What happened at the Pittsburgh G20?

September 29, 2009

     By Duncan Green     

I didn’t attend the G20 summit in Pittsburgh last week, but I’ve been poring over the communiqué. Here are some initial thoughts on what it all means (numbers in square brackets refer to paragraphs in the original), incorporating analysis and intel from the Oxfam team at the event.

G20 PittsburghHeadline: Pittsburgh formally enshrined the rise of the BRICs and relative decline of the G8: ‘We designated the G-20 to be the premier forum for our international economic cooperation’ [preamble, 19]. The passing of the baton takes place in Canada next June, where the G8 and G20 summits will coincide.

Winners and Losers: Institutions
The World Bank and IMF were once again anointed as the lead agencies on almost everything. ‘The World Bank and other multilateral development banks are critical to our ability to act together to address challenges, such as climate change and food security, which are global in nature and require globally coordinated action…. The World Bank should strengthen.. its focus on food security, … Its focus on human development and security in the poorest and most challenging environments, … support for private-sector led growth and infrastructure… contributions to financing the transition to a green economy through investment in sustainable clean energy generation and use, energy efficiency and climate resilience.’ [24]

The IMF ‘must play a critical role in promoting global financial stability and rebalancing growth’, including an enhanced role in providing oversight of the global financial system and its imbalances [20].

In return, the G20 put numbers on IMF and World Bank quota reform: ‘at least’ 5% of voting power for both institutions [the World Bank figure was 3%, on top of 1.5% already redistributed] will shift from over-represented to under-represented countries’. The US had offered 5%, and the BRICS had been asking for 7% – the ‘at least’ means this isn’t totally shut down. Europe, which will lose influence under the reforms, had been asking for no target at all.

PittsburghThe shift means that middle income countries whose GDP or trade has grown in recent years (eg China, South Korea, Singapore, Turkey) will get bigger shares, at the expense of countries whose quota share is now bigger than the calculations justify (eg Belgium, Saudi Arabia, Venezuela, France). It is still the richest countries in charge, but updating the quotas at least takes account of which countries are now the richest. To protect the voting share of the poorest countries, the G20 gave guarantees that whatever happens, they won’t lose vote share as the emerging countries like China and India increase their muscle

How much difference will this make? Some pretty rich countries are counted as ‘developing’ by the IMF. Our calculations (which rely on some assumptions about how this would be done) suggest that the shift for high income countries would be from around 68.3% to around 65% of the votes and the maximum benefit for the poorest (PRGF-eligible) countries is from 7.7 to 7.8% of the vote. Hardly seismic.

Other aspects of IMF reform were explicitly put on the table, including size and composition of the Board, role of governors, effectiveness of the Board, staff diversity. [21]

The ILO also had a good summit, with a major focus on job creation in the crisis response [43-47] and a strong endorsement of its work: ‘The international institutions should consider ILO standards and the goals of the Jobs Pact in their crisis and post-crisis analysis and policy-making activities.’ [46]. The G20 agreed an early 2010 meeting of G20 Employment Ministers ‘to assess the evolving employment situation, review reports from the ILO and other organizations on the impact of policies we have adopted, report on whether further measures are desirable.’[46]  
As for losers, once again the UN was largely missing in action – the circus at the General Assembly in New York prior to the G20 can’t have helped. All it got was a token acknowledgement that the ‘UN’s new Global Impact Vulnerability Alert System will help our efforts to monitor the impact of the crisis on the most vulnerable’ [34] and a couple of vague short paragraphs on the UN-led climate change negotiations that merely ‘note’ the principles agreed at the July G8 in l’Aquila [32-33].

Winners and Losers: Issues
Reflecting US priorities, food security received serious attention: ‘Sustained funding and targeted investments are urgently needed to improve long-term food security. We welcome and support the food security initiative announced in L’Aquila and efforts to further implement the Global Partnership for Agriculture and Food Security and to address excessive price volatility. We call on the World Bank to work with interested donors and organizations to develop a multilateral trust fund to scale-up agricultural assistance to low-income countries.’ [39] The communique called on the Bank to set up yet another multilateral trust fund – the proliferation of such funds on health, agriculture etc is threatening to undo much of the recent progress in trying to reduce the bureaucracy of aid reporting requirements, which eats up scarce staff time in poor country governments.

At the last minute, German insistence led to a new, if oblique, paragraph on the Tobin Tax: ‘We task the IMF to prepare a report for our next meeting with regard to the range of options countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.’ [16] President Sarkozy and Chancellor Merkel both specified that this para refers to the Tobin Tax, and TT campaigners are celebrating – this is a new high water mark in getting the idea onto the international agenda. Still this language seems vague enough to allow considerable room for backing down – taxing the financial sector could be a lot more restricted than a currency transactions tax, and in any case, is only being discussed in terms of paying back bailouts, not wider issues such as using a Tobin Tax to fund climate mitigation and adaptation. Lots to play for, here.

Clean energy [31] and getting rid of fossil fuel subsidies [29] both prospered and that is important (ending subsidies could reduce greenhosue gas emissions by 10%, according to the communique). But that was the extent of environmental concern, apart from a liberal and apparently random sprinkling of the word ‘sustainable’ all over the text. A wider shift to a low carbon development model was missing, and without that the overall statement that ‘our objective is to return the world to high, sustainable, and balanced growth’ [3] increasingly looks incompatible with the objective of stopping the planet from frying. The ‘G-20 Framework for Strong, Sustainable, and Balanced Growth’ [annex] is almost entirely oblivious to environmental constraints and issues (‘sustainable’ appears to refer more to economic than environmental sustainability – the word should perhaps be changed to ‘sustained’ to avoid confusion).

On climate finance, