annexure Table 4.5 depicts briefly a list of agendas that were discussed at each summit. The four core agendas that have been discussed 14 times include (1) the global economy, fiscal and monetary policies; (2) international financial institutions; (3) financial sector reform and regulation; (4) International Taxation. Others have been discussed 8–13 times and include (1) infrastructure investment and spending; (2) exchange flexibility; (3) climate change; (4) structural reforms; (5) financial inclusion; (6) reducing imbalances; and (7) global financial safety nets. Agendas are devised keeping in view the domestic economy in question; international political economy; global economy and growth prospects; economic trends and shocks in the G20 countries; consideration of bringing to the table agenda items that cater to counterparts’ issues and secure buy-in from other G20 peers, as has been discussed in the book.83 Observation from the earlier G20 summits has been that the agenda is constituted of the extant issues as well as new issues. Together with this, any exigent issue that is warranted by the underlying world economic scenario is also taken up. For instance, a substantial part of the agenda was influenced by the crisis’ effects during the time surrounding the global financial crisis, and during the Euro crisis, the summit deliberations made room for the same. Chin and Dobson (2016) argue that it is required of each G20 host to take forward the agenda and commitments of the earlier summit. They state that “in theory, the next host is obligated to follow through on the commitments previously agreed to by leaders, where those commitments cannot be implemented fully in a single year.”84 Nevertheless, they point out that every G20 President has some scope to manoeuvre: “in reality, there is a measure of discretionary authority for each host to interpret and re-interpret the preceding outcomes. The next host also has leeway to decide where, how, and why to add new items. The room to add is correlated to the decision about how much of the preceding agenda to take on, and exactly how to do so.” In this respect, they allude to the Mexican Presidency. They underscore that Mexico took over a wide commitments list from its predecessor, France (Chin and Dobson, 2016). Mexico aimed to shrink the agenda to make space for the addition of a couple of items that aligned with their domestic priorities; however, for the major part, they only advanced the Cannes summit commitments (Chin and Dobson, 2016). The leeway for the host country to acquire the Presidency also depends on whether there are any crises facing the world or there is any other exigent issue that the world is battling that requires international attention. If there is any such issue, it takes up some space on the agenda depending on the extent of damage or potential damage that it has inflicted or is likely to inflict. 83

This has been discussed in the sub-section on Process of Agenda Setting in the book. Chin and Dobson (2016) underscore that “ensuring continuity and follow-through on the summit agenda, as the host presidency rotates from country to country, has proven to be a serious challenge for the G20. This is so even when the intention of the next host, at least as stated, has been to follow through on previous obligations and priorities, rather than take on an ambitiously transformative agenda.”

84

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A binding constraint on the room to manoeuvre that is allowed for by a G20 Presidency in terms of agenda is consensus gaining. Garnering consensus on various issues is key to making the summit successful; since the more agreement there is on a topic, the more likely it is to be cemented in the form of commitment(s). In this case, the issues that may not garner sufficient involvement from the members are less likely to make it to the agenda. For the new issues that are introduced, there is an additional constraint: the issue should not be highly domestic. For instance, the theme of Future of Work that was introduced in Argentina’s G20 Presidency in 2018 was believed to be extremely domestic, an issue that only resulted in an exchange of information and no coordination.85 Further, this issue was also not taken up by any further summit. An issue that is too domestic is also unlikely to gain consensus and result in tangible outcomes.

4.3.1 Global Economy and Growth Framework The state of the global economy is appraised in every meeting of the G20 finance ministers and central bank heads. The appraisal is succeeded by deliberations regarding various tools and measures that can be embraced for improving the growth of the global economy. Fiscal considerations, appropriate monetary policy, and structural reforms all have been discussed under the G20 Finance Track under the broader umbrella of the agenda item of the Global Economy and Growth framework. This section details the focus of the finance track on the global economy and responses towards its growth in the form of fiscal policy, monetary policy, and structural reforms as manifested in their commitments and deliberations. The trajectory of this agenda item has been tracked and traced in tandem with the evolving global economic picture starting from the first G20 summit that was set against the background of the global financial crisis in the ensuing discussion (Fig. 4.1). At the time of the 2008 Washington summit, the world economy was battling the global financial crisis and the downturn triggered by it (G20, 2008a). Economic growth slowed glaringly in the advanced economies with many economies finding themselves in or on the brink of recession (G20, 2008a). Besides slower growth, emerging economies faced external financing pressures (G20, 2008a). A prominent absence of confidence led to an acute credit crunch (G20, 2008a). The world economic slowdown caused commodity prices to plunge thereby reducing inflationary pressures, particularly in the advanced economies (G20, 2008a). This provided the central banks with room to manoeuvre in terms of monetary easing (G20, 2008a). Even though there was increased space for monetary easing, it was pointed out that the countries experiencing currency depreciation and second round effects may be facing inflationary pressures (G20, 2008a). The finance ministers and central bank heads stated their resolve to “take all necessary steps to foster non-inflationary growth in a stable and sustainable manner 85

Based on interaction with stakeholders.

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Fig. 4.1 Global Economy and Growth Framework: Agenda Development across G20 summits. Source Authors’ compilation

according to the needs and available instruments in our respective countries, including through monetary and fiscal policy” and appreciated the measures taken by various countries for steadying financial markets and reinstituting credit flow to buttress global economic growth (G20, 2008a). Expressing the concern about the crisis’s effect on the real economy via the transmission channels of trade, credit, and currency, they specifically considered the short-term challenges to growth created by the crisis (G20, 2008a). Encouraging countries to keep away from protectionist trade and investment measures, they reaffirmed backing for a timely conclusion of the Doha Development Round of trade negotiations (G20, 2008a). Acknowledging that fiscal policies worked as a crucial instrument for dealing with the financial crisis, they concurred that the nations must employ all their policy flexibility in conformity with their extant situation to bolster sustainable growth with due consideration to fiscal sustainability (G20, 2008a). Noting the significance of taking up sound monetary policies, they stated that the monetary authorities needed to relentlessly oversee economic developments and take the required actions (G20, 2008a). During the time of the 2009 London summit, the global economic activity was nosediving (IMF, 2009a) as the system came under increasing strain from the global financial crisis. Advanced economies encountered acute declines indicating “an intensification of the corrosive interplay between the financial crisis and real activity, notwithstanding continued policy effort” (IMF, 2009a). Furthermore, most nations aggressively slashed interest rates (G20, 2009c). Indicating “decisive, coordinated and comprehensive action” taken for stimulating growth and employment, the finance ministers and central bank heads stated that they are prepared to deploy

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all required measures to re-establish growth (G20, 2009c). They urged enforcement of all the announced policy measures and pledged to wrestle with protectionism in all forms and sustain open trade and investment (G20, 2009c). They stated that the G20 central banks will sustain expansionary policies as long as required, employing all monetary policy instruments (even the unconventional ones) in tandem with price stability and resolved to ensure long-run fiscal sustainability (G20, 2009c). The time of 2009 Pittsburgh summit was a critical point of transition from crisis to recovery (G20, 2009b). After pronounced declines, global economic growth ventured into positive territory (IMF, 2009b). Downside risks diminished to a certain degree (IMF, 2009b). However, the recovery was uneven and reliant on policy support (G20, 2009e). High unemployment was a key challenge (G20, 2009e). The Pittsburgh summit was able to draw attention away from the near-term aim of tackling the crisis to medium- and long-term objectives (Dong-Hwi, 2009) and the focus with respect to the global economy shifted towards strong, sustainable, and balanced growth. The G20 Framework for Strong, Sustainable and Balanced Growth was introduced, a detailed schedule was embraced, and a novel consultative mutual assessment process set up for gauging the collective effectiveness of policies in attaining set out goals (G20, 2009e). Acknowledging that the recovery remained unfinished, making it premature to set in motion an exit strategy, the G20 leaders conceded that the G20 should work under the structure of the G20 finance ministers’ meeting in partnership with the IMF and the FSB so as to enforce a timely exit strategy in accordance with the recovery trajectory (Dong-Hwi, 2009) Cooperation and coordination in implementing the laid-out strategies taking into consideration any spillovers from it was conceded (G20, 2009e). Recovery, though uneven, surpassed expectations due to the exceptionally and thoroughly coordinated policy measures agreed upon at the 2008 Washington, 2009 London, and 2009 Pittsburgh summits (G20, 2010a) as the background for the 2010 Toronto summit. However, uneven recovery threatened the economic expansion underway (G20, 2010a). Issues of large fiscal deficits and increasing debt levels became the source of uncertainty and financial market volatility in some countries (G20, 2010a). Unemployment in many countries was very high (G20, 2010a). The finance ministers and central bank governors agreed to undertake policies that were well-coordinated (G20, 2010b). Moving ahead, the alternative policy scenarios prepared by the international organisations were considered (G20, 2010b). A consultative mutual assessment process was carried out and policy options were developed (G20, 2010b). The first stage of mutual assessment process was concluded, and it was decided that the second stage of country-led and consultative mutual assessment process would be undertaken at the country and European levels and measures would be recognised as necessary (G20, 2010a). Countries facing serious fiscal concerns were directed to expedite the speed of consolidation (G20, 2010b). The announcements by countries for decreasing deficits in 2010 and enhancing their fiscal frameworks and institutions were lauded (G20, 2010b). Advanced economies committed to fiscal plans for cutting in half their fiscal deficits by 2013 and to stabilise or decreasing government debt-to-GDP ratios by 2016 (G20, 2010a). In this light, Japan’s fiscal consolidation plan was applauded (G20, 2010a). The need for structural

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reforms, development policies and efforts to eschew trade and investment barriers was highlighted, and the importance of monetary policy for attaining price stability was indicated (G20, 2010b). In the setting of the 2010 Seoul summit, global economic recovery continued to move ahead, however, in a fragile and uneven manner, with the growth in many emerging economies strong and activity in several advanced economies modest (G20, 2010d). Downside risks stayed high (IMF, 2010a). The recovery in advanced G20 economies started to progress from being policy-related stimulus and inventory rebuilding driven to investment; however, private consumption was torpid (IMF, 2010a). Emerging economies’ activity that was steered by domestic demand recovery and ricocheting global trade initiated moderate to sustainable levels (IMF, 2010a). The shift from a core finance agenda that was the focal point in the first three summits to the inclusion of development issues during the Seoul Summit in 2010 has been attributed to the G20’s attempt at regaining legitimacy by bringing on board development issues. Taking further the success of the 2010 Toronto summit, the Framework was refined and the mutual assessment process was undertaken at the country level (G20, 2010d). Progress achieved via country-led consultative mutual assessment process of the framework was elucidated in the Seoul Summit Document that took the form of implementing supportive economic policies, making commitments for putting the public finances on a sustainable track; and crucial structural reforms have been launched and/or planned (G20, 2010e). The Seoul summit delivered the Seoul Action Plan that included the G20 members’ commitment inter alia to pursue macroeconomic policies covering requisite fiscal consolidation plans; enforcing structural reforms; and improving the mutual assessment process for external sustainability (G20, 2010c). The finance ministers and central bank heads underscored the importance of cooperation as a lack of coordination in responses can prove to be detrimental due to the sheer level of interdependence amongst countries in the global economic and financial systems (G20, 2010d). It was agreed that structural reforms and appropriate monetary policy will be continued and medium-term consolidation plans that are “clear, credible, ambitious, and growth-friendly” will be devised and enforced in advanced economies (G20, 2010d). To reduce the excessive imbalances and sustain current account imbalances at sustainable levels, multilateral collaboration was agreed to be improved (G20, 2010d). It was conceded that economies should steer clear of measures that foster protectionism and make strides to decrease trade barriers along with moving towards more market-determined exchange rates and abstain from competitive devaluations (G20, 2010d). Further, the Framework Working Group (FWG) was directed to develop indicative guidelines comprising of indicators that can work as a mechanism to aid prompt identification of huge imbalances needing preventive and corrective actions (G20, 2010c). IMF (2011a, 2011b, 2011c) stated that “the global economy has entered a dangerous phase” during the time of the 2011 Cannes summit. Tensions were high, and the global economy was prone to many downside risks (G20, 2011b). Global recovery waned especially in advanced economies and unemployment towered touching extremely high levels (G20, 2011c). Emerging economies showed evident

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signs of decelerating growth; commodity price swings threatened growth; and global imbalances persisted (G20, 2011c). Deleterious feedback loops between the real economy and the financial sector were amplified, as private and public sector balance sheets weakened, policy indecision fanned the flames of uncertainty, and demand rebalancing was hamstrung (IMF, 2011a, 2011b, 2011c). The G20 Cannes summit was able to arrest the financial crisis from alarming levels in Greece and Italy (Kirton, 2011). Permitting automatic stabilisers to operate in nations with robust public finances and taking discretionary measures for bolstering domestic demand if the economic conditions deteriorate was pledged (G20, 2011c). Nations with huge current account surpluses pledged to enforce reforms that step up domestic demand along with more exchange rate flexibility (G20, 2011c). Further structural reforms and monetary policies to sustain medium-term price stability were committed (G20, 2011c). An Action Plan for Growth and Jobs for tackling short-run vulnerabilities and building robust medium-run growth foundations was conceded (G20, 2011c). The leaders reasserted their commitment to medium-term fiscal consolidation and where feasible a short-term stimulus (Kirton, 2011). Advanced countries pledged to undertake policies to establish confidence and buttress growth, as well as to enforce measures for fiscal consolidation (G20, 2011c). As the G20 members convened for the 2012 Los Cabos summit global recovery was facing various challenges (G20, 2012a). Amidst modest global growth, downside risks were still high owing in part to dilatory enforcement of the announced policies in Europe, a possible acute fiscal tightening in the USA, fund acquisition for a budget in Japan, subdued growth in some emerging markets, and added supply shocks in some commodity markets (G20, 2012b). Unemployment stayed high (G20, 2012b). External, fiscal, and financial imbalances prevailed and greatly affected growth, employment, and confidence (G20, 2012a). In this summit, the focus transitioned to re-establishing confidence for a quick pace of recovery and employment generation (G20, 2012b). The finance ministers and central bank governors pledged to open trade and investment and keep out protectionism (G20, 2012b). The G20 leaders agreed on a “coordinated Los Cabos Growth and Jobs Action Plan” (G20, 2012a). It was conceded that the reform drive in the EU on structural, fiscal, and financial fields should be continued (G20, 2012b). Maintaining public finances on the trajectory of sustainability in conformity with the medium-term commitments of the 2010 Toronto summit by advanced countries has concurred (G20, 2012b). The commitment was also made in the direction of attaining external and internal adjustment bolstering and maintaining growth, moving towards a more market-determined exchange rate and leading to global rebalancing, and enforcing structural reforms (G20, 2012b). The economic climate of the 2013 St. Petersburg Summit was that of key economies that experienced varying growth (IMF, 2013). Major emerging economies slowed while many advanced economies indicated stronger underlying activity (IMF, 2013). Private demand in the USA strengthened and growth in Japan and the UK ticked up (G20, 2013a). The Euro area showed signs of recovery (G20, 2013a). Recovery remained weak and risks were inclined to the downside (G20, 2013a). The exigency of increasing the momentum of global recovery, generating higher

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growth, and better jobs along with bolstering the foundation of long-term growth was recognised (G20, 2013a). The St. Petersburg Action Plan laid out the strategies for attaining “strong, sustainable, and balanced growth” (G20, 2013a). The finance ministers and central bank heads committed to implementing this action plan (G20, 2013b). For buttressing domestic growth while supporting global growth and financial stability and controlling spillovers on other countries, policy coordination was conceded to be adopted (G20, 2013b). Restating fiscal sustainability as a key priority, the finance ministers and central bank heads committed to flexible enforcement of medium-term fiscal strategies duly accounting for short-term economic conditions along with putting government debt on a path of sustainability (G20, 2013b). Monetary policy will be navigated towards achieving price stability and bolstering economic recovery in accordance with the respective central bank mandates (G20, 2013a). Any future alterations to the monetary policy will be cautiously fine-tuned and explicitly communicated (G20, 2013b). Some key economies showed strong economic fundamentals global economic growth was uneven and stayed below the speed needed to adequately create employment (G20, 2014a) during the time of the 2014 Brisbane summit. The global economy faced downside risks from geopolitical tensions, and incessant demand weakness and supply-side restraint impeded growth (G20, 2014a). The Sydney FM’s declaration for devising new measures that could improve their collective GDP by over 2% by the year 2018; the significance of structural reforms in this context was mentioned by the finance ministers and central bank heads (G20, 2014a). A raft of novel measures was developed by the finance ministers and central bank heads that could enhance their collective GDP by an extra 1.8% through to 2018 which counts in crucial positive spillovers as discerned by preliminary analysis by the IMF-OECD (G20, 2014a). The growth strategies that aimed at improving investment, employment, and trade, and competition along with the macroeconomic policies formed the foundations of the Brisbane Action Plan (IMF, 2015c). Monetary policy in advanced economies remained amenable to supporting economic recovery and the ministers and heads indicated that the monetary policy should tackle promptly any deflationary pressures as and when required in accordance with their respective central banks’ mandates (G20, 2014a). Flexible enforcement of fiscal plans considering short-term economic conditions together with the setting debt-to-GDP ratio on a sustainable trajectory was pledged (G20, 2014a). A consensus was reached in the matter of examining alterations in the composition and quality of government expenditure and tax (G20, 2014a). Against the backdrop of the 2015 Antalya Summit, global growth remained below expectations but some economies experienced strong economic activity (G20, 2015b). Crucial transitions weighing on the global growth outlook included monetary policy divergence in advanced nations, rebalancing in China, and completion of the global commodity super cycle (IMF, 2015a). Growth was fragile and dependent on the successful navigation of these transitions (IMF, 2015a). Plunging commodity prices, levelled down capital flows to emerging markets, and heightened volatility in financial markets made the outlook susceptible to downside risks especially for emerging economies (IMF, 2015a). Productivity growth in advanced as well as

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emerging economies was depressed (IMF, 2015b). Growth in emerging economies decelerated (IMF, 2015b). Geopolitical tensions increasingly morphed into challenges for the global economy (G20, 2015a). Actual as well as potential growth continued to be weighed down by gaps in global demand and structural problems (G20, 2015a). The finance ministers and central bank heads pledged to continue overseeing developments, evaluate spillovers, and tackle surfacing risks required to stimulate confidence and financial stability and committed to taking crucial actions for sustaining the recovery on track (G20, 2015b). The commitment of prompt and effective enforcement of the growth plans was underlined (G20, 2015b). Pledges to abstain from protectionism in all forms together with the exchange rate commitments were restated (G20, 2015b). In addition, the directions for fiscal aspects of policy remained more or less the same as at the Brisbane summit (G20, 2015b). Commitment towards attaining the Brisbane summit target of increasing the collective GDP by an additional 2% was mentioned, and the pledge of global rebalancing was reiterated (G20, 2015a). The Antalya action plan was constituted of tweaked growth plans and an enforcement timetable for key commitments (G20, 2015a). Recovery continued during the 2016 Hangzhou summit, though it stayed frailer than expected (G20, 2016a). Downside risks persisted as indicated by swinging commodity prices and low inflation in various nations (G20, 2016a). The global economic environment was further involved with geopolitical frictions,86 terrorism, and refugee flows (G20, 2016a). The finance ministers and central bank heads resolved to employ all necessary policy tools, such as monetary policy, fiscal policy, and structural reforms, to achieve the growth objectives (G20, 2016a) With regard to structural reforms, the Enhanced Structural Reform Agenda developed by the FWG was promoted and a set of guiding principles (based on agreed priority areas) and indicators for aiding monitoring and evaluation efforts were conceded (G20, 2016a). The role of open trade in growth was underscored, exchange rate pledges were reasserted, and the aim of decreasing excessive imbalances was mentioned (G20, 2016a). A host of policies and actions predicated on the four pillars of vision, integration, openness, and inclusiveness, the Hangzhou Consensus, was adopted and the Hangzhou Action Plan was launched (G20, 2016b). The 2017 Hamburg summit took place in an environment of advancing global recovery though the pace of growth was lower than the desired pace (G20, 2017a). The finance ministers and central bank heads yet again pledged to employ all necessary policy tools, monetary, fiscal, and structural, for attaining growth goals (G20, 2017a). A set of principles for strengthening economic resilience was conceded, earlier exchange rate commitments were reemphasised and their resolve of decreasing excessive imbalances was stated (G20, 2017a). The leaders endorsed the Hamburg Action Plan (G20, 2017b). Robust global economic growth coupled with a decade low unemployment served as the backdrop for the 2018 Buenos Aires summit (G20, 2018a). That said, growth

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See also Annexure 7 for G20’s inititiatives to combat terrorism.

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at that time was less synchronised and downside risks such as high trade and geopolitical tensions, global imbalances, inequality, and structurally weak growth especially in some advanced economies increased over the short and medium term (G20, 2018a). The finance ministers and central bank heads stated that they will continue to keep an eye on risks, take action to alleviate them, and respond if they transpire (G20, 2018a). They committed to continue using all policy tools monetary policy, fiscal policy, and structural reforms (G20, 2018a). Earlier exchange rate commitments were reasserted (G20, 2018a). The G20 leaders promoted the Buenos Aires Action Plan at the summit (G20, 2018b). By the time of the 2019 Osaka Summit global growth seemed to be stabilising and the recovery was backed by inter alia taking effect of stimulus measures in some countries and quelling one-off factors (G20, 2019a). However, growth remained low, with the risks being skewed to the downside (G20, 2019a). Trade and geopolitical tensions increased (G20, 2019a). The finance ministers and central bank heads restated their pledge to employ all policy tools for attaining “strong, sustainable, balanced, and inclusive growth” as well as guarding against downside risks, improving communication and actions for bolstering confidence (G20, 2019a). It was indicated that flexible growth-friendly fiscal policy should be put in place along with creating buffers where required and making sure the debt-to-GDP ratio is on a sustainable trajectory (G20, 2019a). Exchange rate pledges made in March 2018 were restated (G20, 2019a). Furthermore, the requirement of cautiously fine-tuned macroeconomic and structural policies modified to country-specific conditions for tackling excessive imbalances was asserted (G20, 2019a). Assessment The global economy and growth framework has been one of the key focal points of the Finance Track and the G20. Its initial focus of responding to the crisis and setting recovery in motion has slowly evolved to establishing a strong and sustainable growth path and increasing the growth potential. A key milestone in this regard has been the launch of the Framework for Strong, Sustainable, and Balanced Growth and the Mutual Assessment Process. Lavigne and Sarker (2012) point out that the prime contribution of the Framework has been in the form of “institutionalisation of a process for global macroeconomic policy coordination.” The Framework has also facilitated a formal and multilateral means for G20 members to communicate and perhaps adjust their policy strategies besides permitting G20 nations to deliberate longer-term systemic issues (Lavigne & Sarker, 2012). As per Lavigne and Sarker (2012), “the mutual assessment process enables member policy-makers to candidly voice concerns, pose questions and provide explanations about their policies.” The G20 has made a mark in shifting to more market-determined exchange rates and abstaining from competitive devaluations in the context of monetary policy. That said, it has not been able to fare well in eschewing negative spillovers and synchronising exit from unconventional measures (Triggs, 2018). The lack of tangible quantitative targets makes it arduous to examine compliance in the case of monetary stimulus (Triggs, 2018). Moreover, considerable work remains to be done in enhancing central banks’ communication (Triggs, 2018).

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As the current account imbalances are moving towards their pre-crisis levels, it is evident that the G20’s progress in controlling global imbalances has been less (Triggs, 2018).87 On the fiscal sustainability front also, the G20 has done little (Triggs, 2018). Overall, the initial success of the G20 was evanescent with its waning success correlating with a rising focus on more hard, long-term structural issues, more attention on enforcement of commitments, and a decreased sense of exigency as the crisis ended (Triggs, 2018).

Annexure 1: Agenda in the Various Summits See Table 4.1.

Annexure 2: Summit Wise Plan See Tables 4.2, 4.3 and 4.4. In November 2012, at the request of the G20, the OECD launched a methodological framework on disaster risk assessment and financing to strengthen national Disaster Risk Management (DRM) plans. The framework is intended to be a voluntary, flexible and non-prescriptive tool that countries may use as a means of selfassessment of their progress towards targeted and focused approach to best practices in managing disasters. Welcomed the G20/OECD voluntary framework for disaster risk assessment and risk financing which provides a detailed guideline that aims to facilitate the implementation of more effective DRM strategies. Under the Finance Track, the Mexican Presidency prioritised raising awareness of G20 Members regarding the strong impact that Disasters can have on the world economy. The joint deliverable in this area encompasses a publication and a methodological framework. The OECD submitted a contribution related to risk assessment and financing in a joint publication by the Mexican G20 Presidency and the World Bank on “Improving the Assessment of Disaster Risks to Strengthen Financial Resilience” at the Los Cabos Summit. The OECD delivered a methodological framework on risk financing and disaster risk management on 4 November 2012 at a joint press conference by OECD Secretary-General Gurria, Mexico’s Finance Minister Meade and the President of the World Bank, Dr. Jim Yong Kim.

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The Osaka Declaration however notes the decline in global imbalances, although these remain in some advanced economies (USA, Japan, and Germany in particular). EMDE surpluses, including that of China, have declined sharply.

Reforming the international financial architecture, financial regulation, shifting quota share to emerging economies, OTC derivatives through exchange markets

Financial sector reform, Reform of the IFIs, push for privatisation, Haiti Reconstruction Fund, strengthen global financial safety nets, SME Finance Challenge, capital and liquidity

2009 Pittsburgh

2010 Toronto

(continued)

Theme: Recovery and New Beginnings 1. Fostering economic growth by pushing private investment with repairing public finance 2. introducing additional tax on bank transactions 3. Financial Sector Reform: . regulatory framework . effective supervision . resolution and addressing systemic institutions . transparent international assessment and peer review 4. Increase developing countries share to total 4.59% 5. increasing financing to SMEs in developing countries through financial institutions

A framework for strong, sustainable, and balanced growth Strengthening the International Financial Regulatory System Reforming the mandate, mission and governance to IMF Reforming the mission, mandate and governance of development banks

Domestic Fiscal Expansion, Fund allocation to IFIs, Restoring growth and jobs Strengthening fiscal supervision and regulation FSB, Resisting Protectionism, Expansionary Strengthening global financial institutions Monetary Policies Resisting protectionism and promoting global trade and investment Ensuring a fair and sustainable recovery

Agenda Financial crisis Principle of Reform of Financial Markets Strengthening Transparency and Accountability Enhancing Sound Regulation Promoting Integrity in Financial Markets Reinforcing International Cooperation Reforming International Financial Institutions

2009 London

Issues-keywords

Strengthening the capital financial institutions, Monetary easing, Domestic policies—Fiscal Sustainability, Liquidity Support Programmes, Newer Accounting Standards, expanding FSF, New regulations for Credit Rating Agencies

Summit

2008 Washington

Year

Table 4.1 Summit wise agenda

Annexure 2: Summit Wise Plan 139

Reform of International Monetary System and IFIs, commodity markets, global economy, financial regulation, international taxation, fossil fuel subsidies, infrastructure investment, climate finance

2011 Cannes

Issues-keywords

Reform of the IFIs, financial regulation, Global economy, international taxation, SME finance, fossil fuel subsidies

Summit

2010 Seoul

Year

Table 4.1 (continued) Agenda

(continued)

1. Global strategy for growth with focus on inclusive growth 2.Guiding map for the IMF and Regional Financing Arrangements (RFA) 3. Building more stable and resilient monetary system . Increasing the benefits from financial integration and resilience against volatile capital flows to foster growth and development . Reflecting the changing economic equilibrium and the emergence of new international currencies . Strengthening our capacity to cope with crises . Strengthening IMF surveillance 4. Implementing and deepening of financial sector reforms . Development and deepening of local currency bonds . Meeting our commitments notably on banks, OTC derivatives, compensation practices and credit rating agencies, and intensifying our monitoring to track deficiencies . Addressing the too big to fail issue . Filling in the gaps in the regulation and supervision of the financial sector . Tackling tax havens and non-cooperative jurisdictions . Strengthening the FSB capacity resources and governance 5. List of GSIFIs was introduced

1. Strong, sustainable and balanced growth outlined 5 areas: monetary and exchange rate policies, fiscal policies, financial reforms, structural policies, Mutual Assessment Process (MAP) 2. MYAP (Multi-Year Action Plan on Development) 3. IMF quota reform and adjustment the Executive Board’s composition 4. The Basel III agreement and SIFI (Systemically Important Financial Institutions) problem solutions 5. establishment of a more flexible exchange rate

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Summit

Issues-keywords

Agenda

Key themes: 1. Promoting stronger economic growth and employment outcomes . Attracting private infrastructure investment . Removing obstacles to trade . Creating jobs and lifting participation . Empowering development 2. Making the global economy more resilient to deal with future shocks . Reforming the global financial system . Strengthening tax systems . Reforming global institutions . Strengthening energy market resilience . Fighting corruption

Financial regulation, international taxation, IFI reform, Global economy, infrastructure investment

2014 Brisbane

(continued)

1. Economic stabilisation and structural reforms as foundations for growth and employment 2. Strengthening the financial system and fostering financial inclusion to promote economic growth 3. Improving the international financial architecture in an inter- connected world 4. Enhancing food security and addressing commodity price volatility 5. Promoting sustainable development, green growth and the fight against climate change 1. Growth through quality jobs and investment . Framework for strong and sustainable, balanced growth . Financing for investment . Jobs and employment . Development for all 2. Growth through trust and transparency . International Financial Architecture reform . IMF quota governance . Government borrowing and public debt sustainability 3. Growth through effective regulation . Enhancing multilateral trade . Energy Sustainability

Global economy, IFI reform, “green” growth, commodity markets, financial regulation, terrorist financing, international taxation, financial inclusion, financial consumer protection agenda, climate finance, fossil fuel subsidies, and disaster risk financing

2013 St. Petersburg Global economy, Taxation, IFIs, infrastructure investment, debt management, financial regulation, African Development Fund

2012 Los Cabos

Year

Table 4.1 (continued)

Annexure 2: Summit Wise Plan 141

Global economy, international financial architecture, IFI reform, infrastructure investment, financial regulation, international taxation, terrorist financing, green finance, climate finance, fossil fuel subsidies

2016 Hangzhou

Issues-keywords

International taxation, Global economy, climate finance, Financial regulation, IFI reform, terrorist financing, infrastructure investment, SME finance

Summit

2015 Antalya

Year

Table 4.1 (continued) Agenda

(continued)

1. Vision . Strengthening G20 growth for catalysing new drivers of growth 2. Integration . Pursue innovative growth concepts and policies by forging synergy among fiscal, monetary and structural policies enhancing coherence between economic, labour, employment and social policies as well as combining demand management with supply -ide reforms, short-term with mid- to long-term policies 3. Openness . reject protectionism, promote global trade and investment, including through further strengthening the multilateral trading system 4. Inclusiveness . economic growth serves the needs of everyone and benefits all countries and all people including in particular women, youth and disadvantaged groups, generating more quality jobs

Focus on 3Is: Inclusive, implementation and investment 1. Strengthening the Global Recovery and lifting the Potential . Best practices for public private partnership . Toolkits for financing infrastructure projects 2. Enhancing Resilience . Finalised common international standards on total loss-absorbing capacity . Clauses for international sovereign bond contracts 3. Buttressing Sustainability . Including SDG and Addis Ababa Action Agenda . Strong role of private sector through inclusive business . G20 national remittances plan

142 4 Evolution of the Finance Tracks Agendas

Global economy IFIs, taxation, Future of Work, infrastructure investment, IFI reform, Debt, financial regulation, financial inclusion, terrorist financing

Global economy, taxation, ageing-related issues, disaster risk financing, IFI reform, debt, infrastructure investment, UHC financing, Compact with Africa, SME finance, financial regulation, terrorist financing

2018 Buenos Aires

2019 Osaka

Issues-keywords

International Taxation, Global economy, Compact with Africa, international financial architecture, IFI reform, international capital flows, Financial regulation, Financial inclusion, SME finance, remittance, terrorist financing, fossil fuel subsidies, data accessibility

Summit

2017 Hamburg

Year

Table 4.1 (continued) Agenda

G20 Action Plan on Adaptation and Resilient Infrastructure . Risks and challenges to the global economy; . Concrete actions to strengthen medium-term growth potential; and, . Policy responses to the economic and social changes stemming from both technological innovation and globalisation

Consensus for Fair and Sustainable development . Use of transformative technology for digital inclusion . Infrastructure development . Public private in sustainable food system and soil management

1. Building resilience . achieve sustainable growth in the face of risks and pressures related to structural challenges . avoid excessive build-up of risks, imbalances and vulnerabilities in the face of shocks . absorb and overcome severe shocks and return quickly to a sustainable economic growth path 2. Resilient Global Financial System . Finalised Basel III framework 3. International Financial Architecture . provide a common framework among MDBs and quantify MDBs ability to crowd-in private funds . setting a target of a 25–35% increase in mobilisation over the next 3 years

Annexure 2: Summit Wise Plan 143

1. Newer global accounting standards—This will be projected in enhancing guidance of valuation of securities taking into account the valuation of complex, illiquid products, especially during times of stress 2. Accounting standard setters should focus more on addressing weaknesses in accounting and disclosure standards 3. Enhance the disclosure of complex financial instruments by firms to market participants using strict regulations and accounting standards 4. “With a view towards promoting financial stability, the governance of the international accounting standard-setting body should be further enhanced” (G20, 2008b) 5. Private sector which has already developed private pool of capital practices and hedge funds should bring proposals which can be assessed by Finance Ministers with help from the FSB and relevant bodies

Strengthening Transparency and Accountability (Accounting standard setters)

Enhancing Sound Regulation (International bodies)

1

2

1. IMF, expanded FSF, and other regulators and bodies—develop recommendations in order to mitigate pro-cyclicality which will include reviewing valuation and leverage, bank capital, executive compensation Also, provision practices that may exacerbate cyclical trends

Immediate actions by 31st March, 2009

S. Action plan no

(continued)

1. Extension to more countries for reporting and reviewing the structure and principles applicable in its regulatory system for ensuring compatibility of the financial regulations with the modern globalised financial system. All G20 members must undertake financial sector assessment program (FSAP) for supporting transparency of national regulatory systems 2. Appropriate bodies should be assigned for reviewing the nature of regulation in the banking, securities, and insurance sectors and provide a report with recommendations. The unregulated markets, instruments, and institutions must be reviewed again under the ambit of financial regulation 3. Resolution regimes and bankruptcy laws should be reviewed by national and regional authorities 4. For the purpose of achieving consistent measures of capital and capital adequacy, definition of capital should be harmonised

1. A single high-quality global standard should be created 2. Regulators, supervisors, and accounting standard setters—work with private sector and ensure consistent application and enforcement of high-quality accounting standards 3. Financial institutions should focus on increasing risk disclosures which are consistent and internationally accepted to avoid a future crisis. And regulators should keep a check on financial institutions and their accounting sheets

Medium-term actions

Annexure Table 4.2 Action Plan for implementing “Principle of Reform” 2008 Summit—Washington DC

144 4 Evolution of the Finance Tracks Agendas

1. Newer regulations for ensuring that the credit rating agencies (CRA) meet the highest standards of the international organisation of security regulators. CRA should provide greater disclosure to investors and issuers and differentiate ratings for complex products in order to ensure appropriate oversight Authorities (international organisations) should review: . CRA adoption of the standards and mechanisms for monitoring compliance . If financial institutions are maintaining adequate capital in amounts necessary to sustain confidence . If capital requirements for banks’ structured credit and securitisation activities are in place 4. Launching of services for credit default swaps (CDS) in some countries, speeding efforts for reducing systematic risks of CDS and over-the-counter derivatives transactions. Insisting on market participation for electronic trading platforms and ensuring infrastructure for derivatives

Prudential Oversight (Credit Rating Agencies)

Risk Management (Financial Institutions)

3

4

1. Regulations for enhanced guidance to strengthen banks’ risk management practices, in line with international best practices Encourage financial firms to re-examine their internal controls and implement strengthened policies for sound risk management (G20, 2008b) 2. Implement policies to better manage liquidity risk, by creating strong liquidity cushions and ensuring timely and comprehensive measurement of risk concentrations by financial firms and large counterparty risk positions across products and geographies 4. The Basel Committee should develop firms’ new stress testing models, as appropriate 5. Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking (G20, 2008b) 6. Banks should exercise effective risk management and due diligence over structured products and securitisation (G20, 2008b)

Immediate actions by 31st March, 2009

S. Action plan no

Annexure Table 4.2 (continued)

(continued)

1. Evolution of financial markets with the newer innovations should be accommodated by the international standard-setting bodies within the regulatory system 2. Monitor substantial changes in asset prices and their implications in the macroeconomy and the financial systems

1. Register CRAs which are involved in public dealings 2. “Supervisors and central banks should develop robust and internationally consistent approaches for liquidity supervision of, and central bank liquidity operations for, cross-border banks” (G20, 2008b)

Medium-term actions

Annexure 2: Summit Wise Plan 145

1. National and regional authorities should collaborate in enhancing regulatory cooperation between jurisdictions on a regional and international level. They should promote information sharing about domestic and cross-border threats to market stability. And ensure that legal provisions to address these threats are adequate 2. Review of business conduct rules to protect markets and investors, against market manipulation Strengthen cross-border cooperation to protect the international financial system from illicit actors Cases of misconduct should have an appropriate sanctions regime

Promoting Integrity in Financial Markets (National and Regional authorities)

Reinforcing International Cooperation

5

6

1. Authorities should implement national and international measures for protecting the global financial system from uncooperative and non-transparent jurisdictions 2. Financial Action Task Force should continue its important work against money laundering and terrorist financing, and we support the efforts of the World Bank—UN Stolen Asset Recovery (StAR) Initiative (G20, 2008b) 3. Promote tax information exchange. Address the lack of transparency and a failure to exchange tax information

Medium-term actions

(continued)

1. For the purpose of strengthening the surveillance of cross-border firms, 1. Monitor the convergence in regulatory practices such as accounting supervisors should collaborate to establish supervisory colleges for standards, auditing, insurance etc. and check if any accelerated progress is cross-border financial institutions. Major global banks should meet regularly needed with their supervisory college for regular assessment of the risks it faces 2. Strengthen cross-border crisis management by including cooperation and communication and develop comprehensive contact lists and conduct simulation exercises

Immediate actions by 31st March, 2009

S. Action plan no

Annexure Table 4.2 (continued)

146 4 Evolution of the Finance Tracks Agendas

1. The FSF should expand to a broader membership of emerging economies (G20, 2008b) 2. The IMF should strengthen their collaboration with different international bodies and doubled their efforts in integrating regulatory and supervisory responses into the macroprudential policy framework 3. Different international organisations should take a leading role in drawing lessons from the current crisis and implement the changes in future 4. We should review the adequacy of the resources of international financial institutions for support in crisis. They should also continue to review and adapt their lending instruments to adequately meet needs and revise their lending role in the light of the 2008 crisis 5. Developing countries’ should resume private capital flows which are critical for sustainable growth and development, including ongoing infrastructure investment ( G20, 2008b) 6. In places where there are severe market disruptions and they have limited access to the financing for counter-cyclical fiscal policies, banks must ensure arrangements are in place to support

7

88

http://www.g20.utoronto.ca/2008/2008declaration1115.html.

Source Declaration, 200888

Reforming International Financial Institutions (IMF, World Bank, etc.)

Immediate actions by 31st March, 2009

S. Action plan no

Annexure Table 4.2 (continued)

1. Reforming Bretton Woods Institutions, for reflecting more adequately the changing economic weights in the world economy “Emerging and developing economies should have greater voice and representation in these institutions” (G20, 2008b) 2. Surveillance reviews for all countries, as well as giving greater attention to their financial sectors. Integrating the reviews with the joint IMF/World Bank financial sector assessment programmes. After taking recommendations the role of the IMF can be improved in providing macrofinancial policy advice 3. Advanced economies, the IMF, and other international organisations should provide capacity-building programmes for emerging market economies and developing countries on the formulation and the implementation of new major regulations, consistent with international standards

Medium-term actions

Annexure 2: Summit Wise Plan 147

1. The financial crisis in 2008 onus falls upon the failures in financial regulations, and hence, this called for building a stronger, globally consistent regulatory framework for the future financial sector 2. It was felt that a framework was required to be put in place which is formed on internationally agreed high standards for a global financial system. A strengthened regulatory framework would promote “propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking.” (Communiqué, 2009) 3. Strengthening Financial System . FSB (Financial Stability Board) was established as a successor to Financial Stability Forum including G20 members, FSF members, Spain, and the European Commission . FSB will work in tandem with the IMF, and will give early warnings of macroeconomic and financial risks . Reshaping regulatory systems taking into account macroprudential risks . Extend regulation and scrutinising financial institutions, instruments and markets . Implementation of newer rules by FSFs on pay compensation and support sustainable compensation scheme and also keep in check the corporate social responsibilities part by all the firms . Once the face of recovery is reached, make sure to make new rules for improving the quality, quantity, and international consistency of capital in the banking system. Keep a good buffer stock of resources built up in good times and prevent excessive leverage . Stricter actions against non-cooperative jurisdictions by imposing heavy taxations . Accountant standard setters should collaborate with the supervisors and regulators for increasing high-quality global accounting standards by improving valuation and provisions . More registrations should be given to Credit Rating Agencies, and regulating them in checking their commitment levels in meeting international code of good practice

Strengthening fiscal supervision and regulation

2

(continued)

1. Fiscal Expansion: creating millions of jobs by the end of next year, raise output by 4%, accelerate transition to green economy 2. Cutting interest rates, central banks will continue to maintain expansionary policies, using monetary policy instruments, and experimenting with unconventional instruments consistent with price stability 3. Restoring domestic lending and international capital flows by providing support to the banking systems in providing liquidity, recapitalising financial institutions and working on impaired assets 4. Over US$ 1 trillion of additional resources were allocated to world economy through IFIs and trade finance for the most comprehensive support programme for the financial sector 5. Restoring growth and jobs while preserving long-term fiscal sustainability in order to return to the normal growth curve 6. Refraining from competitive devaluation of currency and promotion of well-functioning international monetary system

Restoring growth and jobs

1

S. no

Table 4.3 Agenda 2009 - London

148 4 Evolution of the Finance Tracks Agendas

Source G20, 2009 Deceleration

Ensuring a fair and sustainable recovery

5

1. 2008 crisis had seen a disproportionate impact on vulnerable in the poorest countries and hence G20

Resisting protectionism and 1. World trade was failing during 2009, falling demand was exacerbated by growing protectionist measures, and hence, reinvigorating world promoting global trade and trade and investment became essential for restoring global growth . The countries pledged to refrain from raising new barriers to investment or trade activities, export restrictions, etc. until 2010 investment . Working towards minimising negative impact on trade and investment due to domestic policy actions . Will not retreat into financial protection that constrains the flow of capital to developing countries . Adhering to the mandate and monitoring these commitments quarterly . Availability of US$ 250 billion to support trade finance though MDBs 2. Boost to Doha development round

4

1. Newer additions in the current turndown of global economy are emerging and developing markets, and hence, it is imperative that capital flows are flown to them which can be achieved with the help of strengthened financial institution. And hence, an additional US$ 850 million of resources were credited through IFIs for supporting emerging markets by supporting finance counter cyclical spending, bank recapitalisation, infrastructure, trade finance, etc . 250 million—IMF, US$ 100 million—World Bank, US$ 500 billion to new arrangement for borrowing 2. IMFs new FCL (Flexible Credit Line) progress was assessed; (reformed lending and conditionally framework) 3. SDR (special drawing reserves in IMF) allocations will inject US$ 250 billion into the world economy for increasing global liquidity 4. An agenda for a reformed and modernised IFIs were put in place, which can assist members and stakeholders in newer challenges. Greater voice and representation of developing and emerging economies was raised along with increased credibility and accountability of these institutions by following steps: . Greater involvement of Fund’s governors in providing directions to the IMF . Implementing reforms suggested by the World Bank like World Bank vulnerability framework, infrastructure crisis facility, and rapid social response fund . Low-income countries with sustainable debt positions can be given access to non-concessional IBRD lending in order to compensate for the loss due to capital markets 5. Accelerating the process of quota review to bring equivalency to the G20 table

Strengthening global financial institutions

3

S. no

Table 4.3 (continued)

Annexure 2: Summit Wise Plan 149

150

4 Evolution of the Finance Tracks Agendas

Table 4.4 Agenda 2012 - Mexico Agendas—Mexico

Framework Groups

1.Economic stabilisation and structural reforms as foundations for growth and employment

Framework Working Group Co-Chairs: Canada/India

2. Strengthening the financial system and fostering financial Inclusion to promote economic growth

Financial Stability Board Global Partnership for Financial Inclusion

3. Improving the international financial architecture in an inter- connected world

International Financial Architecture Working Group Co-Chairs: Australia/Turkey

4. Enhancing food security and addressing commodity price volatility

Energy and Commodities Markets Group Co-Chairs: United Kingdom/Indonesia

5. Promoting sustainable development, green growth and the fight against climate Change

Disaster Risk Management

Commodity Markets subgroup Co-Chairs: United Kingdom/Brazil Energy and growth subgroup Co-Chairs: United States/South Korea

Source G20 Mexico, 2012

Annexure 3 See Fig. 4.2.

Annexure 4: Latest G20 Commitments [Communiqué, G20 Leaders, Antalya, November 2015] “We remain resolute to continue our collective action to lift actual and potential growth of our economies, support job creation, strengthen resilience, promote development and enhance inclusiveness of our policies.” “Analysis by the IMF, OECD, and World Bank Group indicates that our implementation so far represents more than one third of our collective growth ambition. Yet we acknowledge that more needs to be done. We will strive more and take prompt action to expedite implementation of our remaining commitments. Going forward, we will continue to closely monitor the implementation of our commitments through the robust framework we developed this year.” The OECD is continuing to monitor the implementation of the G20 National Growth Strategies aimed at lifting the global GDP by 2% above the baseline by

Annexure 4: Latest G20 Commitments [Communiqué, G20 Leaders, …

151

Attracting private infrastructure investment

Strategies to stimulate growth

Removing obstacles to trade Creating jobs and lifting participation Empowering development

GROWTH CHALLENGE

Reforming the global financial system

Building global economic resilience

Reforming global institutions Strengthening energy markets resilience

Fighting Corruption Strengthening tax systems

Fig. 4.2 Framework for Growth Challenges Source G20, 2014 Australian paper

2018 under the Chinese Presidency. Under this exercise, the OECD was asked to provide analysis of the gap between commitments and implementation vis-á-vis the 2% target, which will provide further clarification of the 2016 priorities on structural reform. Building on this, the Chinese Presidency has defined a two-pillar approach to the G20 structural reform agenda: the first pillar will be the definition of priorities and principles and the second a quantitative assessment framework for structural reforms. The OECD has put forward proposed principles and priorities at the latest FWG, and will continue to develop our dashboard of indicators, based on our work on “Going for Growth.”

152

4 Evolution of the Finance Tracks Agendas

The OECD will continue to provide technical expertise in the definition of the G20 priorities and principles of Structural Reform. Under the second pillar, the organisation will also continue to provide support and advice as the Presidency and co-chairs define the list of 10 core indicators, following the FWG’s discussions for the next meeting of the working group. SMEs and Corporate Governance—As part of the investment and inclusiveness agenda, the OECD supported the Turkish Presidency’s emphasis on promoting small and medium-sized enterprise (SME) development throughout the G20’s various streams. Under this focus, the OECD has provided expertise to the G20 Presidency in areas of SME access to finance, participation in GVCs, corporate governance and SME taxation rules. The Organisation drafted the G20/OECD High Level Principles on SME financing and G20/OECD Principles of Corporate Governance, both of which were respectively welcomed and endorsed by the Leaders. Latest G20 Commitments [Communiqué, G20 Leaders, Antalya, November 2015, para. 10] “[…] To help ensure a strong corporate governance framework to support private investment, we endorse the G20/OECD Principles of Corporate Governance. . Welcomed the Joint Action Plan on SME Financing, the G20/OECD High-Level Principles on SME Financing as guidance, and establishment of private sector-led World SME Forum The OECD has contributed actively to this priority of the Turkish Presidency, including through the crafting of the G20/OECD High-Level Principles on SME Financing, first presented at the meeting of G20 Finance Ministers and Central Bank Governors in September 2015 and later endorsed by Leaders in Antalya. The Organisation also updated its OECD Corporate Governance Principles, which became G20/OECD Principles after their endorsement by G20 Finance Ministers earlier in 2015. As per the G20 Finance Ministers’ request, the Principles focus specifically on how they should be implemented within SMEs. Throughout the year, the OECD has contributed to the G20 work on SMEs by building on its existing body of SME work and by co-organising with the Turkish Presidency the G20/OECD Corporate Governance Forum in Istanbul. At the margins of the G20 Finance Ministers and Central Bank Governors meeting in Washington D.C. on 16 April 2015, the SecretaryGeneral launched, jointly with DPM Babacan, the 2015 edition of Financing SMEs and Entrepreneurs: An OECD Scoreboard. The OECD Scoreboard provides information to governments on SMEs’ access to finance and the obstacles facing SMEs to succeed. The OECD also provided inputs on Inclusive GVCs to examine measures to strengthen participation of SMEs in GVCs (see section on Trade). The OECD will continue to actively support G20 efforts to foster SME contributions in building inclusive and sustainable economies, including through the lens of their participation in GVCs. It will also contribute to the G20 agenda by providing updates on the implementation of the G20/OECD Principles of Corporate Governance, and SME Financing. It will act as an Institutional Partner of the newly-established World SME Forum, led by the private sector, to continue this aim.

Annexure 6: Co-Chairs’ Report to G20 Deputies, 3 November 2012

153

Annexure 5: Hangzhou Summit

AGENDA

OBJECTIVES

Vision

Strengthening G20 growth for catalysing new drivers of growth, lead the way in transforming our economies in a more innovative and sustainable manner and better reflect shared interests of both present and coming generations”

Integration

Pursue innovative growth concepts and policies by forging synergy among fiscal, monetary and structural policies, enhancing coherence between economic, labour, employment, and social policies as well as combining demand management with supply-side reforms, short-term with mid- to long-term policies, economic growth with social development and environmental protection”

Openness

Work harder to build an open world economy, reject protectionism, promote global trade and investment, including through further strengthening the multilateral trading system, and ensure broad-based opportunities through and public support for expanded growth in a globalised economy”

Inclusiveness Work to ensure that our economic growth serves the needs of everyone and benefits all countries and all people including in particular women, youth and disadvantaged groups, generating more quality jobs, addressing inequalities and eradicating poverty so that no one is left behind Source G20 Communique (2016a)

Annexure 6: Co-Chairs’ Report to G20 Deputies, 3 November 2012 Under Mexico’s Presidency, the IFA Working Group was established to “collaborate on key aspects to strengthen the International Financial Architecture: to ensure that the IMF has the ability to provide financial support to its whole membership during financial crisis episodes, to strongly improve the current bilateral and multilateral surveillance of the IMF, to support the implementation of the 2010 IMF Reform on governance and quotas, and to supervise progress on the implementation of the G20 Action Plan to support the development of local currency bond markets. In the first half of 2012, the Working Group pursued the following key issues: . Ensure that the IMF has sufficient resources to meet the needs of all its members; . Facilitate the prompt implementation of the 2010 IMF Quota and Governance Reform package and contribute to the review of the quota formula to be completed by January 2013; . Provide G20 input into the shape of a new IMF decision on surveillance to encapsulate recommendations from the 2011 Triennial Surveillance Review; and . Supervise progress on the implementation of the G20 Action Plan to Support the Development of Local Currency Bond Markets (LCBMs).

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– Continued work on IMF governance reform by monitoring full implementation of the 2010 reforms and encouraging G20 member ratification, and seeking to actively support the completion of the quota formula review by January 2013; – Continued to monitor implementation of the LCBM Action Plan; – Commenced preparatory work on the issue of long-term financing for investment; and – Sought updates on several previous G20 commitments with a view to identifying possible avenues of future work – SDR basket composition, global liquidity indicators, and strengthening global financial safety nets. As called for by Leaders in Cannes, in the first half of 2012 the IFA Working Group explored options that would “ensure the IMF continues to have resources to play its systemic role to the benefit of its whole membership.” International Financial Architecture and Long-term Investment Under the Turkish Presidency, the OECD assisted countries in the design of the G20 Country Investment Strategies and analysed their aggregate impact in fostering investment. The OECD is an active participant in the G20 Infrastructure and Investment Working Group (IIWG) and is making key contribution on long-term investment financing by institutional investors. Previously, the OECD had been a participant in the International Monetary System (IMS) Working Group and the sub-group on Capital Flows Management and has contributed to the development of the G20 Action Plan to support the development of local currency bond markets in emerging market economies.

Annexure 7: G20 Action Plan on Terrorist Financing The Finance Ministers and Central Bank Governors of the G20, in the name of global peace and security, determined to stop the financing of terrorism. Adopted a comprehensive Action Plan of multilateral cooperation to deny terrorists and their associates access to, or use of, our financial systems, and to stop abuse of informal banking networks. Committed to implement quickly and decisively measures that the United Nations have identified as essential to combating terrorist financing, and block terrorists’ access to our financial system. We will work with the International Financial Institutions (IFIs), the Financial Action Task Force on Money Laundering (FATF), the Financial Stability Forum (FSF) and other relevant international bodies to prevent abuses to the financial system and threats to its integrity through promotion of international standards relevant to terrorist financing, money laundering and financial sector regulation and supervision. We will enhance our ability to share information domestically and internationally as a vital component in the fight against terrorism. Committed to encourage all nations to join the international effort to choke off the financing of terrorism. Where a country’s willingness outstrips its ability to act in

Annexure 7: G20 Action Plan on Terrorist Financing

155

concert with us, we will provide technical assistance in accordance with this Action Plan. In pursuing these commitments, the countries agreed to the following concrete steps: Freezing Terrorist Assets . Each G20 member will implement the relevant UN Security Council Resolutions, particularly UNSCR 1373, to stop the financing of terrorism. . To this end, each G20 member will, within its jurisdiction, freeze the assets of terrorists and their associates and close their access to the international financial system. . Each G20 member will, consistent with its laws, make public the lists of terrorists whose assets are subject to freezing, and the amount of assets frozen, if any. . Each G20 member will ratify and implement the UN Convention for the Suppression of the Financing of Terrorism as soon as possible. . Each G20 member will ratify the UN Convention against Transnational Organised Crime. . Work cooperatively and in collaboration with the International Monetary Fund (IMF) and World Bank, FATF, FSF, Basel Committee of Banking Supervisors (BCBS), and other international bodies to promote adoption, implementation, and assessment of international standards to combat the abuses of the financial system, including in respect of terrorist financing, financial regulation, and money laundering. International Cooperation: Exchange of Information and Outreach . Enhance cooperation on the international exchange of information, including regarding actions taken under UN resolutions. G20 member countries will promptly implement such measures as are necessary to facilitate this exchange. . Each G20 member will establish promptly, or maintain, a Financial Intelligence Unit and will take steps to enhance information sharing among them, including through promoting universal participation in the Egmont Group of such units. . We will promote the fight against terrorist financing within our respective regions, and will ask other countries to join this Action Plan. . An important element of this effort is the work of the regional FATF-style antimoney laundering bodies. Accordingly, the G20 calls on these regional bodies to meet promptly and to expand their mandates to include terrorist financing. Technical Assistance . Committed to providing, where possible, technical assistance to countries that need help in developing and implementing necessary laws, regulations and policies to combat terrorist financing and money laundering. . Called on the International Monetary Fund, the World Bank, and other multilateral and regional organisations to provide technical assistance, including by expanding existing programmes and training centres.

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The following commitments were pledged: . Promote implementation and compliance with international standards, to share information regarding laws, regulations, and best practices to address terrorist financing, we will support the activities of the UN Counter Terrorism Committee. We will also actively support surveillance and voluntary self-assessment through the IFIs, FATF and relevant international bodies. . Respond positively to the FATF’s invitation to participate in a self-assessment of the eight special recommendations on terrorist financing. . Encourage the FSF to undertake work respecting the actions of financial sector regulators in the fight against terrorism at its next meeting. . Ensure that our financial institutions and citizens comply with measures to combat the financing of terrorism and other financial crimes, and will assist them to do so, including through informing financial institutions of their obligations and new developments. . Urge the regional FATF-style bodies to actively contribute to the FATF’s worldwide self-assessment program (Tables 4.5 and 4.6).

Climate change/climate change finance

Debt/Debt sustainability

Exchange rate flexibility/competitive devaluations

International taxation

Financial sector reform and regulation

International financial institutions’ reform

Infrastructure investment/spending

Global economy, fiscal and monetary plans/policies

Key themes

2008 Washington

2009 London

2009 Pittsburgh

2010 Toronto

Annexure Table 4.5 Summit-wise finance track themes 2010 Seoul

2011 Cannes

2012 Los Cabos

2013 St. Petersburg 2014 Brisbane

2015 Antalya

2016 Hangzhou

2017 Hamburg

2018 Buenos Aires

(continued)

2019 Osaka

Annexure 7: G20 Action Plan on Terrorist Financing 157

Disaster risk financing

Financial consumer protection and financial education

Anti-Money Laundering/Counter -Terrorist Financing

Local currency bond market

Global financial safety net

Reducing imbalances

Financial inclusion

Fossil fuel subsidies

Commodity/fossil fuel price volatility

Structural policies/reforms

Key themes

2008 Washington

Annexure Table 4.5 (continued)

2009 London

2009 2010 Pittsburgh Toronto

2010 Seoul

2011 Cannes

2012 Los Cabos

2013 St. Petersburg

2014 Brisbane

2015 Antalya

2016 Hangzhou

2017 Hamburg

2018 Buenos Aires

(continued)

2019 Osaka

158 4 Evolution of the Finance Tracks Agendas

2008 Washington

2009 London

2009 2010 Pittsburgh Toronto

2010 Seoul

2011 Cannes

2012 Los Cabos

2013 St. Petersburg 2014 Brisbane

2015 Antalya

2016 Hangzhou

2017 Hamburg

2018 Buenos Aires

Note The table has been colour-coded according to the frequency of each theme in the G20 summits The colour codes are as follows: Cyan—All 14 summits; Orange—13–8 summits; Yellow—7–3 summits; and Red—Less than 2 summits Source Authors’ compilation (from G20 documents)

Universal Health Coverage financing

Future of Work

Compact with Africa

Key themes

Annexure Table 4.5 (continued) 2019 Osaka

Annexure 7: G20 Action Plan on Terrorist Financing 159

. The British Prime Minister Gordon Brown highlighted economic recovery, growth, and employment as the primary focus areas for the summit. During that time, the UK was facing its first recession since the early 1990s and unemployment was climbing up . The UK government’s monetary policy stance was also consistent with that raised in the summit . The looming risk of oil supply plummeting and prices rising threatened the recovering economies which underscored the exigency of moving to a global low carbon economy. The British Prime Minister supported low-carbon growth and green jobs at the summit and the climate change agenda advanced in the summit reflected the UK’s pro-climate position

. The crisis was underlined by the Leaders’ Communiqué as the greatest challenge faced by the world economy in modern times . The Leaders’ Communiqué also indicated that the crisis has only worsened since the previous summit

London summit (2009)

Host country economy and country strategies’ highlights . Prior to the summit, the US economy’s growth slowed and the GDP growth was further pulled down by the housing slowdown that fed through to household spending and financial markets; energy and food prices pushed up the headline inflation; spending dwindled on the back of diminishing wealth, plunging employment, high oil prices and credit constraints (IMF, 2008a) . The US financial markets came under strain and the mayhem in the financial markets added exigency to the need to enhance the fragmented US regulatory system (IMF, 2008a) . Since the US economy was at the centre of the crisis, the priority agenda for the summit was that of generating consensus on the common principles for reforming the financial markets . Reflection of many elements of the common principles for financial market reform was seen in the challenges that the US economy was facing at that time and the reforms that were required domestically in the USA

Global economy and political economy highlights

. The 2008 financial crisis, although beginning in the USA, spilled far beyond the Western world and a crippled momentum of economic activity in major developed economies was observed in 2008, reinforced by events in emerging market economies, which were experiencing some growth but were increasingly impacted by a slowing world economy . Before the crisis, emerging economies such as India, China, Brazil, and Russia—which were increasingly integrating into the global economy—had been engaged in self-insurance strategies to both “decouple” them from the global economy and facilitate managed integration . The crisis also changed the IMF’s position

Summit

Washington Summit (2008)

Annexure Table 4.6 The G20 summits: a snapshot Summit highlights

(continued)

. Commitments were made to inject US$ 1.1 trillion into the global economy for the low- and middle-income countries which represented the first major attempt by the global community to handle the issues of a global economic downturn . Served as a successful platform by reducing the difference of opinions across a gamut of issues on the agenda with different countries coming up with different ideas and this helped in “peer group” learning across nations . Agreement on increasing resources of international financial institutions and proposed new reforms for financial regulation . There was criticism regarding insufficient attention given to regional and local solutions in contributing to the potential in developing countries in combating the financial crisis

. Officially named the “Summit of Financial Markets and the World Economy” with an agenda focusing on financial crisis . Tackled many previous issues in global governance; took strong actionable steps for stimulating the economies; and outlined and initiated reforms of financial markets . Among the principles for reform, it was decided that the Bretton Woods Institutions would be reformed, which was significant as the earlier system put in place post Second World War attracted criticism of many world leaders . Addressing global imbalances was not part of the core agenda of the G20 at this initial stage . Summit was a successful summit in terms of different domains such as domestic political management, deliberation, direction setting, and development of global governance . Ninety-five commitments were pledged . Different schools of thought agreed that the summit was effective in delivering policies on trade liberalisation, fiscal stimulus, and G20 institutionalisation on regulating exchange rates and financial regimes

160 4 Evolution of the Finance Tracks Agendas

Global economy and political economy highlights

. Summit took place in the wake of the global financial crisis . Although the forceful response of the G20 worked in increasing industrial output and the recovery of trade and confidence, the process of recovery and repair was not over as emphasised by the preamble of the Leaders’ Statement

Summit

Pittsburgh summit (2010)

Annexure Table 4.6 (continued) . Deliberating actions to set the foundation for balanced and sustainable economic growth was a key agenda and in the USA at that time, the enormous macroeconomic stimulus and financial market interventions started to stabilise financial and economic conditions; however, general government deficits in the USA were anticipated to be large increasing public debt to alarming levels . Unwinding of extraordinary support that was extended during the crisis was a challenge facing the US policy-makers (IMF, 2009a, 2009b, 2009c, 2009d, 2009e) which was consistent with the point of exit strategies that was raised in the summit . In the context of tackling the longer-term legacies of the crisis, a key challenge was that of enforcing financial regulation reforms for avoiding a recrudescence of the financial market excesses was a key challenge (IMF, 2009a, 2009b, 2009c, 2009d, 2009e). This domestic issue of the USA was mirrored in the agreement of the G20 leaders in the summit on the following as per the Leaders’ Statement “To make sure our regulatory system for banks and other financial firms reins in the excesses that led to the crisis” via the implementing requisite financial sector reforms

Host country economy and country strategies’ highlights

(continued)

. The framework for strong, sustainable, and balanced growth was launched and medium-term policy frameworks were set out based on the results from mutual assessment . Sustaining commitment to fiscal responsibility and sustainability and the point of exit strategies found place in the leaders’ discussion . Stepping up funding from the IMF to emerging markets and developing countries was committed and move towards equitable voting power in the World Bank over time was stressed . Summit moved towards strengthening internationally coordinated domestic financial regulations by improving banking capital and liquidity . A major discussion in Pittsburgh was concerning the derivatives market, especially with emphasis on swapping . The historic decision of institutionalising the G20, which symbolised the antiquation of the G8, was finally taken with the agenda of giving central role to emerging and establishing economies . With the exacerbating climate change issue, the summit was able to put in place guiding principles in regards to the issue of climate finance . The summit was deemed to be a transformational success and gave a concrete shape to the measures that were proposed in the London summit . No agreement was reached, however, on how high capital reserves should be used to reduce risk taking, and there was no concrete plan introduced to deal with hedge funds and private equity funds . Practices involving short selling; sanctions for tax havens to comply with international tax governance standards; and impetus for targeted taxation and absolute capping were missing. (Cohn-Bendit & Harms, 2009)

Summit highlights

Annexure 7: G20 Action Plan on Terrorist Financing 161

. Summit’s theme was in a way consistent with the state of the Canadian economy at that time in terms of economic growth . Unemployment, a challenge for Canadian economy, was recognised by the leaders as well the issue of job creation formed part of the discussions. The 2010 budget for Canada included measures for stoking job creation in the country . The 2010 budget for Canada put forth US$7.7 billion in infrastructure stimulus for generating jobs (Department of Finance Canada, 2010). It also provided thrust to green jobs and growth by encompassing measures that will promote investments in energy projects and clean energy generation (Department of Finance Canada, 2010) . It also was believed that Canada as the G20 chair had a role to play in achieving a global agreement on financial reform as Canada has been recognised for the resilience of its banks and insurance companies

. Background of the summit was that of conflicting trends in global development and the risk of budget deficit and sovereign debts were on the cards with complementary unemployment rates and global imbalances . The risks of budget deficit and sovereign debt at significant levels stayed in developing countries, thereby making the recovery fragile, and hence, recapitalisation of banking system remained necessary . Europe was facing financial problems that had the potential to snowball into another crisis . Tensions between the G20 peers seemed palpable in the time surrounding the summit . The summit followed the smaller G8 meeting, in which most developed economies were greatly divided over the global economic crisis . The position of the G20 with respect to the G8 was still uncertain and there were also outside concerns over the composition of the G20

89 Assessment of the Toronto G20 Summit and Tasks Ahead: in preparing for the upcoming Seoul Summit, IFANS.

Host country economy and country strategies’ highlights

Global economy and political economy highlights

Summit

Toronto summit (2010)

Annexure Table 4.6 (continued)

. There was a disagreement over a bank levy system (continued)

. A new “Framework Working Group” (FWG) was set up within the G20 co-chaired by Canada and India, with technical support from the IMF, in pursuance of the directions given by Leaders for a Framework for strong, sustainable and Balanced Growth . The push for privatisation was a constant reminder along with sustaining public finances . A decision was taken in the Toronto summit to increase the capital base for multilateral banks for increasing funding to Africa Development Fund and same was initiated . The G20 attempted to modernise the IMF’s governance so as to reflect the changing economic weights of countries in the global economy . The summit also saw a focus on international issues such as development needs in Africa and Haiti debt relief . Small and Medium Enterprises (SME) Finance challenge was launched . European nations found themselves at odds with the USA, a conflict that was not resolved by the summit and due to which there was difficulty in reaching an agreement89

Summit highlights

162 4 Evolution of the Finance Tracks Agendas

Global economy and political economy highlights

. The world leaders were confronted with tensions over currency exchange rates and growth remained uneven . Recovery from global financial crisis was vulnerable owing to excessive public sector policy measures (Sakong, 2010). For this reason, the new challenge ahead of the G20 was to build exit strategies from public policy support towards private investment . There was a USA-China standoff over the value of the Yuan . Another key issue was with regard to the position and role of various nations within the G20

Summit

Seoul summit (2010)

Annexure Table 4.6 (continued) . South Korea’s economy showed spectacular recovery but faced a near-term policy challenge of cautiously handling an exit from supportive macroeconomic and financial sector policies. The exit strategy also faced possible risks from aggravation of the crisis in southern Europe and intensification of geopolitical tension in the Korean peninsula (IMF, 2010a, 2010b) . Owing to the inception of the then sovereign debt crisis in Europe, there was renewed risk aversion among investors and some increase in risk premia, along with raised exchange rate volatility in South Korea (IMF, 2010a, 2010b) . Inflation pressures remained and banks still stayed wary of lending even though the financial market conditions normalised for the large part (IMF, 2010a, 2010b) . For the South Korean economy, it was recommended by the IMF (2010a, 2010b) that a key element of its policy mix should be exchange rate flexibility . The Korean presidency also focused on bringing up the idea of financial safety nets to help countries cope with financial viability and reducing economic disruption. The agenda of global financial safety nets held relevance for South Korea as well since there were concerns that Korea was vulnerable to the “potentially destabilising effects of volatile international capital flows” (IMF, 2010a, 2010b) . South Korea was considered well placed to push the development agenda on the international platform of the G20

Host country economy and country strategies’ highlights

(continued)

. First summit on Asian lands and hosted by a non-G8 member . This summit was a transition from crisis management to a systematic form of management, and included the agenda item of development (in the Sherpa track) and climate . The Seoul Action Plan was adopted, along with a quota shift agreement, reaching a total of 6% share of quota and doubling quotas for IMF members (Lee, 2010) . The Global Partnership for Financial Inclusion was launched and BASEL III version of revised rules on liquidity and capital changes were adopted in this summit along with “Seoul Development Consensus for Shared Growth” and the “Multi-Year Action Plan.” . The committee of finance ministers and central bankers resolved to adopt more market determined exchange rates, enhancing exchange rate flexibility, and agreed to refrain from competitive devaluations . The idea of strengthened global financial safety nets was introduced . Summit stands out as a transitioning point towards more mid-term policies away from short-term crisis goals . The G20 was successful in prohibiting trade in Credit Default Swaps on government bonds in the Euro zone, except for hedging purposes . The summit was successful in preventing serious disputes by addressing currency and exchange-rate issues

Summit highlights

Annexure 7: G20 Action Plan on Terrorist Financing 163

. The recovery of the global economy was threatened by “unacceptable” unemployment as well as the Eurozone crisis . Commodity price swings risked the growth rates at places . European economies facing mounting sovereign debt was a pressing issue . Food prices had hit peak levels since the 1970s, which impacted poor households and developing nations the most90 and managing price volatility was also a major issue for policy-makers

90 Homi Kharas, The G-20 and the global food crisis, Brookings.

Global economy and political economy highlights

Summit

Cannes Summit (2011)

Annexure Table 4.6 (continued) . The host country, France, fared better than most advanced economies as well as the euro area taken together, in terms of output and employment losses during the financial crisis however its real GDP growth of 1.5% in 2010 was less than that in other core euro area countries (IMF, 2011a, 2011b, 2011c). Unemployment rate started to fall but stayed high (IMF, 2011a, 2011b, 2011c) . Even though France was until that time not much impacted by the turmoil in European sovereign debt markets, concerns over euro area sovereign debt remained (IMF, 2011a, 2011b, 2011c) . Risks to the outlook for the French economy stayed skewed to the downside, being especially related to renewed distress in regards to euro area sovereign risks in view of high public debt of France and substantial exposure of banks in France to the euro area periphery (IMF, 2011a, 2011b, 2011c) . A world oil and food price increase triggered by strong commodities’ demand by emerging market economies together with events in the Middle East and North Africa and the disaster in Japan propelled annual headline inflation to 2% in March 2011 in France (IMF, 2011a, 2011b, 2011c). Even though the core inflation stayed muted, elevated headline inflation posed a potential threat to consumer confidence and purchasing power (IMF, 2011a, 2011b, 2011c) . In order to enhance incentives for employment and growth “a more comprehensive tax overhaul” was required (IMF, 2011a, 2011b, 2011c) in France . Most crisis legacies were overcome by the French banking sector, and it returned to strong profitability but it was recommended that banks in France should quickly adapt to emerging international regulations (IMF, 2011a, 2011b, 2011c). Though capital adequacy improved, major French banks stayed less capitalised as compared to their European counterparts (IMF, 2011a, 2011b, 2011c) . In the midst of elevated sovereign risks in the euro area, France’s sovereign credit default swap (CDS) spread and its 10-year government bond yield spread (vis-à-vis German Bund) soared during 2010 (IMF, 2011a, 2011b, 2011c)

Host country economy and country strategies’ highlights

(continued)

. The summit agenda was dominated by macroeconomic concerns and fiscal reforms as it focused on economic and political uncertainty around sovereign debt risk, the future of Eurozone, and Greek insolvency . The G20 agreed on integrating financial integration, management of capital flows, and deepening domestic capital markets to reap benefits from financial globalisation; shifting towards market determined exchange rates and enhanced flexibility of exchange rate in order to reflect the economic fundamentals; and integration of financial consumer protection policies into regulatory and supervisory frameworks contributing to strengthening financial stability . The leaders committed to enhance market transparency, via cash and financial commodity markets . An action plan on supporting development and deepening local currency bonds was adopted . The FSB and the IMF were given new authority and resources for better deliverables . The summit made agriculture and food security a priority . The G20 also decided to enhance the IMF’s capacity to respond to and prevent crises and improve surveillance of its members and the world economy . It is worth noting that the G20 acted in opposition to the IMF guidelines with regard to capital flows

Summit highlights

164 4 Evolution of the Finance Tracks Agendas

. The world economy was still facing a number of challenges . The Eurocrisis remained a matter of concern, and a slowdown was spreading across the globe91

. The G20 host Mexican president Felipe Calderon also made clear the importance of financial inclusion, one of the main pillars of the G20’s development agenda and an issue of importance for Mexico. Mexico’s leadership was highlighted by its own actions to promote financial inclusion, including the creation of the National Council of Financial Inclusion, which articulates national policy on the issue . Returning to economic stability for reactivating growth was one of the priorities for the Los Cabos summit. The host economy’s growth rate in the fourth quarter of 2011 was the weakest since the second quarter of 2009 . Another priority for the Los Cabos summit was that of climate change and sustainable development. Mexico itself was promoting green growth and implementing measures to that effect

Host country economy and country strategies’ highlights

91 https://www.brookings.edu/multi-chapter-report/the-G-20-los-cabos-summit-2012-bolstering-the-world-economy-amid-growing-fears-of-recession/. 92 Lee Dong-Hwi, “Challenges for the G20 after the Mexico Summit,” August 20, 2012.

Global economy and political economy highlights

Summit

Los Cabos Summit (2012)

Annexure Table 4.6 (continued)

(continued)

. In order to check transparency and accountability, Los Cabos came up with the Los Cabos Accountability Assessment Framework along with the Growth and Job Action Plan. The plan was built on two major agendas: addressing near-term risks, restoring confidence, and promoting growth and strengthening the medium-term foundations for growth . A country specific path was decided in this summit by giving commitments according to their financial environment . Another interesting factor that emerged in 2012 was that of division of the agenda for advanced and emerging countries . There were various commitments from implementing medium-term fiscal plans, rebalancing global demand, fostering job creation, strengthening financial sector regulation, resisting protectionism, maximising growth which is balanced and sustainable to minimising negative spillovers on other countries due to policies adopted for domestic purposes . There was a distinction between medium-term, short-term and long-term policies in order to get a better solution to different problems . Relieved by the political victory of pro-austerity Antonis Samaras in the Greek election, the leaders promised to support Greece’s path to reform and sustainability . The Mexican Presidency was, however, unable to get buy in from other developing countries to drive the green growth agenda, with the latter content to have this contentious issue handled within the UNFCCC . An absence of leadership that had the capability to strongly deal with the crisis was felt92

Summit highlights

Annexure 7: G20 Action Plan on Terrorist Financing 165

. Core objectives underlining the Russian Presidency were based on sustainable, inclusive and balanced growth with the three major areas being growth through quality jobs and investment; growth through trust and transparency; and growth through effective regulation . In the host country, growth prospects were positive but remained lower than 2012; higher dependence on oil and gas exports exposed the country to commodity price volatility; consumption demand remained depressed and infrastructure investments were moribund; and investor sentiments were further downgraded due to the situation in Cyprus

. The global economy was growing at a subdued pace in its recovery phase and the global recovery overall remained fragile due to large downside risks . The summit was held at a time when the world economy was facing challenging issues: monetary policy contraction, rising interest rates, fiscal deficits, deficits and debts in Europe, debt and monetary easing in Japan, financial fragility and social instability in emerging economies like China, India, Brazil, and Turkey . The main challenges for global growth were unemployment among the youth, financial market fragmentation in Europe, insufficient level of private investment due to market uncertainties and internal rigidities, high public debt, volatility of capital flows and incomplete rebalancing of global demand . The summit was marked by discussions and tensions arising from the chemical weapons attack in Syria

(continued)

. Hosted by a BRICS member nation . The major themes for the St. Petersburg summit were: strengthening growth through quality jobs and investment; trust and transparency; and effective regulation plus the host additions with financing for investment and government borrowing and public debt sustainability . Various policy actions were taken to contain key risks in areas with slower growth rates and an action plan was designed to deal with the challenges facing global growth . Major agenda focused on long-term investment for sustainable growth and job creation and long-term financing for investment in infrastructure and small and medium sector enterprises . The G20 was also committed to tackling financial risks, increasing transparency and market integrity, filling regulatory gaps, and addressing the risks from shadow banking . The leaders were committed to establishing a resilient global financial system93 . The summit saw progress in tax fairness and transparency

Summit highlights

93 “G20 encourages the FSB to continue to monitor, analyze and report on the effects of evolving regulatory reforms on EMDEs as a part of its overall implementation monitoring framework. Leaders will continue to cooperate on all financial regulation issues and look forward to further progress by our Finance Ministers, Central Bank Governors and the FSB when we next meet. They will also continue to monitor and assess the impact of financial regulatory reforms on the robustness of the financial system, stability and on economic growth, and on the availability of long-term finance for investment.”

Host country economy and country strategies’ highlights

Global economy and political economy highlights

Summit

St. Petersburg Summit (2013)

Annexure Table 4.6 (continued)

166 4 Evolution of the Finance Tracks Agendas

. Australia’s 2012 ephemeral mining boom went bust in 2014 taking growth rates and jobs down with it and unemployment rates peaked. The slashing of jobs due to mining sector losses pushed Australia to choose job creation as one of the major agenda items for its presidency in 2014 . Gross public debt was also up from 20% of GDP to 30% of GDP. The budgetary decisions were susceptible to the volatile movements in global prices . Past G20 commitments called for greater support through a fiscal channel which created a medium-term structural fiscal challenge for most countries including Australia thus in G20’s 2014 agenda the country pushed for growth through private investments . With Australian export markets dominated by coal and iron ore, these key sectors were facing lower demand, leading to weakening of trade and the exchange rate. Even though the world economy was recovering, but attached downside risks caused uncertainty in the global environment. All this served as a strong base for Australia to push for a stronger and more resilient global economy

. Though global growth recovered from the crisis, it was not back at its potential level, and the IMF revised its global growth forecasts downwards for two years (Australian G20, 2014) . Volatility in financial markets was still high, and the level of public debt was higher . The world was facing humanitarian crises such as the Ukraine war involving Russia and the Ebola outbreak

(continued)

. Efforts to reform the international tax system were also adopted, with many leaders stressing the importance of transparency and tackling tax avoidance . The issue of climate change, however, remained a delicate one

. Building on St. Petersburg summit, Australia’s presidency structured discussions around two major themes: promoting stronger economic growth and employment outcomes and making global economy more resilient to deal with future shocks . The leaders resolved to adopt realistic policies aimed at lifting global GDP by almost 2% and the Brisbane plan was adopted . It was also decided that the G20 will follow a structured approach in developing comprehensive growth strategies . The G20 was determined to step up the efforts to provide new momentum to the global economy by strengthening policy cooperation and decided to take policy measures accommodating both near-term and medium-term challenges that could further strengthen the recovery . In order lift employment, the major element that was identified at the St. Petersburg summit, was global investments; the global infrastructure initiative was endorsed; and leaders decided to launch a Global Infrastructure Hub . Cooperation across all jurisdictions for timely implementing meaningful peer reviews including over-the-counter derivatives was committed (G20 Feb., 2014c) . The G20 committed to complete the work of the BEPS Action Plan along with transparency of taxpayer-specific rulings by the end of 2015 . The G20 was committed to was maintaining a strong and quota based adequately resourced IMF94 . They also agreed on the key mechanism of the Global Infrastructure Hub, delivering on their plan to develop a global infrastructure initiative that would address the $70 trillion gap in infrastructure over the next 15 years by 203095

Summit highlights

94 They reaffirm commitment in St Petersburg and in this light we are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed in 2010 and the 15th General Review of quotas, including a new quota formula. 95 http://www.g20.utoronto.ca/analysis/141117-analysis.html.

Host country economy and country strategies’ highlights

Global economy and political economy highlights

Summit

Brisbane Summit (2014)

Annexure Table 4.6 (continued)

Annexure 7: G20 Action Plan on Terrorist Financing 167

. Turkey included 3is in its agenda focusing on inclusive, implementation and investment . The host country, Turkey, was faced with inter alia a global slowdown, unemployment nearing a 5-year low, and fallout from the Eurozone crisis in 2015, and it has always been susceptible to external factors making uplifting global growth was one of the major agenda items of Turkey’s presidency . Inclusive growth approach was necessary in Turkey’s case due to the low women’s participation in the labour markets. Turkey was mired in “middle-income trap” it faced structural bottlenecks and needed to reduce the reliance on external factors

. Even after major economies were on the path of recovery, there was unevenness in the global economic growth and risk and uncertainties in financial markets96 . The summit happened in the aftermath of the November 13 Paris and the October 10 Ankara terror attacks . There was also economic turmoil in China, the world’s second largest economy

(continued)

. Sustainable development was another key agenda which encompassed the issue of food security . Turkey also made the challenges faced by low-income developing countries a priority . Special focus was given to promoting long-term financing for SMEs

. The ambitious 2% growth rate agenda was taken forward and the focus was on shifting to inclusive and robust growth achieved through collective actions . The leader’s top priorities were to effectively implement growth strategies, support structural reforms to lift potential growth and promote inclusiveness to reduce inequality . The Antalya action plan encompassed growth strategies along with implementation schedules . To continue with the legacy of enhancing resilience of financial institutions, the G20 completed the core elements of financial reform agenda, finalised the common international standard on total loss absorbing-capacity for global systemically important banks and agreed on the first version of higher loss absorbency requirements for global systemically important insurers (G20, 2015a, 2015b)97

Summit highlights

over-the-counter (OTC) derivatives’ reforms to review the robustness of the global regulatory framework and to monitor and assess the implementation and effects of reforms.

96 Reiterate: sound macroeconomic policies in a cooperative manner, ensure price stability and support economic activity, implement fiscal policies flexibly, global rebalancing, mitigate uncertainty, minimise negative spillovers and promote transparency, adequate global financial safety net, lift collective G20 GDP by an additional 2 per cent by 2018. 97 Reiterate: monitor and, if necessary, address emerging risks and vulnerabilities in the financial system, many of which may arise outside the banking sector expedite efforts to make further progress in implementing the

Host country economy and country strategies’ highlights

Global economy and political economy highlights

Summit

Antalya Summit (2015)

Annexure Table 4.6 (continued)

168 4 Evolution of the Finance Tracks Agendas

100 http://www.ris.org.in/sites/default/files/China%20and%20Its%20Role%20in%20G20.pdf.

98 https://www.brookings.edu/blog/future-development/2016/09/06/2016-the-year-for-leadership-that-wasnt-for-the-china-G-20/. 99 https://www.investopedia.com/articles/investing/012816/4-ways-china-influences-global-economics.asp.

. The Brexit referendum also left the world reeling . The world was seeing a rise of protectionist backlash . Europe was seeing an ongoing refugee crisis

. The beginning of 2016 saw an unexpected turn for China’s markets when its growth rates declined to 6.7% and Shanghai Stock Index plunged by 7% in a day . The Chinese manufacturing sector was declining faster than expected and devaluation of currency was not helping the export sectors, rather, it was adding to woes of declining growth rates (Best, 2018)99

. Even after growth picking up in most areas but downside risk to the growth due to volatility in the financial markets, fluctuations of commodity prices, sluggish trade and investment, and slow productivity and employment growth in some countries as well as geopolitical tensions remained . The time surrounding the summit had seen developments in the domestic politics of advanced countries with terrorist attacks in Paris, Brussels, Nice, and Istanbul and the rise of the Independent Party in the United Kingdom, the National Front in France, Trump in the USA, and Action for Germany as answers to underlying social and economic discontent98 . Even though growth rates were lower, it was still in line with the country’s predicted official target rate. China started the transition phase from export and investment-oriented model towards growth from consumption demand, innovation and service sector . Through the 2016 presidency, Chinese wanted to increase its presence in the Asian region and capture the markets thereby the Chinese delegation emphasised the idea of increasing the voting percentage for developing countries in international financial institutions . They introduced the idea of setting up R&D cells for all developing and developed nations, which was in line with the country’s new approach for innovation (Moona, 2018)100 . The country focused on two major areas: trade and development, since it is the largest trading partner in the world, and aligns with the country’s needs and development . Its foreign trade growth narrowed to 3.35% in 2016 from 9.1% in the previous year. There were multiple trade tensions surrounding the country which became a major agenda during its presidency . The main issues that China presented in the G20 have centred around macroeconomic policy coordination, financial regulatory reform, reform of international financial institutions, trade and development with a focus on emerging markets. (CIGI, 2014)

Host country economy and country strategies’ highlights

Global economy and political economy highlights

Summit

Hangzhou summit (2016)

Annexure Table 4.6 (continued)

(continued)

. The Chinese presidency focused on the four major agendas keeping the narrative of sustainable growth in background: strengthening the g20 growth for catalysing new drivers of growth; innovative growth by forging synergy among fiscal, monetary and structural policies; working harder to build an open world economy and rejecting protectionism; and inclusive growth . Hangzhou action plan was launched and enhanced structural reform agenda was promoted . The G20 blueprint on innovative growth including policies and actions in innovation, industrial revolution, and digital economy was endorsed as a new agenda; and New Industrial Revolution Action Plan was released . The G20 supported this new industrial era in developed and low incomes countries and ensured the benefits were extended to youth, women and disadvantaged groups . A G20 Task Force supported by the OECD, was to be put in place to take forward the agenda of innovation and the G20 2016 Innovation Plan was formulated . The G20 initiative on supporting industrialisation in Africa and less developed countries was launched for strengthening inclusive growth . The leaders remained committed to finalising the last critical elements of total loss absorbing-capacity as well as effective cross-border solutions . The key areas in the summit included the fight against tax evasion; opposition to protectionism; stepping up aid to refugees; climate change; and excess capacity in steel

Summit highlights

Annexure 7: G20 Action Plan on Terrorist Financing 169

. With geopolitical conflicts rising around the world, terrorism, natural disasters and social inequality, Chancellor Angela Merkel wanted an agenda which was a perfect balance of multilateral cooperation with financial inclusion . Since the country’s growth was driven majorly by foreign demand, it wanted to reiterate trade and growth plans . With Trump’s administration pushing for increasing protectionism and trade tariffs, it was imperative for Chancellor Merkel to put this agenda item on priority, and hence, the first agenda concentrated on strengthening the global environment using structural reforms for promoting dynamic growth . Germany was not happy with President Donald Trump withdrawing from the Paris Climate Agreement, and it expressed a need for collective action and responsibility towards this agenda making it the second pillar for the presidency . Politicians in Germany felt that Africa has the capacity to provide Germany with an interesting investment location and market. Hence, Germany made this a focus of the summit, by presenting a “Compact with Africa” initiative. It became the third pillar of the German the agenda – “accepting responsibility” wherein Germany aimed to promote infrastructure development on the African continent and take concrete steps to improve people’s living conditions

. In 2017, the growth prospects were increasing and the investment had picked up however the downside risk sustained owing to weak productivity and income inequality. Thus, the pace of growth was lower than its potential level . The summit saw a shift in atmosphere compared to previous summits which was largely be attributed to the American leadership of Donald Trump and America’s new position on issues such as trade and climate change caused complications for the summit

(continued)

. Hamburg Action Plan was embraced that included policy actions for tackling challenges in economies, fostering inclusive growth, and enhancing resilience101 . “Compact with Africa” was launched as part of the summit . The leaders remained committed to the agendas for reforming the global financial system, including the G20 financial reform agenda . New measures were taken to strengthen the international financial architecture, improve financial sector regulation and development and collaborate on international taxation . The G20 fostered sound and sustainable financing properties to contain the build-up of sovereign debt in low-income countries while allowing adequate access to foreign financing102 . The G20 supported the importance of data collection and hence braced for the second phase of the Data Gaps Initiative (DGI-2), including its timely implementation

Summit highlights

reaffirms the importance of the development of local currency bond and capital markets, along with the monitoring of associated risks and appropriate supervision, to improve the resilience of the domestic economy and financial system.

101 G20 reiterates—policy tools—monetary, fiscal and structural, structural reform in order to achieve sustainable growth, excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability, exchange rate commitments, calibrate and clearly communicate our macroeconomic policy actions and structural reforms to reduce policy uncertainty, minimise negative spillovers and promote transparency. 102 The G20 will continue to promote the incorporation of enhanced collective action and pari passu clauses in new issuances of sovereign bonds and explore options for incorporation into existing stock where feasible. G20

Host country economy and country strategies’ highlights

Global economy and political economy highlights

Summit

Hamburg Summit (2017)

Annexure Table 4.6 (continued)

170 4 Evolution of the Finance Tracks Agendas

Global economy and political economy highlights

. While the global economic growth was picking up, unemployment remained at risk . The downside risk to growth in the short and medium term remained high. These included rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies . The global atmosphere was fraught with international political tensions

Summit

Buenos Aires (2018)

Annexure Table 4.6 (continued) . The presidency wanted to comply with the process of legacy issues of the G20 along with broadening the aim by including social inclusion through innovation . The use of transformative technology which is inclusive in everyday issues like health, education and employment, and aims at increasing access to digital technology and digital skilling, became the first pillar for Argentina’s Presidency . The second priority for President Macri was infrastructure development as a major growth catalyst. Infrastructure has been one the major priorities for Argentina as well . The third major agenda of the Argentinian presidency was on sustainable food which has continued from previous summits

Host country economy and country strategies’ highlights

(continued)

. With the theme of “Building consensus for fair and sustainable development,” the 2018 G20 Summit identified three key issues for the agenda: the future of work, infrastructure for development, and a sustainable food future . As the novel theme, the Future of Work, was added to agenda, the Menu of Policy Options for the same were endorsed . The G20’s own Principles for the Infrastructure Project Preparation Phase were promoted . A framework for LICs’ debt distress was discussed . More commitments for regulating crypto-assets were made . International cooperation to advance pro-growth tax policies was welcomed

Summit highlights

Annexure 7: G20 Action Plan on Terrorist Financing 171

. Though growth had recovered in most regions, the downside risks still persisted, partly due to financial volatility and the rising geopolitical tensions . On the subject of trade and geopolitical tensions, world leaders at the Osaka summit were concerned about potential damage to the economy if a trade war escalates between the United States and China, as relations between the two countries had deteriorated significantly. Leaders of Russia, India, as well as the European Commission called on Trump and Xi to work things out rather than risk economic disaster by seeing the USA apply further tariffs on Chinese goods . There was also concern over growing protectionist sentiment in many G20 member states where multilateral forums like the G20 are blamed for job loss and wealth inequality103 . Differences stemmed from the Trump administration’s divergence from the rest of the G20 on key policy issues, including trade and climate change104

. A report by OECD, stated that though Japan had managed to strengthen the growth prospects, it was dealing with long-term challenges . The subject of population ageing, a big challenge for Japan, became a major pillar for discussion in the Japanese Presidency . Another pillar for discussion in the summit was that of disaster resilience and build back better that reflected the Japanese’s bitter experience with disasters and their cataclysmic ramifications . The downside risks due to escalating trade tension and volatile global economy were affecting the Japanese economy with Japan being particularly vulnerable to USA-China trade frictions hence uplifting the global economy through multilateral coordination and international cooperation became key a subject for deliberation in its Presidency

Host country economy and country strategies’ highlights

. The Japanese Presidency focused on three themes: risks and challenges to the global economy; concrete actions to strengthen medium-term growth potential; and policy responses to the economic and social changes stemming from both technological innovation and globalisation . The agenda of free trade and innovation was used in order to tackle future economic and financial crises . Though cross-border flow of data generates higher productivity, it raises issues of privacy at the same time. The G20 continued to address these challenges by facilitating data flows freely for gaining consumer and business trust . Country specific macroeconomic and structural policies were calibrated . The G20 Action Plan on Adaptation and Resilient Infrastructure formed part of the discussions and the G20 Principles for Quality Infrastructure Investment were endorsed . The G20 reaffirmed commitments on strengthening global safety nets with a strong quota by IMF along with concluding the 15th General Review of Quotas by the end of 2019 (G20 Dec, 2019) . Commitments on debt transparency and secure debt sustainability along with the commitment on BEPS were reiterated

Summit highlights

103 https://www.japantimes.co.jp/news/2019/06/28/national/tensions-simmer-g20-summit-osaka-trade-climate-change/. 104 https://www.washingtonpost.com/world/japan-aims-for-harmony-at-G-20-is-it-sidestepping-climate-change/2019/06/28/c8da3c26-9998-11e9-a027-c571fd3d394d_story.html.

. There were also tensions between the USA and Iran following attacks around the crucial oil shipping lanes of the Gulf

Global economy and political economy highlights

Summit

Osaka summit (2019)

Annexure Table 4.6 (continued)

172 4 Evolution of the Finance Tracks Agendas

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Chapter 5

Financial Regulation and G20

Abstract The London summit of 2009 was the first major attempt by the global community to tackle the global economic downturn, and $1.1 trillion was injected into the global economy for low- and middle-income countries. The framework for “strong sustainable and balanced growth” was launched, and the medium-term policy frameworks were set out at the Pittsburgh summit in 2009. The major purpose of the Toronto summit in 2010 was to act as a transitional summit to check on the progress of the upcoming agendas in the Seoul summit and to diversify the G20 agendas from being financial decision driven to accommodating development. The Antalya summit in 2015 focused on three is: “inclusiveness, implementation, and investment for growth.” The Chinese presidency in 2016 focused on the four major agendas of sustainable growth: strengthening the G20 growth for catalysing new drivers of growth; by coordinated fiscal, monetary policies; an open world economy by rejecting protectionism; and inclusive growth. This chapter discusses the evolution of the agenda on financial regulation in the G20. The common threads between the G20 emerging economies’ presidencies in terms of the Finance Track themes that leaders considered have been those of global imbalances and/or rebalancing; financial inclusion; exchange rates; infrastructure and/or infrastructure investment; and structural reforms, besides the four core themes of financial sector regulation and reform; reform of international financial institutions; global growth and monetary and fiscal policies; and international taxation.

At the core of the financial crises of the late 1990s and the global financial crisis of 2008, was insufficient regulation and supervision (IMF, 2019). This led G20 leaders to make financial regulation and financial stability key missions of the forum. Financial regulation has been in discussion in practically all the meetings of the finance ministers and the central bank governors since the G20 first met at a ministerial level in 1999 and was also at the core of the first G20 summit held at the leaders’ level in Washington in November 2008 (Kirton & Shaw, 2010). At the 2008 Washington summit, the agenda for reform of the international financial system and common principles for financial market reform were set out (Gray, 2013). At the summit, leaders also shared the significance of synergising global efforts for consistent design and implementation of reforms (Gray, 2013). The 2009 © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_5

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5 Financial Regulation and G20

London summit marked a milestone in the regulatory space with the reincarnation of the Financial Stability Forum as the Financial Stability Board (FSB) with reinforced resources and a wider mandate (Gray, 2013). To supervise all systemically important financial institutions, instruments, and markets, the membership of the FSB was expanded to include all the G20 countries (Kirton & Shaw, 2010). The broad framework of the financial regulatory reform agenda was defined at the 2009 Pittsburgh summit which narrowed and sharpened the broad reform agenda conceded in the first G20 summit by spelling out particular reform areas (Gray, 2013). In successive summits, the scope, as well as the depth of areas of work under financial regulation, widened in tandem with the growing nature of the financial system. The G20 has also been key in endorsing the grave importance of the domestic financial supervisory authorities in implementing regulations locally, maintaining transparency in financial reporting, and putting in place fraudulent activity surveillance (Kirton & Shaw, 2010). Table 5.1 captures the broad highlights pertaining to the financial regulation agenda over the G20 summits (right-hand column) along with the financial climate at that time (left-hand column). Reforms called for by the G20 after the global financial crisis are progressing and aiding the build-up of an open and resilient financial system that bolsters efficient credit provision to the real economy (FSB, 2019). Large banks are characterised by better capitalisation, less leverage, and more liquidity. Too-big-to-fail (TBTF) reforms are also progressing. Markets of OTC derivatives are now simpler and more transparent. The aspects of non-bank financial institutions (NBFI) that stoked the global financial crisis have reduced and generally do not pose a financial stability risk (FSB, 2019). The scope of financial regulation for the G20 spans international standards and codes and the capability of the government and regulatory authorities to implement rules and regulations across all financial actors (Kirton & Shaw, 2010). The issue of financial regulation is pursued by the FSB in coordination with the IMF under the guiding hand of the G20 (Kirton & Shaw, 2010). The FSB is also the binding thread between international standard-setting and other bodies (Knight, 2018). A total of 340 commitments (representing 13% of the total commitments)1 have been made on the issue of financial regulation by the G20 leaders since 2008 (Nikolaeva, 2019). With the financial crisis unfolding in the backdrop, more than half of the commitments in the first 2008 Washington summit was (62%) on financial regulation owing to the exigency of tackling the financial crisis (Nikolaeva, 2019). In the subsequent summits, this number steadily declined as the financial crisis’ effects slowly faded, and other issues were tabled for discussion (Nikolaeva, 2019). This trend is, however, reversing as recent increases in the number and share of commitments indicate a response to potential risks and threats to global financial stability from novel technological hurdles (Nikolaeva, 2019). The G20 Research Group assessed 27 of the 340 commitments for members’ compliance, and the overall compliance averaged 80% (Nikolaeva, 2019). Notably, 1

See also Fig. 6.1 and the discussion on commitments on IFIs in Chap. 6

2009 Pittsburgh summit (continued)

• Creating the FSB with a broader mandate and membership was agreed (G20, 2009a) • Widening of regulation so as to span across all systemically important financial institutions, instruments and markets, and hedge funds. Hedge funds were included for the first time in this consideration (G20, 2009a) • Early warning pertaining to the macroeconomic and financial risks and compensation standards were the subjects that were tabled for discussion besides banking regulations, accounting standards, and credit rating agencies

Financial strains stayed elevated globally (IMF, 2009)

2009 London summit

• Thrust was on ensuring financial stability (G20, 2008a) • Action plan for implementing the decided common principles for reforming the financial market (including improving sound regulation) was explicated (G20, 2008b) • The significance of tackling pro-cyclicality in financial market regulation and supervision was conceded (G20, 2008a) • The deliberations centred around accounting standards, systemically important financial institutions (SIFIs), credit rating agencies, credit default swaps, OTC derivatives, and compensation standards

Due to the global financial crisis, volatility in the financial markets was high (G20, 2008a)

2008 Washington summit

Table 5.1 Financial regulation agenda in the G20 summits: Broad highlights and the associated financial environment

5 Financial Regulation and G20 179

2010 Seoul summit

Financial markets remained brittle, and credit flows were limited (G20, 2010a)

2010 Toronto summit

The synchronised response to the crisis by the G20 ameliorated the financial conditions (G20, 2009e)

Table 5.1 (continued)

(continued)

• Financial reform agenda with the following four pillars was deliberated: strong regulatory framework; effective supervision; resolution and addressing systemic institutions; and transparent international assessment and peer review (G20, 2010a) • The finance ministers and the central bank heads pledged to come to a consensus with respect to stronger capital and liquidity standards, devise effective resolution tools and frameworks, expedite enforcement of strong measures for enhancing transparency, regulation, and supervision of hedge funds, credit rating agencies, compensation practices and OTC derivatives in a globally consistent and even-handed way (G20, 2010b) • Significance of attaining a single set of “high-quality global accounting standards” was indicated (G20, 2010b)

• The finance ministers and the central bank heads decided to collaborate with the FSB to sustain the drive of reforms and ensure their complete and timely enforcement (G20, 2009e) • The leaders committed to improving capital standards, enforcing stringent compensation practices for curbing excessive risk taking, enhancing the OTC derivatives market, and devising tools to make sure global firms are held accountable for the risks that they take on (G20, 2009b) • Banking regulations, compensation practices, SIFIs, and recovery and resolution plans formed part of the discussions

180 5 Financial Regulation and G20

Financial market tension ticked up owing in a great part to sovereign risks in Europe (G20, 2011d)

2011 Cannes summit

Financial sector tension to some extent ebbed; nonetheless, markets and institutions remained vulnerable to sovereign and banking sector risks (IMF, 2010a)

Table 5.1 (continued)

(continued)

• Enforcement of agreed reforms on OTC derivatives, all Basel agreements on banking regulations during the decided timeframe, and decreasing overdependence on external credit ratings in a “fully, consistently, and in a non-discriminatory way” was pledged (G20, 2011c) • Initial recommendations and a work plan for bolstering regulation of shadow banking were agreed upon (G20, 2011c). The leaders also agreed to devise regulation and oversight for shadow banking (G20, 2011d) • The finance ministers and the central bank heads also extended backing for a global legal entity identifier system that uniquely identifies parties to financial transactions with a suitable governance structure representing public interest (G20, 2011c) • Identification of systemically important non-bank financial entities and monitoring of the implementation of commitments related to banks, OTC markets, and compensation practices were included in the discussion (G20, 2011d) • Concurred on reforming the FSB by equipping it with “a legal personality and greater financial autonomy” (G20, 2011d)

• The finance ministers and the central bank heads in their October 2010 meeting stated that they “welcome and commit to fully implement within the agreed timeframe the new bank capital and liquidity framework drawn up by the Basel Committee and the Governors and Heads of Supervision (Basel III)” (G20, 2010d) • As per the leaders’ declaration, the summit delivered the core constituents of a new financial regulatory structure including bank capital and liquidity standards, and ways to better regulate and effectively resolve SIFIs supplemented by more effective regulation and supervision were made (G20, 2010c) • The areas necessitating more attention were identified, including more work on macro-prudential policy framework; tackling emerging economies-specific regulatory reform issues; bolstering the regulation and oversight of the shadow banks; and regulation and supervision of commodity derivatives markets (G20, 2010e)

5 Financial Regulation and G20 181

• Commitment was made to conclude work in the following priority areas for reaching complete implementation of reforms: Basel capital and liquidity framework; framework for G-SIFIs; resolution regimes; OTC derivatives reforms; shadow banking; and compensation practices (G20, 2012a) • The finance ministers and the central bank heads maintained their commitment to the “full, timely, and consistent implementation” of the financial regulation agenda (G20, 2012b) • Deliberations focused on issues including banking regulations, OTC derivatives, global legal entity identifier system, and accounting standards (G20, 2012b)

(continued)

Financial market volatility increased particularly in emerging economies (IMF, • The finance ministers and the central bank heads maintained a commitment to building upon the progress that has been achieved in creating more resilient 2013a) financial institutions, halting “too-big-to-fail,” ramping up transparency and market integrity, bridging regulatory gaps, tackling potential systemic risks from shadow banks, and filing gaps in information (G20, 2013b) • The creation of FSB as a legal entity equipped with enhanced financial autonomy and capacity to synchronise the development, as well as enforcement of financial regulatory policies, was appreciated (G20, 2013a) 2014 Brisbane summit

2013 St Petersburg

Financial market tensions stayed elevated (G20, 2012a)

2012 Los Cabos summit

Table 5.1 (continued)

182 5 Financial Regulation and G20

• Committed to finalising the crucial elements of the regulatory framework that still remain and “timely, full, and consistent implementation of the agreed financial reforms” which includes Basel III, the TLAC standard, and effective cross-border resolution regimes (G20, 2016a) • The development of an Insurance Capital Standard (ICS) for internationally active insurers was appreciated (G20, 2016a) • Banking regulations, global insurers, macroprudential framework, structural vulnerabilities from asset management activities, and OTC derivatives markets reform were discussed (G20, 2016a)

Financial market volatility stayed elevated (G20, 2016a)

2017 Hamburg summit

2016 Hangzhou summit

(continued)

• Indicated that the further completion of the core elements of the financial reform agenda has been reached (G20, 2015a) • The common international standard on total loss-absorbing capacity (TLAC) for global systemically important banks was finalised by the leaders, and the first version of higher loss absorbency requirements for global systemically important insurers was agreed upon (G20, 2015a) • Pointed out that further work remained including in areas of central counterparty resilience, recovery planning, and resolvability (G20, 2015a) • Continued monitoring of the emerging risks and vulnerabilities many will be outside the banking arena was pledged (G20, 2015a) • Review of the impact of reforms and their implementation consistency and tackling any untoward ramifications in particular for the emerging economies was mentioned (G20, 2015a)

The backdrop for this summit was characterised by risk and uncertainties prevailing in financial markets (G20, 2015a)

2015 Antalya summit

• The progress achieved in the core commitments was highlighted (G20, 2014b) • The work that remained to be done was indicated: finalising the rest of the elements of the G20 policy framework and complete implementation of the decided financial regulatory reforms while at the same time exercising vigilance with respect to newer risks (G20, 2014a) • The updated roadmap for further work in the shadow banking space was promoted (G20, 2014b)

Downside risks persisted in the financial markets (G20, 2014a)

Table 5.1 (continued)

5 Financial Regulation and G20 183

• Restated their commitment to the “full, timely, and consistent implementation and finalisation of the agreed financial reform agenda” and the appraisal of its effects (G20, 2018a) • Continued monitoring of risks and vulnerabilities and grappling with market fragmentation via regulatory and supervisory cooperation for grappling with fragmentation were indicated (G20, 2018b) • They will ramp up the efforts for reaping gains from technology in the financial sector at the same time dealing with associated risks (G20, 2018b). Regulatory aspects of crypto assets were also discussed (G20, 2018b) • It was stated that the crypto assets at that time did not threaten financial stability; however, the finance ministers and the central bank heads remained vigilant regarding any risks and vulnerabilities that may surface (G20, 2019) • Commitment towards the full, timely, and consistent implementation of the agreed financial reforms was maintained (G20, 2019) • Resolve to continuously monitor the lurking risks and vulnerabilities to financial stability including with macroprudential tools were restated (G20, 2019) • Market fragmentation also featured in the discussion and the resolve to tackle the adverse effects of market fragmentation including via regulatory and supervision cooperation was stated (G20, 2019)

The environment was one of the rising financial vulnerabilities (G20, 2018a)

Accommodative financial conditions buttressed the global growth recovery (G20, 2019)

Source Authors’ compilation

2019 Osaka summit

2018 Buenos Aires summit

• Maintained the pledge for finalising and enforcing the agreed G20 financial sector reform agenda promptly, completely, and consistently (G20, 2017a) • Continue to monitor and if required tackle any risks and vulnerabilities that surface in the financial system counting in those due to shadow banking or other market-based finance activities (G20, 2017a) • They also recognised that malicious use of ICT can pose a threat to financial stability (G20, 2017a) • Structural vulnerabilities from asset management activities, OTC derivatives markets reforms, banking regulations, misconduct risks in the financial sector, and FinTech regulations were also deliberated (G20, 2017a)

The financial conditions in the emerging markets stayed broadly supportive of growth (IMF, 2017)

Table 5.1 (continued)

184 5 Financial Regulation and G20

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185

the highest compliance (99%) came from the 2017 Hamburg summit, and the lowest (48%) from the 2009 London summit (Nikolaeva, 2019). Altogether, compliance has been rising (Nikolaeva, 2019). The number of commitments on a subject is positively correlated with compliance with it, implying that a greater number of commitments lead to improvement in compliance (Nikolaeva, 2019). Acting as catalysts, a direct reference to G20 finance ministers, former summits, and international law included in commitments induces more compliance (Nikolaeva, 2019). As an example, a compliance rate of 86% resulted for the two commitments citing international law as opposed to 79% for those commitments that did not (Nikolaeva, 2019). Progress So Far As weak financial regulation was one of the causes of the global financial crisis, the crisis prompted a response from the G20 leaders in the form of financial regulation reforms. The process of framing and implementing financial regulations and supervisory framework commenced with the collaboration of the G20, international organisations, and individual member countries (Yuksel, 2019). The G20 started in 2009, a financial reforms programme (FSB, 2019). The focal point of the initial postcrisis response was on four key areas: increasing resilience of the financial institutions; curbing too-big-to-fail, rendering derivatives markets safer, and improving the resilience of non-bank financial intermediation (NBFI) (FSB, 2019). In addition to these four main areas, credit rating agencies, macroprudential tools, and accounting standards were also brought under the reform umbrella (Yuksel, 2019). Progress in the four core reform areas is discussed below. Increasing resilience of the financial institutions Basel III reforms came in 2010 as the sufficiency of banks’ capital and liquidity cushions came under the scanner post-crisis (Yuksel, 2019). The Basel III reforms focused on improving the quality as well as the quantity of the banks’ capital and augmenting their short-term and long-term liquidity resilience using two tools: the 30-day Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), respectively (Yuksel, 2019). The FSB (2019) observes that while many core Basel III elements have been adopted at an appropriate time, some standards are overdue. The core elements of the Basel III reforms are put in place in 24 FSB jurisdictions (92% coverage?)2 (FSB, 2019). Jurisdictions in which global systemically important banks (G-SIBs) are situated have enforced final rules on higher loss absorbency requirements (FSB, 2019). The assessment methodology’s final rules and higher loss absorbency requirements for systemically important banks (domestic) are implemented in 23 FSB jurisdictions (FSB, 2019). The leverage ratio, NFSR, and the supervisory framework for calculating and administering large exposures are still 2

FSB member jurisdictions are Argentina, Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Switzerland, Turkey, The UK, United States of America, and the European Union (FSB, n.d.).

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due to be adopted in all jurisdictions (FSB, 2019). Besides putting in place requisite reforms, implementation consistency can be enhanced for some Basel standards (FSB, 2019). As per the FSB (2019), the development of a global risk-based Insurance Capital Standard by the International Association of Insurance Supervisors (IAIS) for insurers that operate internationally is still in the works. Further, the FSB created compensation standards for reforming compensation practices as they were believed to be incentivising risk taking by financial institutions (Yuksel, 2019). All the banks deemed relevant for FSB Principles and Standards for Sound Compensation Practices have applied them, but only a small number of insurance and asset management sectors have done so (FSB, 2019). Curbing too-big-to-fail Government resources were used to bail out banks and other financial institutions (too-big-to-fail institutions) whose failure could deal a body blow to the entire financial system and have catastrophic consequences for the economy (Yuksel, 2019). This led to the problem of moral hazard and exposed taxpayers to potentially huge losses (Yuksel, 2019). Keeping this in view, a framework for tackling the risk related to systemically important financial institutions (SIFIs) was launched with an initial focus on the global SIFIs since they had the potential to impact several countries in 2010 (Yuksel, 2019). A new resolution standard, the Key Attributes of Effective Resolution Regimes for Financial Institutions, was a fundamental feature of the framework (Yuksel, 2019). All key FSB jurisdictions having G-SIBs have their resolution frameworks for banks in sync with this standard and its execution and implementation that still need attention (FSB, 2019). Bank resolution planning structures have been adopted by 16 jurisdictions (FSB, 2019). Less progress has been achieved on the resolution reform implementation in the insurance sector, and comprehensive resolution arrangements for central counterparties (CCPs) are yet to be effectuated in a number of jurisdictions (FSB, 2019). Moreover, measures related to higher loss absorbency requirements and the creation of networks of cross-border supervisory colleges and crisis management groups were also launched for the systemically important financial institutions (Yuksel, 2019). The most progress has been reached for G-SIBs in the case of implementation of the policy framework for G-SIFIs (FSB, 2019). Enforcement of higher loss absorbency and reporting and disclosure requirements is moving forward promptly (FSB, 2019). Supervisory frameworks have been enhanced, and supervisory colleges have been constituted for a majority of the G-SIBs (FSB, 2019). However, there is room for improvement in the compliance level of BCBS’ Principles on risk data aggregation and risk reporting (FSB, 2019). For G-SIBs, a total loss-absorbing capacity (TLAC) standard was created in 2015 by the FSB (Yuksel, 2019). TLAC standard required G-SIBs to hold a minimum amount of TLAC comprising regulatory capital, as well as other eligible debt (which can be written down or converted into equity) (Yuksel, 2019). The FSB (2019) points out that the implementation of TLAC is ongoing. Complementing the broad policy structure laid out by FSB for SIFIs, the effort has also been invested in developing methodologies for identifying G-SIFIs. The

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list of G-SIBs is annually reviewed (FSB, 2019). In July 2018, a revised assessment framework for G-SIBs was published by the BCBS (FSB, 2019). An all-embracing framework for attenuating systemic risk in the insurance sector is underway by IAIS, and hence, FSB (in consultation with the IAIS and national authorities) decided not to undertake cataloguing of G-SIBIs in 2018 (FSB, 2019). First, the structural vulnerabilities arising due to asset management activities will be completed for the non-bank non-insurer global systemically important financial institutions (NBNI) G-SIFIs (FSB, 2019). Then their assessment methodologies for identification will be decided upon (FSB, 2019). Rendering derivatives markets safer The byzantine network of over-the-counter (OTC) derivative exposures increases multifold the risk of contagion and makes it arduous to monitor the congregation of risks (Yuksel, 2019). Consequently, G20 members concurred on the trading of standardised OTC derivative contracts on exchanges or electronic trading platforms and clearance through central counterparties to be put in place by the end of 2012, so that the bilateral exposure of financial institutions can be replaced by a single net exposure to a central counterparty (Yuksel, 2019). Adding to that, a host of reform measures for non-centrally cleared OTC derivatives was also announced which incentivised central clearing of contracts and kept in check associated risks (Yuksel, 2019). The FSB (2019) states that satisfactory progress has been achieved on the G20’s OTC derivatives reform agenda; however, progress has been bleak since 2018. In terms of implementation, the largest OTC derivatives markets are progressing the most (FSB, 2019). Over the years, the central clearing of OTC derivatives has climbed up, but the curve flattened during 2018 (FSB, 2019). Accessibility as well as usage of trade repositories (TRs) and CCPs remains steady; however, effective trade reporting is still a work in progress at the international level, as challenges such as internationally synchronised data reported to TRs, data quality issues, and issues in accessing TR data persist (FSB, 2019). Improving resilience of non-bank financial intermediation (NBFI) For understanding global trends and risks, a system-wide monitoring framework in NBFI has been developed by the FSB in cooperation with standard-setting bodies (SSBs), which are devising policies for enhancing oversight and regulation (FSB, 2019). The policy structure for supervising NBFI continues to progress (FSB, 2019). Policies for diminishing risks of runs on money market funds (MMFs) and approaches for orienting incentives for securitisation are underway (FSB, 2019). Other areas of work include a framework for identifying and managing step-in risks and tackling structural vulnerabilities from asset management activities and securities financing transactions (FSB, 2019). FSB policy recommendations for securities financing transactions are running behind schedule in some jurisdictions (FSB, 2019). Reforms’ Assessment and Future Vulnerabilities The G20 financial regulatory reform programme has been in implementation for over a decade now. It has been fruitful in regulating the banking sector which detects

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practically every financial shock and during financial stress the balance sheet of banks is compromised, thus spreading crisis in the interbank markets and to the entire financial system (Knight, 2018). The reforms thus far have been able to provide large banks with more capital and liquidity, along with decreasing leverage (FSB, 2019). Headway has been made in tackling risks corresponding to the systemically important banks (SIBs) (FSB, 2019). These regulations that have made banks more robust, however, have not been carried out with the same vigour for the non-banks which can serve as a weak link if not adequately monitored owing to the magnitude of interrelatedness the two sectors share (Knight, 2018). While the design of the G20 financial regulation reform aimed at bolstering “solvency, liquidity, and risk management” of all the parts of the financial system (bank as well as non-bank), the reforms have been able to successfully strengthen banks, particularly G-SIBs only (Knight, 2018). Sobel (2020) stresses that though robust on paper, the implementation plan for supervising shadow bank activities did not expatiate. Knight (2018) notes that “the G20 regulatory reform programme has made individual banks and the banking sector somewhat more robust, [but] it has not yet succeeded in ensuring that the financial system as a whole is more stable than it was when the GFC struck in 2007–08.” This skewed focus can result in repercussions for the changing financial system, regulators’ capacity to single out risks, and government capability to deal with future crises (Knight, 2018). Though FSB has brought up this subject of enhanced regulation for the NBFIs, only a handful of measures have been effectuated so far (Knight, 2018). Moreover, the G20 leaders’ resolution for effecting implementation of these reforms seems to be waning (Knight, 2018). Knight (2018) highlights the perilous nature of this scenario of the financial system is tightly regulated at the core where the banks are situated and feeble regulations in the rest of the system, as this clearly implies the movement of leverage and risk-taking activities to the sector with weak regulatory scrutiny. Another area that potentially poses a threat to global financial stability and has evaded examination by financial regulators is commodity trading (White, 2020). White (2020) indicates that the underlying business model of commodity traders is risky, involving substantial leverage and very narrow margins, and they operate at the meeting point of financial markets and physical markets (White, 2020), hence vindicating closer investigation by financial regulators. The transforming financial system points at the need to continuously detect new risks and tweak the regulatory regime accordingly. The onset of financial innovation has created a new suite of challenges that allude to the requirement of an appropriate regulatory regime (Nikolaeva, 2019). The FSB (2019) points out that new technologies can possibly lead to decentralised provision of financial services which can reap benefits by way of decreasing intermediaries and centralised processes and by bringing in more competition and variegation in the system but can sound trouble for the financial system in terms of financial risks that are required to be controlled (FSB, 2019). Crypto assets serve as an example of the application of decentralised technology (FSB, 2019). Even in India, the ban on cryptocurrency by the Reserve Bank of India was lifted by the apex court (Borate, 2020). Crypto assets currently do not

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pose a threat to financial stability, but their extensive use necessitates closer probing by authorities (FSB, 2019). Financial innovation in digital payments such as global stablecoins is already on the radar of the G20, as the Saudi Arabian Presidency was pushing this forward. Draft conclusions of the meeting of the G20 finance ministers have underscored the need to examine and address the risks posed by the stablecoins (Jones, 2020). However, technological advancements, in general, pose a risk to financial stability and require an overarching regulatory framework (Nikolaeva, 2019) in order to maximise gains while minimising detrimental effects on financial stability. The current regulatory picture clearly warrants more action. As pointed out by Knight (2018), it is imperative to widen the regulatory circle to include other financial entities such as the non-banks, as elevated leverage and a dense intertwined network among big financial institutions can generate contagion, have serious implications for the financial system and the entire economy. Further, the idiosyncratic risks stemming from the unprecedented economic shock of the COVID-19 pandemic as well as surging financial innovation require better regulatory regimes and policy measures to limit their harmful impact.

References Borate, N. (2020). SC lifts RBI crypto ban: What this means for investors. Livemint. https://www.liv emint.com/money/personal-finance/sc-lifts-rbi-crypto-ban-what-this-means-for-investors-115 83317633909.html FSB, Financial Stability Board. (2019). Implementation and effects of the G20 financial regulatory reforms. FSB. (n.d.). FSB Members. https://www.fsb.org/about/fsb-members/ G20. 2008a. Communiqué: Meeting of Ministers and Governors, November 8–9. http://www.g20. utoronto.ca/2008/2008communique1109.pdf G20. (2008b). Declaration of the summit on financial markets and the world economy, November 15. g20.utoronto.ca/2008b/2008declaration1115.html G20. (2009a). London summit: Leaders’ statement, April 2. http://www.g20.utoronto.ca/2009/200 9communique0402.pdf G20. (2009b). G20 leaders’ statement: The Pittsburgh summit, September 24–25. http://www.g20. utoronto.ca/2009/2009communique0925.html G20. (2009e). Communiqué: Meeting of finance ministers and central bank governors, November 7. http://www.g20.utoronto.ca/2009/2009communique1107.pdf G20. (2010a). The G20 toronto summit declaration, June 27. http://www.g20.utoronto.ca/2010/tocommunique.html G20. (2010b). Communiqué of the meeting of finance ministers and central bank governors, June 5. http://www.g20.utoronto.ca/2010/g20finance100605.html G20. (2010c). The Seoul summit document, November 12. http://www.g20.utoronto.ca/2010/g20 seoul-doc.html G20. (2010d). Communiqué: Meeting of finance ministers and central bank governors, October 23. http://www.g20.utoronto.ca/2010/g20finance101023.pdf G20. (2011c). Communiqué of the finance ministers and central bank governors of the G-20, October. http://www.g20.utoronto.ca/2011/2011-finance-111015-en.html

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G20. (2011d). Communiqué: G20 leaders’ Summit, November 4. http://www.g20.utoronto.ca/2011/ 2011-cannes-communique-111104-en.html G20. (2012a). G20 leaders’ declaration, June 19. http://www.g20.utoronto.ca/2012/2012-0619-los cabos.html G20. (2012b). Communiqué of meeting of G20 finance ministers and central bank governors, November 5. http://www.g20.utoronto.ca/2012/2012-121105-finance-en.html G20. (2013a). G20 leaders’ declaration, September 6. http://www.g20.utoronto.ca/2013/20130906-declaration.html G20. (2013b). Communiqué: Meeting of finance ministers and central bank governors, October 11. http://www.g20.utoronto.ca/2013/2013-1011-finance.html G20. (2014a). Communiqué-meeting of G20 finance ministers and central bank governors, September 21. http://www.g20.utoronto.ca/2014/2014-0921-finance.html G20. (2015a). G20 leaders’ communiqué, November 15–16. http://www.g20.utoronto.ca/2015/151 116-communique.html G20. (2015b). Communiqué: G20 finance ministers and central bank governors, September 5. http:// www.g20.utoronto.ca/2015/150905-finance.html G20. (2016a). Communiqué: G20 finance ministers and central bank governors meeting, July 24. http://www.g20.utoronto.ca/2016/160724-finance.html G20. (2017a). Communiqué: G20 finance ministers and central bank governors, March 18. http:// www.g20.utoronto.ca/2017/170318-finance-en.html G20. (2018a). Communiqué: G20 finance ministers and central bank governors, July 23. : http:// www.g20.utoronto.ca/2018/2018-07-22-finance.html G20. (2018b). G20 leaders’ declaration, December 1. http://www.g20.utoronto.ca/2018/buenos_ aires_leaders_declaration.pdf G20. (2019). Communiqué: G20 finance ministers and central bank governors meeting, June 9. http://www.g20.utoronto.ca/2019/2019-g20-finance-fukuoka.html Gray, R. (2013). Financial regulation: Strengthening the coordination role of the G20. G20 Monitor: Financial Regulation and the G20, No. 4, pp. 21–26. IMF. (2009). G-20 Surveillance Note (Global Economic Prospects and Principles for Policy Exit), Group of Twenty Finance Ministers and Central Bank Governors’ Meetings, November 6–7, 2009, St. Andrews, United Kingdom. https://www.imf.org/external/np/g20/pdf/110709.pdf IMF. (2010a). Republic of Korea: Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Korea, IMF Country Report No. 10/270. September. IMF. (2013a). G-20 Surveillance Note (Global Prospects and Policy Challenges), Group of Twenty Finance Ministers and Central Bank Governors’ Meetings, July 19–20, 2013, Moscow, Russia. Retrieved from: https://www.imf.org/external/np/g20/pdf/2013/071913.pdf. IMF. (2017). G-20 Surveillance Note (Global Prospects and Policy Challenges), Group of Twenty Leaders’ Summit, July 7–8, 2017, Hamburg, Germany. Retrieved from: https://www.imf.org/ext ernal/np/g20/070517.htm. IMF. (2019). Financial System Soundness. Retrieved from: https://www.imf.org/en/About/Factsh eets/Financial-System-Soundness. Jones, H. (2020). Regulators need to get up to speed on digital currencies. Reuters. https://in.reu ters.com/article/us-g20-finance-regulation/regulators-need-to-get-up-to-speed-on-digital-curren cies-idINKBN20D1Y5 Kirton, J., & Shaw, Z. (2010). G20 accountability report on domestic financial regulation. http:// www.g20.utoronto.ca/analysis/g20acc-domfinreg101110.pdf Knight, M. D. (2018). The G20’s reform of bank regulation and the changing structure of the global financial system. Global Policy, 9, 21–33. Nikolaeva, A. (2019). G20 performance on financial regulation. The Global Governance Project. https://www.globalgovernanceproject.org/2019/06/21/g20-performance-on-fin ancial-regulation/

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Sobel, M. 2020. The clean-up of the non-bank sector needs to begin now. The Financial Times. Retrieved from: https://www.ft.com/content/26f6f0ca-f1f2-4144-8d19-e153e9fb814a. White, N. (2020). Regulators must now look at commodity trading. The Financial Times. https:// www.ft.com/content/2f01cf55-d4b7-491e-bda8-5167731b5ce5 Yuksel, M. (2019). A decade of post-crisis G20 financial sector reforms. Reserve Bank of Australia Bulletin—June 2019. https://www.rba.gov.au/publications/bulletin/2019/jun/a-decadeof-post-crisis-g20-financial-sector-reforms.html

Chapter 6

International Financial Institutions and International Monetary System Reform

Abstract This chapter discusses the reforms in the international organisations (IOs). International organisations (IOs) are an integral part of international financial architecture. With the birth of the Bretton Woods Institutions, the international monetary fund (IMF), and the World Bank, in 1944, the role of these international institutions for economic growth and financial stability was acknowledged. Over the years, the reform of the international financial institutions has been recognised. While reforms related to international financial institutions (IFIs) have remained an important focal point of the G20’s discussions, their focus in many summits has also widened to include broader aspects related to the international monetary system. Among the IFIs, the IMF has received considerable attention, with the commitments and discussions spanning across various aspects of the fund including, inter alia, its quota and governance reforms, resource adequacy, surveillance, and lending capacity.

The role of international institutions for economic growth and financial stability was acknowledged with the birth of the Bretton Woods Institutions, the International Monetary Fund (IMF), and the World Bank, in 1944 (Callaghan, 2014). The G201 has been vocal on reforming the international financial institutions (IFIs) in a way that best embodies the changes in the global economy and increasing the representation of emerging economies in these institutions particularly the poorest nations. While reforms related to international financial institutions have remained an important focal point of the G20’s discussions, their focus in many summits has also widened to include broader aspects related to the international monetary system. Among the IFIs, the IMF has received considerable attention, with the commitments and discussions spanning across various aspects of the fund including inter alia its quota and governance reforms, resource adequacy, surveillance, and lending capacity. The first summit in Washington acknowledged the role of the IFIs, including their role in helping countries that were hit by the global financial crisis and the requirement for all-embracing reform of the IFIs, and IFI reform formed part of the Washington Action Plan (G20, 2008a). The second summit in London, which recorded the highest number of IFI reform commitments, made a case for strengthening the IFIs in a global 1

Role of IOs in the G20 in Annexure 2 in Chap. 2.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_6

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environment where emerging markets and developing economies were facing challenges (G20, 2009a) and released the “declaration on delivering resources through the international financial institutions.” At both summits, the crisis’ effects seemed to be in play in driving the commitments on IFI reform. After touching their highest point at the London summit, the commitments on IFI reform seemed to have dwindled, before reviving to some extent at the Seoul summit and then clocking in their second highest number at the Cannes summit. One of the key outcomes of the Seoul summit was that of agreement on “IMF quota reform and adjustment of the Executive Board’s composition” as “the Seoul Summit reached agreement on the 6% quota shift to emerging and developing countries.”2 The Cannes summit accorded great significance to the reforming of the international monetary system (Sheel, 2011). With regard to the international financial institutions, measures that were taken at the Cannes summit included: the FSB and the IMF were provided with new authority as well as resources, and the IMF’s resources were strengthened for helping large European and other countries that were facing the short-term market panic (Kirton, 2011) and a decision was also taken to improve the IMF’s capacity for the purpose of crises response and prevention and enhance member and world economy surveillance. Since the Cannes summit, the commitments on IFI reform have remained subdued, except for the Hamburg summit at which 14 commitments were made, the same number as that of the Washington summit. At the Hamburg summit, which was centred around the agenda of “shaping the interconnected world,” new measures were adopted to strengthen the international financial architecture and the G20 continued to work towards completing the 15th Quota Review and encouraging partnership between RFAs and the IMF. The discussion below chalks out how the G20’s agenda IFIs’ reform evolved. Washington summit (2008)3 In the very first G20 summit, the significant role of the international financial institutions in ensuring global financial system stability, extending global cooperation for development, as well as lending a hand to the countries hit by the global financial crisis was acknowledged (G20, 2008a). The need for the overarching Bretton Woods Institutions’ reform so that these institutions sufficiently account for the evolving economic weights in the world economy and for increasing their amenability to future challenges was emphasised (G20, 2008a). Noting the advancements reached in reforming the IMF during that year and the foundational step in the direction of reforming the World Bank Group, the G20 finance ministers and central bank heads pledged to further reform the Bretton Woods Institutions for raising their legitimacy and effectiveness while remaining cognisant of the specific interests of the poorest nations (G20, 2008a). The agenda of reforming the IFIs formed an essential component of the Washington Action Plan (G20, 2008b). The G20 finance ministers and central bank heads further highlighted that emerging markets and developing countries should have more representation in these institutions (G20, 2008a). The 2 3

http://www.mofa.go.kr/eng/wpge/m_5470/contents.do. See Annexure in Chap. 7 for the various summits and their dates.

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Financial Stability Forum was also encouraged to widen its membership to cover emerging economies (G20, 2008a). The issue of appraising the resource adequacy of the IFIs was also discussed (G20, 2008a). With regard to the IMF, its lending capacity, early warning capabilities, and surveillance were scrutinised at the summit. Lauding the use of the IMF’s emergency procedures for swiftly dispensing considerable assistance to the concerned countries and the establishment of a new short-term liquidity facility, the finance ministers and central bank heads encouraged the IMF to move forward with the review of its lending instruments and tweak them so as to best meet the demands of its members (G20, 2008a). The fund was further nudged to reconsider its lending role in the setting of the financial crisis (G20, 2008a). Bringing out the importance of augmenting the IMF’s surveillance and policy advice, they were of the opinion that the fund should improve its early warning capability with due consideration to systemically important economies (G20, 2008a). London summit (2009) The 2009 London summit highlighted that the challenges facing the emerging market and developing economies were fuelling the downswing that the global economy was facing at the time due to the global financial crisis and that continuous capital flow was critical for lifting global confidence and fortifying recovery (G20, 2009a). This created a case for strengthening the IFIs, in particular the IMF (G20, 2009a). The London summit’s “declaration on delivering resources through the international financial institutions” clearly brought out the leaders’ opinions regarding augmenting the capacity of the IFIs in terms of resources as well as facilities for tackling the global financial crisis. In this light, an additional amount of US$ 850 billion was agreed to be provided via the IMF and the Multilateral Development Banks (MDBs) for buttressing emerging markets and developing countries growth (G20, 2009d). Brodie (2010) pointed out that a large share of the new resources went to the IMF. The G20 leaders also stated their resolve for reforming IFIs’ “mandates, scope and governance to reflect changes in the world economy and the new challenges of globalisation and that emerging and developing economies, including the poorest, must have greater voice and representation” and recognised that these reforms need to be complemented by actions that escalate the “credibility and accountability of the institutions through better strategic oversight and decision making” (G20, 2009a). A gamut of measures for the IMF was agreed upon including: . US$ 250 billion bilateral financing from members (as an immediate measure) (G20, 2009d). . Channelling the immediate financing from members into New Arrangement to Borrow (NAB) including other G20 countries and will be raised by up to US$ 500 billion (as a near-term measure) (G20, 2009d). . It was conceded that market borrowings can be roped in if required (G20, 2009a). . Progress achieved by the IMF with its new flexible credit line (FCL) and lending and conditionality framework was appreciated (G20, 2009a).

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. General SDR allocation for infusing US$250 billion, with US$ 100 billion of this amount going straight to emerging markets and developing countries (G20, 2009d), boosting liquidity and immediate approval of the fourth amendment concurred (G20, 2009a). . Prompt enforcement of the quota and voice measures that were agreed in April 2008 was urged and then it was stated that the forthcoming review of the IMF quotas should be completed by January 2011 (G20, 2009c) which was two years earlier than the actual timeline of the review of the year 2013, since the earlier review of the IMF’s quotas was concluded at the beginning of 20084 (Menkhoff & Meyer, 2010). The World Bank reforms were decided to be concluded by Spring Meetings 2010 (G20, 2009c). The summit also urged the MDBs to augment their lending (Brodie, 2010). The leaders also committed to an immediate increase in Asian Development Bank’s member capital and to appraise the requirement for increasing the capital. The finance ministers and central bank governors conceded that the selection of heads of IFIs should be done via “open, merit-based selection processes” (G20, 2009c). Furthermore, it was agreed that for raising the effectiveness of IFIs the “cooperation and coordination between the IFIs should be strengthened” (G20, 2009d). Pittsburgh summit (2009) The G20 leaders remarked that the aggregate response to the crisis has played up the advantages of international cooperation (G20, 2009b). They also underlined the need for improving the effectiveness and legitimacy of the IMF (G20, 2009b). It was pointed out that the G20’s pledge to enlarge funds with the IMF assisted in halting the contagion of the financial crisis from reaching emerging markets and developing countries (G20, 2009b). The global risks have dampened, and capital has again started to flow to the emerging markets due to the G20 commitment to augmenting the IMF’s resources and the measures taken by the fund itself for putting in place facilities that allowed efficient and flexible use of its resources (G20, 2009b). The leaders invited attention to their achievement with respect to increasing the IMF’s available resources and pledged to furnish over US$ 500 billion for the purpose of an updated and broader IMF NAB (G20, 2009b). SDR allocations of US$ 283 billion in total were made by the IMF, and as mentioned in the London summit, US$ 100 billion was earmarked for boosting the extant reserve assets of emerging markets and developing countries (G20, 2009b). Furthering this idea, transfer of a minimum of 5% quota shares from the overrepresented to less-represented countries based on the existing IMF quota formula was committed (G20, 2009b). The leaders also pledged to safeguard the poorest countries’ voting share in the fund (G20, 2009b). The G20 finance ministers and central bank governors restated the target time that was elucidated in the earlier London summit for the IMF’s representation and governance reforms as January 2011 (G20, 2009e). Within the context of the review, a host of other important 4

General Quota reviews are undertaken by the IMF’s Board of Governors at regular intervals, generally every five years (IMF, 2016b).

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measures that needed to be tackled were also conceded such as the quantum of any improvement in IMF quotas; size and configuration of the Executive Board; means of improving the Board’s effectiveness; and the participation of the IMF’s governors in the strategic oversight of the IMF (G20, 2009b). In a forward-looking manner, the G20 leaders declared that once the recovery gets underway, they will work towards building up the IMF’s ability to monitor risks threatening the world economy and the international financial system (G20, 2009b). Acknowledging that the over-represented countries provide funds, the leaders found it crucial to shelter the voting share of the smallest poor nations and thereby insisted on switching to even-handed voting power in the World Bank via embracing a dynamic formula that manifests the changing economic weight of countries and the development mission of the World Bank (G20, 2009b). The formula should increase developing and transition economies’ voting power by at least 3% of voting power, over and above 1.46% under Phase I of this crucial adjustment to the advantage of the under-represented nations in the next shareholding review (G20, 2009b). The finance ministers and central bank governors re-emphasised their pledge to complete the World Bank’s representation and governance reforms by the 2010 Spring Meetings (G20, 2009e). The leaders concurred that the election process for all the global institutions’ heads and senior leadership must be “an open, transparent, and merit-based process” (G20, 2009b). As per Menkhoff and Meyer (2010), “This decision marks a turning point in the Fund’s history and follows the unanimous recommendations of the G20 Working Group 3, the Stiglitz Commission, the Manuel Group, the IEO, and many critics.” Furthermore, Menkhoff and Meyers (2010) appreciated the G20’s decision to not restrict this to only the IMF but extend this to other IFIs. However, they indicated that details and timelines for its enforcement were not elucidated (Menkhoff & Meyers, 2010). Toronto summit (2010) The G20 leaders at the 2010 Toronto summit re-iterated their commitment towards bolstering the “legitimacy, credibility, and effectiveness of the IFIs” (G20, 2010a). Appreciating the consent on the World Bank’s voice reform for raising developing countries and transition countries’ voting power by 3.13%, the G20 finance ministers and central bank governors re-affirmed the 2009 Pittsburgh summit pledge of getting to an egalitarian voting power in due course (G20, 2010b). The IMF was tasked to expedite the considerable heavy lifting that still remained to be done for concluding the quota reforms by the 2010 Seoul summit and simultaneously enforce the other governance reforms in tandem with the Pittsburgh summit commitments (G20, 2010b). The G20 leaders also underlined their resolution for the approval of the IMF quota and voice reforms (G20, 2010a). Prompt enforcement of the widened NAB by all the concerned countries was encouraged by the G20 finance ministers and central bank heads (G20, 2010b). The subject of a global financial safety net was brought up in the meeting of the G20 finance ministers and central bank governors where they agreed to survey policy-related options for enhancing the global financial safety net predicated on

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well-grounded incentives (G20, 2010b). In parallel, the IMF was also directed to make swift advancement in appraising their lending instruments with the aim of developing and updating them (G20, 2010b). Taking further the pledge of “open, transparent, and merit-based selection processes for the heads and senior leadership of all the IFIs,” the leaders consented to reinforcing selection procedures before the Seoul summit as a wider reform measure (G20, 2010a). Seoul summit (2010) Prior to the Seoul summit, the finance ministers and central bank governors in their meeting in October 2010 stated their determination to increase the adoption of market-determined exchange rates (G20, 2010d). They concurred on proposals regarding the IMF quota and governance reforms that sought to carry out the objectives set out in Pittsburgh and in some areas going a step ahead (G20, 2010d). The prime constituents of these proposals broadly included a pledge to conclude transfer of over 6% quota shares to the emerging market and developing countries and countries with lower representation, along with safeguarding the poorest nations’ voting share by the 2012 annual meeting; increasing twofold the quotas and an associated retracting of the NAB, keeping relative shares same the moment increase in quota becomes effective; pushing forward the dynamic process for improving the emerging markets and developing countries’ (inclusive of the poorest countries) voice and representation via an all-inclusive review of the formula by January 2013, along with concluding the following periodic quota review by January 2014; and improving the representation of the emerging economies at the Executive Board via two less advanced European chairs, working to an all-elected Board together with a pledge by the IMF’s members to keep the size of the Board at 24 chairs, and a Board composition’ review every eight years following the conclusion of the 14th Review (G20, 2010d). In November 2010, the leaders convened for the Seoul summit where they re-asserted the exigency of winding up the 2008 IMF quota and voice reforms and encouraged the G20 countries partaking in the widened NAB to hasten the approaches in concluding the acceptance process (G20, 2010e). Moreover, it was decided that the unfinished governance reform issues of the World Bank and the IMF will be strived for (G20, 2010c). The leaders agreed to work to create a “more stable and resilient international monetary system, including by further strengthening the global financial safety net” (G20, 2010c). Setting up of a precautionary credit line and improvement of the FCL as part of the reform of the IMF’s lending facilities was appreciated by the G20 finance ministers and central bank heads for augmenting the global financial safety net (G20, 2010d). The subject of collaboration between regional financing arrangements (RFAs) and IMF was also tabled for discussion. The consultation for improving cooperation between RFAs and the IMF was appreciated (G20, 2010e). The IMF was urged to advance its progress in updating the fund’s surveillance “mandate and modalities” (G20, 2010e). Furthermore, the IMF was nudged to pursue work for boosting its capacity for dealing with systemic shocks (G20, 2010d).

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Cannes summit (2011) The issue of reforming the international monetary system was a subject of great importance on the G20 agenda in the French Presidency (Sheel, 2011). The G20 leaders in the 2011 Cannes summit stated the advancement reached in reforming the international monetary system (G20, 2011). Moving ahead of the commitment to reform the international monetary system, the leaders in this summit agreed on a host of measures and commitments for building resilience against volatile capital flows, accounting for evolving economic equilibrium and surfacing of new international currencies, improving the capacity to tackle crises, and augmenting IMF surveillance (G20, 2011a). G20 leaders concurred on aligning SDR basket’s composition with currency positions in the international financial system and reviewing SDR composition (G20, 2011). The IMF was tasked to further clear the criteria, and the SDR basket composition was to be scrutinised in 2015 or before it when the currencies satisfy the criteria in place for entering the basket for the purpose of calibrating the evolving role and characteristics of currencies (G20, 2011). As regards IMF surveillance, the refinements to the IMF’s surveillance toolkit, such as the consolidated multilateral surveillance report and spillover report, were appreciated (G20, 2011a). They tasked the IMF to keep an eye on cross-border capital flows and their transmission channels and upgrade the ways of capital flow management that countries use (G20, 2011a). The IMF was also directed to keep working on drivers and metrics of reserve accumulation, taking into consideration the country specific conditions, and to collaborate with BIS to work on global liquidity indicators (G20, 2011a). The IMF was also urged to continue enhancing its evaluation of exchange rates and issue its evaluation as suitable (G20, 2011a). They concurred on the requirement of increasing the ownership and momentum of IMF surveillance and acknowledged the need for enhanced streamlining of bilateral and multilateral surveillance (G20, 2011a). The issue of transparency of IMF surveillance was also discussed (G20, 2011a). While agreeing to keep their work going for bolstering the global financial safety net, the leaders backed the IMF in introducing a new precautionary and liquidity line and a single facility for addressing the emergency assistance member needs (G20, 2011a). They stated their resolve for prompt enforcement of the complete 2010 IMF quota and governance reforms (G20, 2011a). Additionally, they concurred on sound conclusions for direction in capital flow management, common principles for collaboration between the IMF and the RFAs, and an action plan relating to the local currency bond markets (G20, 2011). On the wider aspect of exchange rates, expediting movement towards flexible exchange rates was pledged in the summit along with improving flexibility of exchange rates to better indicate underlying economic characteristics and abstaining from persistent exchange rate misalignments and competitive currency devaluation (G20, 2011a). Their resolve to adhere to commitments regarding exchange rates as elaborated in the Action Plan for Growth and Jobs was restated (G20, 2011a).

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Kirton (2011) pointed out that the summit strengthened the IMF’s resources for aiding large European and other countries that were victimised by the short-term market panic but showed promising commitment to undertaking required reforms. Sheel (2011) indicated that while the agreement was attained by the G20 on a raft of issues pertaining to the subject of reforming the international monetary system like “policy approaches on handling large volatile capital flows, enhancing the capacity of developing countries to absorb capital inflows, coping with sudden stops of capital in developing countries, and reviewing the composition of the SDR basket,” no unanimity was achieved on the broader issues pertaining to the international monetary system such as “the measurement and metrics of global liquidity, accumulation of reserves and exchange rate management, and the reserve currency question itself.” Los Cabos summit (2012) In the Los Cabos summit that took place in June 2012, the leaders re-iterated exchange rate commitments of the 2011 Cannes summit and appreciated China’s commitment to permitting a greater role to be played by the market forces in governing Renminbi ‘s movements, pursuing the reform of its exchange rate regime, and improving the transparency of its exchange rate policy (G20, 2012a). The finance ministers and central bank heads pointed out in their November 2012 meeting that the decrease in global imbalances has not been enough (G20, 2012b). They appreciated the ongoing process for augmenting IMF resources and underscored that the additional commitments that have been received from more members aggregated to total commitments of nearly US$ 461 billion (G20, 2012b). They acknowledged the formalisation of the first part of bilateral borrowing arrangements under the decided modalities covering US$ 286 billion and directed that the remaining bilateral agreements should also be finalised (G20, 2012b). The finance ministers and central bank governors restated their commitment to complete implementation of the 2010 IMF quota and governance reform (G20, 2012b). They also maintained that considerable progress has been attained, though the conditions for entry into force of the 2010 quota and governance reform have not been completely satisfied as of October 2012 (G20, 2012b). Restating the exigency of these reforms, they encouraged all the members who have not yet completed the process to do so (G20, 2012b). Pledging to round up the all-embracing review of the quota formula for tackling the shortfalls in the extant quota formula by January 2013 and concluding the next general review of quotas by January 2014, they appealed to the members of the IMF to generate the consensus that is required for concluding the review by January 2013 (G20, 2012b). They conceded that the formula should be “simple and transparent, consistent with the multiple roles of quotas, result in calculated shares that are broadly acceptable to the membership, and be feasible to implement based on a timely, high-quality and widely available data” and reinforced that quota distribution predicated on the formula should mirror the relative weights of IMF members in the world economy (G20, 2012b). They restated the significance of continuing to safeguard the voice and representation of the IMF’s poorest members (G20, 2012b).

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The building up of a surveillance framework of the IMF via taking up the new Integrated Surveillance Decision as well as the launch of the Pilot External Sector Report to bolster multilateral analysis and improve the transparency of surveillance was also appreciated (G20, 2012b). St. Petersburg summit (2013) In the 2013 St. Petersburg summit (September 2013), the leaders stated that a major portion of the committed resources, US$ 461 billion, was made available via the IMF’s bilateral loan or note purchase agreements (G20, 2013a). Highlighting the significance of the RFAs in the global financial safety net present at that time, the leaders re-asserted the common principles for collaboration between the IMF and RFAs adopted in the 2011 Cannes summit and acknowledged the work done by the IMF and the G20 in this matter (G20, 2013a). The commitments regarding quota distribution and the need to safeguard the voice and representation of poor nations were restated (G20, 2013a). The G20 members concurred with the IMF for streamlining the process of achieving a final agreement on a revised quota formula with the 15th General Review of Quotas (Kirton, 2013). The finance ministers and central bank governors at their October 2013 meeting re-asserted the importance of the pressing need for prompt ratification of the 2010 IMF quota and governance reform (G20, 2013b) and stressed that they along with the complete IMF membership remained committed to reaching a consensus on the quota formula and set the seal on the 15th General Quota Review by January 2014 as agreed at the 2010 Seoul summit and restated at the 2011 Cannes summit and 2012 Los Cabos summit (G20, 2013b). Brisbane summit (2014) The G20 leaders at the 2014 Brisbane summit affirmed emphasised their pledge “for maintaining a strong, quota-based and adequately resourced International Monetary Fund” (G20, 2014b). Re-asserting their St Petersburg commitment, the G20 members were dismayed due to delays in completing the IMF’s quota and governance reforms (decided in 2010) and the 15th General Review of Quotas, including a revised quota formula (G20, 2014b). They pushed the USA to ratify the 2010 IMF quota and governance reforms (G20, 2014b). The leaders appreciated the improved representation of emerging economies on the FSB and other actions for sustaining its effectiveness (G20, 2014b). The G20 finance ministers and central bank heads affirmed their resolve to deliver the G20 exchange rate commitments and to make certain that the global safety net remained effective (G20, 2014a). Antalya summit (2015) In the 2015 Antalya summit, the leaders voiced their discontent at the dilatory enforcement of the IMF quota and governance reforms that were agreed on in the year 2010 (G20, 2015a). While stating that the 2010 reforms remain on their priority list for the IMF, they strongly urged the USA to quickly move ahead with the ratification of these reforms (G20, 2015a). Recognising the goals of the 2010 reforms, the G20 leaders tasked the IMF “to complete its work on an interim solution that will

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meaningfully converge quota shares as soon as and to the extent possible to the levels agreed under the 14th General Review of Quotas. The 14th Review should be used as a basis for work on the 15th Review, including a new quota formula” (G20, 2015a). Their commitment to “maintaining a strong, quota-based and adequately resourced IMF” was re-emphasised (G20, 2015a). This stalemate motivated the rise of institutions like the New Development Bank having features of both the World Bank as well as the IMF (Callaghan, 2014) as the founding members of the New Development Bank clearly stated that inadequate representation in the Bretton Woods Institutions has incentivised them to come up with their own alternate arrangement (The Bretton Woods Project, 2015). The leaders reinforced the alignment of the SDR basket’s composition with currency positions in the international trading and financial system (G20, 2015a). They re-asserted their agreement related to the appointment of the heads and the senior leadership of all IFIs which should be done via “an open, transparent, and merit-based process” and stressed the significance of improving the staff diversity in such institutions (G20, 2015a). The finance ministers and central bank governors re-asserted all the earlier exchange rate commitments (G20, 2015b). Hangzhou summit (2016) At the 2016 Hangzhou summit, the leaders extended support for work to bolster “the Global Financial Safety Net (GFSN), with a strong, quota-based and adequately resourced IMF at its center, equipped with a more effective toolkit, and with more effective cooperation between the IMF and regional financing arrangements (RFAs), respecting their mandates” (G20, 2016b). They encouraged sustaining bilateral and multilateral borrowing agreements among members and the fund in harmony with the goal of preserving the extant lending capacity of the fund and called for greater participation from the IMF members including through new agreements (G20, 2016b). Appreciating the entry into effect of the 2010 IMF quota and governance reform,5 they stated that the work for concluding the 15th General Review of Quotas including a revamped quota formula should be done by the Annual Meetings in 2017 (G20, 2016b). They assured that any change in the quota shares under the 15th Review is likely to result in an increase in shares of the dynamic economies in tandem with their comparative positions in the world economy and thus in the shares of emerging market and developing countries on an overall level (G20, 2016b). They re-iterated their commitment to safeguarding the voice and representation of the poorest members (G20, 2016b). Appreciating the inclusion of the Renminbi in the SDR basket on 1 October 2016, the leaders backed the present evaluation of SDR’s wider usage for improving 5

On 15 December 2010, the 14th General Review of Quotas was concluded and the requirements for the effectiveness of quota increases were satisfied on 26 January 2016 (IMF, 2020a). The quota and governance reforms brought about by the 14th Review included doubling of quotas to SDR 477 billion and transfer of over 6% of quota shares from over-represented to under-represented member countries along with transfer of over 6% of quota shares to dynamic emerging market and developing countries (IMF, 2020a). In addition, the quota and voting share of the poorest member nations were safeguarded (IMF, 2020a).

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resilience (G20, 2016b). The issuance of SDR bonds in China’s interbank market by the World Bank was also noted by the leaders (G20, 2016b). The finance ministers and central bank reinforced exchange rate commitments stated in the previous summits (G20, 2016a). Hamburg summit (2017) In the 2017 Hamburg summit, the leaders decided concluding the IMF’s 15th General Quota Review (with a new quota formula) by the Spring Meetings 2019 and latest by the Annual Meetings 2019 (G20, 2017a). The ongoing work by the IMF for further enhancing the effectiveness of the IMF’s lending toolkit was promoted (G20, 2017a). The finance ministers and central bank heads re-asserted the earlier exchange rate commitments and stated that they aiming for decreasing the global imbalances (G20, 2017a). They mentioned that they remained committed to bolstering the “global financial safety net with a strong, quota-based and adequately resourced IMF at its centre” (G20, 2017a). They also underscored that they are moving ahead their efforts for attaining better synergy between the IMF and the RFAs (G20, 2017a). Buenos Aires summit (2018) The leaders reinforced the pledge for bolstering the “global financial safety net with a strong, quota-based and adequately resourced IMF at its centre” at the 2018 Buenos Aires summit (G20, 2018b). They stated their resolve for finishing the 15th General Review of Quotas which includes a new formula for quotas by the Spring Meetings and latest by the Annual Meetings 2019 (G20, 2018b). One of the accomplishments of the summit was in the form of approval of new resources for the IMF (Kirton, 2018). The finance ministers and central bank heads re-asserted their exchange rate commitments (G20, 2018a). Osaka summit (2019) The commitment to a “strong, quota-based, and adequately resourced IMF, to preserve its role at the center of the global financial safety net” was restated at the 2019 Osaka summit (G20, 2019). Reinforcing their resolve for finishing the 15th General Review of Quotas and latest by the Annual Meetings 2019, the finance ministers and central bank heads tasked the IMF to speed up the work on its resources and governance reform as a matter of greatest importance (G20, 2019). The disinclination of the USA with respect to the use of the 15th Review for the purpose of voting rights re-allocation led the fund’s shareholders to concede to the US proposal of expanding NAB so that the IMF is able to preserve its lending capacity at least in the short run (Bretton Woods Project, 2019). Further, a resolution completing the 15th General Review of Quotas with no raise in IMF quotas was adopted by the IMF’s Board of Governors on 7 February 2020 (IMF, 2020b). Analysing IFI reform The agenda of reforming the international financial institutions and in general the international monetary system has been part of practically all the G20 summits. The G20 made 120 commitments on the subject of reform of international financial institutions from the first G20 summit in Washington in 2008 to the 2016 Hangzhou

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Fig. 6.1 IFI reform commitments in the G20 summits (2008–2016). Source Warren (2017)

summit (Warren, 2017). Figure 6.1 illustrates the number of IFI reform commitments by the G20 summit. The G20 Research Group assessed five priority commitments out of the 120 commitments for members’ compliance which resulted in average compliance of 66% (Warren, 2017). Germany, France, and Japan had a compliance rate of 90%, Canada 80%, and the USA, China, the UK, Korea, South Africa, Turkey, Italy, India, and Australia had 70% (Warren, 2017). Larionova (2018) underscores that the G20’s role in reforming the international monetary system has been backed by the BRICS. She further indicates that reforming the quotas and governance of the IMF has been relentlessly pushed forward by the G20, and the forum has also backed refilling the fund’s resources and promoted new lending instruments and enhanced surveillance tools (Larionova, 2018).

References Brodie, I. (2010). International financial institutions and the G20. Policy Options. http://irpp.org/ wp-content/uploads/assets/po/g8g20/brodie.pdf Callaghan, M. (2014). G20 and strengthening the international economic institutions. G20 MonitorG20 2014: Reform of the international organisations, financial regulation, trade, accountability and anti-corruption. Number 13. G20. (2008a). Communiqué: Meeting of ministers and governors, November 8–9. http://www.g20. utoronto.ca/2008/2008communique1109.pdf G20. (2008b). Declaration of the summit on financial markets and the world economy, November 15. g20.utoronto.ca/2008b/2008declaration1115.html G20. (2009a). London Summit: Leaders’ Statement, April 2. http://www.g20.utoronto.ca/2009/200 9communique0402.pdf

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G20. (2009b). G20 leaders’ statement: The Pittsburgh summit, September 24–25. http://www.g20. utoronto.ca/2009/2009communique0925.html G20. (2009c). G20 finance ministers’ and central bank governors’ Communiqué, March 14. http:// www.g20.utoronto.ca/2009/2009communique0314.pdf G20. (2009d). Declaration on delivering resources through the international financial institutions, London Summit, April 2. G20. (2009e). Communiqué: meeting of finance ministers and central bank governors, November 7. http://www.g20.utoronto.ca/2009/2009communique1107.pdf G20. (2010a). The G20 Toronto Summit Declaration, June 27. http://www.g20.utoronto.ca/2010/ to-communique.html G20. (2010b). Communiqué of the meeting of finance ministers and central bank governors, June 5. http://www.g20.utoronto.ca/2010/g20finance100605.html G20. (2010c). The Seoul summit document, November 12. http://www.g20.utoronto.ca/2010/g20 seoul-doc.html G20. (2010d). Communiqué: Meeting of finance ministers and central bank governors, October 23. http://www.g20.utoronto.ca/2010/g20finance101023.pdf G20. (2011a). Cannes summit final declaration—Building our common future: Renewed collective action for the benefit of all, November 4. http://www.g20.utoronto.ca/2011/2011-cannes-declar ation-111104-en.html G20. (2011c). Communiqué of the finance ministers and central bank governors of the G-20, October. http://www.g20.utoronto.ca/2011/2011-finance-111015-en.html G20. (2011d). Communiqué: G20 leaders’ summit, November 4. http://www.g20.utoronto.ca/2011/ 2011-cannes-communique-111104-en.html G20. (2012a). G20 leaders’ declaration, June 19. http://www.g20.utoronto.ca/2012/2012-0619-los cabos.html G20. (2012b). Communiqué of meeting of G20 finance ministers and central bank governors, November 5. http://www.g20.utoronto.ca/2012/2012-121105-finance-en.html G20. (2013a). G20 leaders’ declaration, September 6. http://www.g20.utoronto.ca/2013/20130906-declaration.html G20. (2013b). Communiqué: Meeting of finance ministers and central bank governors, October 11. http://www.g20.utoronto.ca/2013/2013-1011-finance.html G20. (2013d). G20 2014: Overview of Australian’s presidency, December. http://www.g20.utoronto. ca/2014/G20Australia2014conceptpaper.pdf G20. (2014a). Communiqué-meeting of G20 finance ministers and central bank governors, September 21. http://www.g20.utoronto.ca/2014/2014-0921-finance.html G20. (2014b). G20 leaders’ communiqué, November 16. http://www.g20.utoronto.ca/2014/20141116-communique.html G20. (2014d). Communiqué, February 23. http://www.g20.utoronto.ca/2014/2014-0223-finance. html G20. (2015a). G20 leaders’ communiqué, November 15–16. http://www.g20.utoronto.ca/2015/151 116-communique.html G20. (2015c). Antalya action plan. http://www.g20.utoronto.ca/2015/Antalya-Action-Plan.pdf G20. (2015d). G20 Turkish presidency key messages. http://karakas.be.mfa.gov.tr/Content/assets/ consulate/images/localCache/12/0e0f57ed-fe4a-4024-98f3-bd0d0bc81a9a.pdf G20. (2016a). Communiqué: G20 finance ministers and central bank governors meeting, July 24. http://www.g20.utoronto.ca/2016/160724-finance.html G20. (2016b). G20 leaders’ communiqué: Hangzhou summit, September 5. http://www.g20.uto ronto.ca/2016/160905-communique.html G20. (2016d). Hangzhou action plan, September 5. http://www.g20.utoronto.ca/2016/160905-act ion.html G20. (2017a). Communiqué: G20 finance ministers and central bank governors, March 18. http:// www.g20.utoronto.ca/2017/170318-finance-en.html

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G20. (2018a). Communiqué: G20 finance ministers and central bank governors, July 23. http:// www.g20.utoronto.ca/2018/2018-07-22-finance.html G20. (2018b). G20 leaders’ declaration, December 1. http://www.g20.utoronto.ca/2018/buenos_ aires_leaders_declaration.pdf G20. (2019). Communiqué: G20 finance ministers and central bank governors meeting, June 9. http://www.g20.utoronto.ca/2019/2019-g20-finance-fukuoka.html IMF. 2016b. Factsheet: IMF Quotas. Retrieved from: https://www.imf.org/external/np/exr/facts/ quotas.htm?mod=article_inline#:~:text=The%20IMF’s%20Board%20of%20Governors,be% 20changed%20without%20its%20consent. IMF. (2020a). Factsheet: IMF quotas. https://www.imf.org/en/About/Factsheets/Sheets/2016/07/ 14/12/21/IMF-Quotas#:~:text=15th%20General%20Review%20of%20quotas,while%20protect ing%20the%20poorest%20members IMF. (2020b). Press Release No. 20/50: IMF Board of Governors approves a resolution on quota reviews. https://www.imf.org/en/News/Articles/2020b/02/13/pr2050-imf-board-of-govern ors-approves-a-resolution-on-quota-reviews Kirton, J. (2011). Cannes 2011: A summit of substantial success. http://www.g20.utoronto.ca/ana lysis/111104-kirton-cannes-perf.html Kirton, J. (2013). A summit of substantial success: Prospects for the G20’s St. Petersburg Summit. http://www.g20.utoronto.ca/analysis/130905-kirton-prospects.pdf Kirton, J. (2018a). A summit of solid success: The 2018 G20 Buenos Aires Summit. http://www. g20.utoronto.ca/analysis/181201-kirton-solid-success.html Larionova, M. (2018). Backing G20 governance by the BRICS. The Global Governance Project. http://www.globalgovernanceproject.org/2018/11/22/backing-g20-governance-by-the-brics/ Menkhoff, L., & Meyer, R. (2010). The G20 proposal on IMF governance: Has any progress been made? Intereconomics, 45(3), 171–179. Sheel, A. (2011). Challenges in IMS reforms: A global and emerging markets’ perspective, No. 11. ICRIER Policy Series. The Bretton Woods Project. (2015). Developing countries seek to bypass stalled IMF and World Bank reform, risking US veto. https://www.brettonwoodsproject.org/2015/09/developing-countr ies-seek-to-bypass-stalled-imf-and-world-bank-reform-risking-us-veto/ The Bretton Woods Project. (2019). US blocks IMF voting rights redistribution. https://www.bre ttonwoodsproject.org/2019/12/imf-voting-rights-redistribution-blocked-by-the-us/ Warren, B. (2017). G20 international financial institution reform commitments and compliance. http://www.g20.utoronto.ca/analysis/170105-ifi-reform-research.pdf

Chapter 7

The Indian Presidency and G20’s Future Agenda

Abstract The global economy has undergone a massive shock due to the COVID-19 pandemic and the Russian invasion of Ukraine. In the aftermath of the global financial crisis, the agenda in the G20 focused on the recovery of the global economy and on fiscal and monetary policies and financial regulation. By the Japanese Presidency summit, the G20 successfully completed ten years since the global financial crisis, and though the summit managed to distance itself from the crisis, there were still downside risks due to global tension emanating from trade wars and geopolitical issues. The global economy faced a much deeper downturn in 2020 than what occurred in 2008, which led to the elevation of the G20 to the summit level. In response to the current COVID-19 crisis, the G20 has taken some measures; however, the response so far has fallen short of what was needed, and more needed to be done. The Italian Presidency chose People, Planet, and Prosperity as the theme for their presidency. The problems that beset the global economy in 2021 included debt, poverty and inequality, access to vaccines, and climate. The Indonesian presidency focused son recovery through Recover Together Recover Stronger. This chapter discusses the problems that beset the global economy in light of the ongoing humanitarian crisis and suggest agendas that India could pursue in its own Presidency in 2023.

7.1 Crises and the G20 The genesis of the G20 as an international forum has been closely intertwined with crises. With the Asian and Russian financial crises of the late 1990s, the major advanced economies realised the growing importance of emerging economies and the need for a larger forum than the G7, encompassing emerging economies (Bery et al., 2019). The G20 first met in 1999 at the level of finance ministers (Bery et al., 2019). When the global economy was grappling with the global financial crisis, the G20 was promoted to the leaders’ level. The world is currently facing another big crisis that has upended many lives and livelihoods. In this scenario, the G20 has been viewed as an international platform that is in a good position to coordinate global efforts (McKibbin & Vines, 2020; Thornton, 2020). Underscoring the success with which the G20 was able to tackle the last biggest crisis that the world witnessed, the © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2023 S. Ray et al., Global Cooperation and G20, https://doi.org/10.1007/978-981-19-7134-1_7

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global financial crisis of 2008–09, Chodor (2020) points out that “comprising the world’s 20 largest economies, the G20 should be the natural forum to devise and steer the global response to the twin crises.” The G20’s cooperation with international organisations can furnish a platform for undertaking such a globally coordinated response (Jong-Wha, 2020). The G20 as a Crisis-Driven Organisation The G20, representing advanced economies as well as emerging markets and developing economies, is seen as a unique global platform. The genesis of this forum can be traced back to 1999. The aftermath of the Asian and Russian financial crises (the late 1990s) brought the realisation of the systemic importance of the emerging economies for the G7, and thereby a need was felt for a larger forum than the G7 encompassing the emerging economies (Bery et al., 2019). The G20 existed on the level of finance ministers and central bank governors from 1999 to 2007. The forum was promoted to the leaders’ level in 2008 in the middle of the global financial crisis. The measures, initiatives, and efforts on the part of the G20 at the time of the global financial crisis were lauded by several observers. The crucial position that the G20 occupied during the global financial crisis in saving the world economy from a potential “second Great Depression” has also been highlighted (Bery et al., 2019). The G20’s response to the global financial crisis in a way elevated the significance of this international platform in steering the various dimensions of the global economy and creating a dialogue between key nations on a range of issues. From its initial crisis management nature, the G20, over the years, has morphed into a forum that directs discussion on a gamut of issues. After the exigency associated with the global financial crisis faded, the G20 continued with its summits year-on-year. As the G20 summits went on, the agenda catalogue widened and diversified. Every Presidency brought to the table an agenda that was amenable to the international community at large and aligned with their own domestic policy priorities. Over the years, from an exclusive focus on the global economy and financial issues, the international platform moved to incorporate a range of other issues such as climate finance, infrastructure investment, disaster risk financing, fossil fuel subsidies, anti-money laundering, and countering of terrorist financing. The G20 performed very well during the 2008 global financial crisis that threatened the global economy. Smith (2012) notes that “in the years since the first summit in November 2008, the G20 has proven itself as a crisis manager.” Since then, there have been many achievements to its name and areas where more was expected from the forum but less was delivered. The G20 has been viewed as a global platform driven by crises. At the time of a crisis, the G20 is seen to become active in bringing together nations for mitigating its impact. In line with this, the G20 has served as a platform for the exchange of information on various themes and issues in normal situations.

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Thus far, the G20 has taken many measures, which include, inter alia, an action plan,1 suspending debt repayment for the poorest countries and pledging to fund for buttressing global health. Every G20 economy and the non-G20 economy is in different phases, whether it is in terms of their pandemic scenario or their economic scenario. Global cooperation and the role of the G20 become extremely crucial in this situation. Therefore, the G20 is expected to continue its work as a crisis-driven organisation in stewarding the global economy in the right direction, given the fact that there may be different stages of recovery for each economy.

7.2 Global Economy and COVID-192 The pandemic propelled G20 countries towards policies to safeguard national security interests against international investment threats according to a joint report launched by UNCTAD, the OECD, and the WTO on 29 June 2020. The report covered the G20 countries’ investment measures from mid-October 2019 to mid-May 2020. As per the report, G20 countries recognised international cooperation on trade and investment as crucial for essential goods’ availability and a robust strong economic recovery. It was stressed that G20 members remain committed to “realise a free, fair, nondiscriminatory, transparent, predictable and stable trade and investment environment, and to keep markets open.” Also, FDI measures should avoid “opportunistic crisis buying.” The G20 can be a platform for sharing information and coordinating strategies to recover and grow. According to the 2019 communiqué, “Global growth appears to be stabilising, and is generally projected to pick up moderately later this year and into 2020. This recovery is supported by the continuation of accommodative financial conditions, stimulus measures taking effect in some countries, and one-off factors dissipating. However, growth remains low and risks remain tilted to the downside. Most importantly, trade and geopolitical tensions have intensified. We will continue to address these risks, and stand ready to take further action.” As per the UN report, World Economic Situation and Prospects 2019, global economic growth was moving steadily ahead. However, it was threatened by risks such as the aggravation of trade disputes, commodity price volatility, and climate risks (UN, 2019a). In developed economies, unemployment plunged and growth rates converged to potential (UN, 2019b, 2019a). Canada’s unemployment rate was at 5.8%, the US unemployment rate was at 3.8% of the active workforce in February 2019, and EU-28’s unemployment rate was at 6.5% in January down from 7.2% in January 2018. 1

The Riyadh Summit Leaders’ Declaration (November 2020) states that “the G20 Action Plan sets out key principles and commitments to drive forward international economic cooperation as we navigate this crisis and take steps to support the recovery and achieve strong, sustainable, balanced and inclusive growth” (G20, 2020). 2 https://www.bloomberg.com/news/articles/2020-07-17/g-20-may-now-look-beyond-initial-debtrelief-for-poorest-nations. Martin and Eder (2020).

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The developing East region and South Asian region, on the other hand, were growing strongly and saw robust domestic demand (UN, 2019a). Overall, there were asymmetries in economic growth globally as the per capita income of many large developing economies decreased in 2018 (UN, 2019a). The unevenness of economic growth was seen even within the economies with increasing per capita income (UN, 2019a). In these economies, the industrial and urban regions contributed to the growth and the rural regions emerged as laggards (UN, 2019a). The state of the global economy changed dramatically in the aftermath of the Osaka summit on account of the ongoing COVID-19 pandemic.3 The global economy faced a much deeper downturn than what occurred in 2008, which led to the elevation of the G20 to the summit level. The COVID-19 pandemic was also the first litmus test that the financial regulatory reforms faced after the global financial crisis, and they failed this test, as the abrupt spread of the pandemic, coupled with the lockdown measures is taking a toll on liquidity (Sobel, 2020). Banks have been able to sustain the crisis, as the reforms after the financial crisis have been able to successfully make SIBs more robust (Sobel, 2020) as indicated above. Since similar attention was not paid to the growing non-bank entities, they became a source of stress (Sobel, 2020). Measures taken by the G204 Funding for global health, over $21 billion, was pledged by the G20 and other invited countries. A statement was released by the G20 to this effect in March. . Debt burden was eased through suspension of official bilateral credit repayment for the poor countries in April 2020 at the finance ministers and central bank governors’ virtual meeting. . The ACT Accelerator Initiative was launched in April 2020 by the Saudi Arabian finance minister. This initiative aimed to provide a platform for facilitating partnerships for new COVID-19 diagnostics, therapeutics, and vaccine access. . The G20 brought in support from the pertinent IOs during the pandemic. Through FSB’s support, it eased BIS’ stringent norms on global commercial banks. . The G20’s response during the early phase of the pandemic was deemed inadequate. The G20 meeting organised on 26 March was not able to bring out any new significant and robust commitments (Chodor, 2020; Jain, 2020), and the pledge of injection of $5 trillion comprised of measures that were already domestically announced (Chodor, 2020). That meeting also failed to discuss pertinent issues such as “reversing export bans of medical equipment, funding a vaccine, or addressing the economic crisis brewing in the developing world” (Chodor, 2020). The G20 finance ministers and central bank governors’ meeting held in the month of April was considered as reflecting a lukewarm G20 response, with 3

India was among the worst hit economies in the world due to the pandemic. Hence, recovery should be among the most pressing issues that India needs to pursue. The prospects of recovery in the next few years also looked grim due to the hysteresis effects. Even with a very optimistic growth upturn after COVID-19, it will take many decades to catch up to the pre-COVID-19 growth path (NCAER Quarterly Review of the Economy, September 2020). 4 Pant (2020), Chikermane (2020).

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debt suspension being the only element standing out (Truman, 2020). Acknowledging the accord on debt suspension reached the meeting of the G20 finance ministers, Chodor (2020) points out that there was a conspicuous absence of any new measures pertaining to the health crisis and resources for the IMF. No pledges were made on new resources for the international financial institutions and they only discussed rejigging the extant resources (Truman, 2020). Further, new special drawing rights (SDRs) allocation was not reached during the early phase of the pandemic (Bery & Brekelmans, 2020; McKibbin & Vines, 2020; Truman, 2020), as the increase in the volume of SDRs has been obstructed by the USA (Bernes, n.d.; Thornton, 2020). Highlighting the limited resources at the IMF’s disposal, nearly $790 billion, Collins and Truman (2020) argue that SDR allocation is a way “to augment instantaneously the international reserves of its members.” Augmenting SDRs has also been recommended for aiding poor nations (Thornton, 2020; Truman, 2020). . Highlighting a dramatic contrast between the G20’s response during the global financial crisis and that in the early phase of the pandemic, McKibbin and Vines (2020) underline the two noteworthy aspects of cooperation during the global financial crisis as acknowledging the significant role of fiscal policy and elevating the G20 to the leaders’ summit level (McKibbin & Vines, 2020). Bernes (n.d.) points out that at the time of the global financial crisis the leaders firmly believed in the power of multilateral cooperation, owing to the global nature of the problem and that the nature of the present problem is also global; however, the response to it is not similar. Reminiscing about the time of the global financial crisis and the Ebola outbreak, Jain (2020) applauds the role that the G20 played in both of these events and its adequate response during that time. Jain (2020) states “The G20’s responses to crises in 2008 and 2014 stand in stark contrast to what we are witnessing today.” Amid this widespread dissatisfaction pertaining to the G20’s response, Bery and Brekelmans (2020) observe that the current crisis has brought to the forefront the significance and central role of the forum and acknowledged the consensus reached on debt suspension. . Various reasons have been cited for the constrained response on the part of the G20, from the US leadership to the nature of the forum itself. Describing the reasons behind the limited G20 response, Chodor (2020) points out that “the roots of this failure to rise to the challenge of COVID-19 stem from both the nature of the G20 itself and the broader international context in which it operates.” In this context, Chodor (2020) highlights that the G20 is inherently an institution with a finance focus, and “true decision-making power lies in its ‘Finance Track’— which brings together finance ministers, central bank governors, and officials— rather than the ‘Sherpa Track,’ where all other issues are discussed.” This was also instrumental in devising a strong response during the global financial crisis and the most lauded measure that the G20 has come up with in the current crisis is debt suspension. Chodor (2020) further notes that “A financial focus, however, means neglect of issues such as health, which are seen as outside the purview of financial policymakers. The expansion of the G20’s remit always sat uncomfortably with the continuing centrality of the Finance Track, and has been highlighted by the

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current crisis.” The second reason cited has been related to the US leadership. The distinct G20 response in the past and during the early phase of the pandemic was attributed to the difference in US leadership and their respective stance towards global collaboration and cooperation—the US administration was led by President Trump at the time, who was averse to global collaboration and multilateralism, as compared to the former presidents, George W. Bush and Barack Obama, who led the global response and action (Jain, 2020). Robertson (2020) mentions that the leadership for the G20 in 2008 came from Presidents of the USA and that then President Donald Trump looked inward. The USA was leading the global economy until the scenario changed after the 2016 presidential elections in the USA, and it became hostile towards international cooperation, and instead of helping the G20 in navigating a global response, started to look inward (Bernes, n.d.). . A number of recommendations were extended with respect to the future direction in which the G20 should move. Jain (2020) recommends three measures that the G20 can further take: setting up “a framework for cooperation on mitigation and suppression measures”; the forum “should help coordinate the allocation of critical medical equipment, including masks and ventilators, which are running in short supply around the globe”; and it should also frame “joint actions its members will take to reduce the economic impact of the crisis.” Collins et al. (2020) recommend that increased central bank cooperation should be bolstered by the G20, and Truman, one of these authors has proposed that the IMF’s financial resources should be augmented and the G20 should endorse the key central banks to “link their expanded multilateral swap networks to the Fund.” Collins et al. (2020) also argue that “the major central banks can and should step up their international cooperative efforts to address the economic and financial effects of the COVID-19 pandemic” and that the “G20 leaders can provide important political support by calling on them to go farther in their international operations.” Thornton (2020) suggested that one of the key focus areas for the G20 also needs to be “leveraging supply chains by creating multilateral oversight of the development, testing, manufacture, and distribution of vaccines.”

7.3 Problems in the Global Economy 7.3.1 Debt There have been waves of debt accumulation over the years caused by financial crises in different phases. Since 1970, there have been four major debt waves in the emerging and developing countries: the Latin American crisis (the 1980s), the Asian financial crisis (late 1990s), the global financial crisis, and the last one that started in the 2010s. In 2018, the total debt touched $55 trillion 2018, and this was followed by the pandemic crisis (Kose et al. 2021). During the pandemic, developing economies’ accumulation of debt, touching nearly 170% of GDP, was a concern. Most EMDEs

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experienced a sudden surge in debt accumulations due to periods of crisis and troughs, along with wrong combinations of unsustainable macroeconomic policies, structural inefficiencies, and weak institutional setups. Higher government debt has always been blamed on risky combinations adopted by different government agencies leading to a higher probability of a crisis. Moreover, if borrowed funds are not re-invested in raising exports, productivity, or potential output, then repayment becomes a problem. Another problem erupting in emerging markets is increased borrowing outside the Paris Club. Most of these borrowings are financed through China, and many of these transactions are unaccounted for, which can lead to a newer crisis if not regulated and monitored. G20 (Pre-COVID-19 Measures) Local Currency Bond Markets (LCBM) At the Cannes summit, when the Eurozone was facing a debt crisis, the G20 prepared a plan for developing local currency bond markets (LCBMs). It was believed that deepening a country’s local currency bond market will increase the country’s ability to withstand global capital flows, reduce reliance on foreign currency borrowings, lessen exchange rate risks, contribute to a reduction of current account imbalances, and allow corporate balance sheets to work smoothly. The yearly review of LCBMs by the World Bank has also revealed that while the markets are growing, there has been growing dependence on sovereigns, which are financed through external borrowing and increased access to international capital markets. Hence, there is a need to strengthen this system in order to achieve a shift from dependence on external debt. The role of the corporate bond market as a financing source has been limited, and their domestic corporate bond markets have remained a smaller part of GDP. Moreover, the banks dominate the issuance of corporate bonds, and non-financial cooperation still relies on bank financing. In addition, the ambience in EMs is not amenable to the development of CBs, with a lack of sophisticated financing instruments and a volatile macroeconomic situation. For attracting more investors, countries need to improve market practices and infrastructure (Kose et al., 2021). There is a need for stable macroeconomic indicators and prudent capital account liberalisation to attract foreign investors, along with a system for monitoring foreign investors’ investments. In addition, lower intermediary transaction costs can improve investor participation in less developed. The issuers can take leverage technologies like blockchain bonds and an effective and efficient tax framework, developing new financial products supported by robust market infrastructure. G20 Guidelines for Sustainable Financing: The Addis Ababa Action Agenda on Financing for Development recognises that “borrowing is an important tool for financing investment critical to achieving sustainable development, including the sustainable development goals. Sovereign borrowing also allows government finance to play a countercyclical role over the economic cycle. However, borrowing needs to be managed prudently” (G20, 2017).

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Global Debt Brake: The Eurozone crisis was also initiated by the debt burden. What G20 adopted was the European Financial Stability Facility (EFSF)’s emergency resources and a discount on Greek public debt held by private investors, but there was a policy miss due to a failure to acknowledge structural solutions. Hence, there is a need to take up structural reforms in order to overcome the sovereign debt crisis. A debt brake is a solution that must be adopted by all G20 countries in order to control the increasing sovereign debt. It should be augmented by independent councils that allow for “constrained discretion” (Dolls et al, 2012). This policy’s aim is achieving a balanced budget during a business cycle. This can be achieved by spending to structural revenue or by restricting the structural budget deficit, thereby avoiding fiscal pro-cyclicity. There is a need to incorporate global debt brakes into national institutions that are monitored by independent transnational fiscal councils. These councils should be involved in conducting regular evaluations of national budget plans to ensure requirements stipulated by a debt brake are met. Implementing this policy globally will ensure enforcement in all national constitutions, which will increase future fiscal stability. This will help to gain accountability and credibility, with avoidance of liquidity crisis at an international level. Finally, such a measure will declare debt-financed stimulus as temporary (Dolls et al., 2012). The Common Framework In November 2020, the G20 decided to bring in the Common Framework for debt treatment beyond the DSSI or the Common Framework. This initiative is a collaborative effort of the G20 with the Paris Club. The framework is targeted at low-income countries. It allows for the treatment of debt on a case-by-case basis on the basis of the requests from debtor countries that are eligible for the same (Ministry of Economy and Finance, n.d.). 1. Pandemic Support Facility (PSF): A key concern for debt sustainability is the unavailability of resources domestically and improper working of global financial markets, which makes debt sustainability analyses difficult, but with PSF in place, the formulation will be done on the basis of tentative DSAs, and this can be updated during the programme period. The fund will classify countries into three categories based on sustainable, unsustainable, and highly uncertain, and fund disbursements will be differently handled according to requirements under each category. This will help EMs in meeting financing needs and policy adjustments during high uncertainty and will allow a more flexible application of fund policies (Fisher & Mazarei, 2020). This will be designed to deal with a flexible crisis response, which will need voting in the major global institutions along with non-Paris Club creditors such as China who will volunteer to provide financing and debt relief to countries in need. There will be regular reviews by the fund’s Executive Board, and this facility will be focused on specific pandemic financing. Lending arrangements under the PSF will provide a transition from emergency financing to possible Standby Arrangements (SSA) and Extended Fund Facilities (EFF) after the clarity on adjustments. It would cover up to a period of three years and will be revised semi-annually. And quarterly disbursements would be

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subjected to quantitative economic performance criteria. In the initial stages, the arrangement would focus on adequate emergency spending on vulnerable sections and fiscal consolidation in places of large imbalances. 2. Fiscal and Monetary Support: In terms of fiscal and monetary support, governments can enhance fiscal policy automaticity by designing more fiscal tools, such as rules-based fiscal stimulus. This can help in insuring against future shocks and will reduce the constraints with regard to implementation and political hurdles. Moreover, fiscal multipliers can be used for financing when monetary stances are unable to support spending. Discretionary fiscal policy tailored to countryspecific policies can offer powerful countercyclical support, particularly with political will. While monetary policy has become quite ineffective due to already lower rates in the economy than earlier, reducing them further only adds to the debt. Responding to these constraints, monetary policy turned to a new unconventional scenario for further easing using large-scale asset financing with periods of negative interest rates. Central banks can also use the tool of signalling to investors in order to express their intentions more clearly and bring more certainty to the table. This forward guidance can be effective in decreasing borrowing costs and increasing loan growth. Moreover, central banks can provide monetary stimulus by asset financing, which can provide for long-term bond prices and lower long-term yields, even if short-term rates are nearly zero. This policy was extensively used during the global financial crisis by advanced countries, and hence, launching big asset programmes can help to recover the pandemic losses. Purchasing large amounts of government bonds can serve as a signal of the central bank’s loose monetary policy stance (IMF, 2020).

7.3.2 Other Issues of Critical Importance The G20, for its future agenda, should take into account the current international economic scenario and the changes in the world economy brought about by the pandemic. There are several problems that the world faces now, including inflation, poverty and inequality, and climate change. These issues can be taken up in the G20, such as the financing of climate change adaptation, building resilience. The pandemic has also altered world dynamics considerably. Two nations that have largely been driving these changes are the USA and China. In recent times, the USA has not been able to provide the requisite leadership to other countries and has been less keen on the subject of international cooperation.5 It has been observed that broadly two blocs have emerged, with one being steered by the USA and the other by China. This is anticipated to have some reverberations for the deliberations within the G20, as there is a possibility that it might make these discussions partisan. Further, some discussions in the G20 may even become difficult. All these factors can potentially influence the likelihood of gaining consensus on various issues in the G20. 5

Based on stakeholders’ interaction. The outcome of the US elections has changed this somewhat.

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The responsibility of hosting the G20 summit for the year 2020 was with Saudi Arabia. In 2021, Italy hosted the G20 summit before passing on the mantle of chairing the G20 Presidency in the year 2022 to Indonesia and in 2023 to India.6 After India in 2023, Brazil will take up the presidency in 2024 followed by South Africa in 2025 (Lynders & Reiners, 2022).

7.4 Roadmap for Furthering Finance Track Work Building on the work that has been undertaken with respect to chalking the trajectory of the G20 Finance Track and bringing out the Finance Track’s challenges and prospects, the work under the Finance Track can be further advanced by carrying out discussions with national and international stakeholders in order to prepare for India’s G20 Presidency. As the pandemic has radically transformed the global economic environment, it is imperative that the G20 in its future summits acknowledges and takes note of the new situation. The pandemic has hit emerging market economies particularly hard. The challenges facing the emerging economies have to be given priority and it is necessary to put in place a recovery path for these economies. This will be extremely important for the Indian Presidency. Streamlining knowledge resources from pertinent national as well as international individuals and organisations will assist in framing the agenda for the Indian G20 Presidency in 2023. The discussions aim to achieve the following three key objectives for the purpose of delineating the Finance Track agenda for the Indian Presidency: . Providing Inputs for Formulating India’s G20 Theme: The last couple of years has seen the G20 chairs devising a theme for their respective Presidencies. Saudi Arabia, for instance, for its G20 Presidency has embraced the theme of “Realizing Opportunities of the 21st Century for All.” The discussions will help bring forward the theme/s for India by incorporating the inputs from different domestic and international stakeholders. . Areas of Cooperation from the extant G20 Issues: There are various issues that have continued from summit to summit, such as international taxation and financial sector regulations. Areas under these extant G20 issues that India can take up will be highlighted using the discussions’ substance. . New Issues: The G20 Presidency for India represents an opportunity for India to bring to the table novel issues that require international collaboration and cooperation. New issues that India can put forward in its summit which are likely to secure maximum international involvement will be ascertained from discussions.7 6

A list of earlier G20 summits is presented in the Annexure. For receiving endorsement on these novel ideas, the Sherpa will have to speak to his counterparts in each of the countries and sell the idea much before the summit.

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The Finance Track agenda for the Indian Presidency will be formulated keeping in view the following key points: . Balancing India’s priorities with international interests in the best possible manner; . Gaining the maximum engagement from the G20 member nations; . Forwarding the interests of emerging market economies and low-income developing countries. Discussion Streams In preparing for India’s Presidency, it is crucial that the inputs from Indian as well as international experts are tapped and harnessed for delivering a successful summit. For the purpose of advancing the Finance Track work, discussions will be undertaken in two streams: national and international. National Stream The national stream will aim at consolidating views on domestic issues and research within India. This will involve bringing together various experts in different subject matters and pooling knowledge for aiding the development of Finance Track agendas. The areas of discussion can be but are not limited to, global economic recovery, green finance, debt sustainability, financial regulation, infrastructure investment and development, financial inclusion, and inclusive growth. International Stream The international stream will involve discussions with the following international stakeholders: . International Organisations (IOs): IOs function as advisors to the G20 and undertake technical work. IOs associated with the Finance Track include the Financial Stability Board (FSB); international monetary fund (IMF); World Bank; and Organisation for Economic Co-operation and Development (OECD). These organisations can help garner valuable in-depth insights pertaining to the several existing G20 issues and can navigate through new issues that can be taken up in keeping with the international economic environment. . Indonesian and Italian Counterparts: Engaging in knowledge sharing with the immediate past G20 chair (Indonesia) and its predecessor (Italy) will help in framing an agenda that not only gains maximum international participation but also ensures a smooth transition from the G20 summit in Indonesia in 2022 to the G20 summit in India in 2023. It will also provide an opportunity to learn from their experiences. Besides the aforementioned international stakeholders, there are various other organisations that are involved in working groups under the Finance Track such as the Consultative Group to Assist the Poor (CGAP) and Alliance for Financial Inclusion (AFI). They can also be consulted for additional insights.

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7.4.1 Italian G20 Presidency Three key focus areas for the Italian G20 Presidency’s Finance Track were (Signorini, 2022): . Pandemic-related policy response and a strong global health system; . Climate change; . Agreement on international taxation. On the pandemic front, the G20 under the Italian Presidency bolstered the international structure working to deliver access to tests and vaccines (Signorini, 2022). It set up a new panel on prevention and preparedness which worked on the fund mobilisation and health ministries, finance ministries, and IOs coordination (Signorini, 2022). Under this presidency, an agreement by the G20 was reached to extend the debt service payment suspension for 50 countries (Signorini, 2022). Further, an additional SDR allocation of $650 billion was made. In the SDR allocation, an option to redirect funds to low-income countries in need was also provided (Signorini, 2022). On the climate change front within the Finance Track, the Italian presidency formed the Sustainable Finance Group again and promoted it to a working group status (Signorini, 2022). The USA and China are the co-leaders of the abovementioned group (Signorini, 2022). The Sustainable Finance Working Group also formulated the first G20 multiyear roadmap on sustainable finance. Further, the G20 under the Italian Presidency also worked with the IMF and FSB to further the work on data requirements and financial stability risks related to climate change (Signorini, 2022). Further, an agreement was reached on the international taxation front. The G20 members agreed on the minimum taxation level and re-allocation of taxes on multinationals’ excess profits. A commitment was made towards its enforcement by the year 2023 (Signorini, 2022). To curb the vulnerability of the shadow banking sector, the G20 promoted a package on the basis of the FSB’s work. The package equips the jurisdictions with a framework and agreed policy tools for grappling with money market funds’ sector vulnerabilities (Signorini, 2022).

7.4.2 Indonesian G20 Presidency The Indonesian G20 Presidency summit took place in November 2022 in Bali. Three key focus areas for the Indonesian G20 Presidency were global health architecture, sustainable energy transition, and digital transformation. The impact of the Russian invasion of Ukraine has been cataclysmic. Apart from the humanitarian crisis it has unleashed, it has disrupted energy and food markets across the globe (Haider, 2022). On the back of the supply chain bottlenecks due to

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COVID-19, this has affected the world trading system and the global order. Also, the sanctions imposed by most developed countries on Russia have affected the financial system and particularly SWIFT. The theme for the Indonesian Presidency has been chosen as Recover Together Recover Stronger. Some of the issues besetting the world could continue into the Indian Presidency (IMF, 2022).

7.4.3 Themes for the Indian G20 Presidency (2023) The global environment in which the Indian Presidency is scheduled to take place has been substantially transformed by the COVID-19 pandemic. It has been observed in various previous summits that the backdrop of a G20 summit contributes to some degree to agenda setting along with a host of other factors. Hence, it is crucial to factor in these changed surroundings while formulating the agenda for the Indian Presidency. The theme chosen for the Indian presidency is “Vasudhaiva Kutumbakam” or “One Earth · One Family · One Future”. Some issues and themes8 that India can advance in its own Presidency in 2023 are as follows: . Financial and digital financial inclusion: The theme of financial inclusion has been closely associated with the G20 for several years now, and it has also been pushed by India. It has been suggested that India can put forth this very issue in its own presidency. A silver lining associated with the Covid-19 pandemic that while wreaking havoc in several countries across the globe and leading to cataclysmic ramifications has been the shift towards digitalisation that it has propelled. However, there are important differences between G20 countries in digital financial inclusion (Ray et al., 2022). Boakye-Adjei (2020) notes that “COVID-19 has presented an unexpected opportunity to make further use of digital channels to reach these underserved groups, improving financial inclusion.” Further, according to Allmen et al. (2020), “the COVID-19 pandemic could be a game changer for digital financial services. Low-income households and small firms can benefit greatly from advances in mobile money, fintech services, and online banking. Financial inclusion as a result of digital financial services can also boost economic growth.”9 . Infrastructure Development and Green Infrastructure: For the Indian Presidency, the theme of infrastructure development has also been suggested. Under this broader issue of infrastructure development, it has been recommended that India can take forward a specific theme of green infrastructure to the international platform in 2023.

8

These issues and themes have been identified on the basis of the interaction with the stakeholders. The discussion here is brief, since the idea is to flag the issues only. More research is needed on each of these issues. 9 However, there are significant gaps as noted by the Global Findex Database 2021 (Demirgüç-Kunt et al., 2022).

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. Debt: The debt issue does not directly impact India. India has thus far not issued any sovereign bonds. That said, India as the G20 chair is likely to be representing emerging economies. Keeping this in view, the issue of debt becomes crucial for the Indian Presidency and has thus been indicated as one of the items that India can include on its G20 agenda. . Financial regulation: Financial regulation has been one of the core G20 issues that has been included in discussions in practically all summits. Acknowledging the merits of this agenda, it has been noted that the implementation of this agenda item requires more work. In line with this, it has been suggested that the focus of the Indian Presidency can be on improving the implementation of this theme. Further, it has been noted that there has been least progress in the area of asset management. Hence, it has been recommended that this can possibly be taken up for discussion during the G20 summit in India. . International taxation: Another core G20 issue is that of international taxation. Some agreement has been reached on this front in the Italian G20 Presidency (Signorini, 2022). What remains primarily is its implementation. Depending on the progress in the Indonesian summit, India can formulate its agenda. . Sustainable and inclusive recovery and rebuilding: In light of the damage inflicted by the pandemic on several economies including the G20 economies, this theme has been put forth (Buckholtz, n.d.; Paduano, 2022). India in its own presidency can make this theme work for the emerging market and developing countries. . Human health and well-being: In the new background that the COVID-19 pandemic has created for the Indian Presidency, the issue of human health and well-being (along with mental health) is likely to assume importance.10 It has been recommended that this issue can be taken up in the Indian Presidency. The Italian and Indonesian presidencies have also drawn attention to the health agenda. Though it is not inherently a Finance Track theme, it is felt that India forms a core part of the solution for the pandemic in terms of the vaccine owing to its low-cost pharmaceutical production. . Climate change and finance: The theme of climate change and climate finance is one of the key themes that has been highlighted for the Indian Presidency in 2023. Under the broader umbrella of climate change, the issue of carbon pricing can also be considered as part of the Finance Track, as there is a need to find a resolution for carbon pricing and the advanced economies are likely to move in this direction. In recent times, climate change has been an exigent issue even amid the pandemic. As per the UNEP (2020), “Climate change has not stopped for COVID-19. Greenhouse gas concentrations in the atmosphere are at record levels and continue to increase. Emissions are heading in the direction of pre-pandemic levels following a temporary decline caused by the lockdown and economic slowdown. The world is set to see its warmest five years on record—in a trend which is likely to continue— and is not on track to meet agreed targets to keep global temperature increase well below 2 ºC or at 1.5 ºC above pre-industrial levels.” Another recommended theme for India is focus on financing climate change adaptation (UNFCC, n.d.). 10

It has been suggested that the G20 could coordinate the distribution of the vaccine.

References

221

Annexure: G20 Summits S. no

Date

Host country

Host city

1

14–15 November 2008

USA

Washington, D.C

2

2 April 2009

UK

London

3

24–25 September 2009

USA

Pittsburgh

4

26–27 June 2010

Canada

Toronto

5

11–12 November 2010

South Korea

Seoul

6

3–4 November 2011

France

Cannes

7

18–19 June 2012

Mexico

San José del Cabo, Los Cabos

8

5–6 September 2013

Russia

Saint Petersburg

9

15–16 November 2014

Australia

Brisbane

10

15–16 November 2015

Turkey

Serik, Antalya

11

4–5 September 2016

China

Hangzhou

12

7–8 July 2017

Germany

Hamburg

13

30 November–1 December 2018

Argentina

Buenos Aires

14

28–29 June 2019

Japan

Osaka

15

21–22 November 2020

Saudi Arabia

Riyadh

16

30–31 October 2021

Italy

Rome

17

November 2022

Indonesia

Bali

18

TBD 2023

India

New Delhi

Source List of G20 summits, Wikipedia. Link: https://en.wikipedia.org/wiki/List_of_G20_summits; G20 Indonesia. Link: https://g20.org/; European Council, International Summit: G20 summit, Rome, Italy, 30-31 October 2021. Link: https://www.consilium.europa.eu/en/meetings/internati onal-summit/2021/10/30-31/

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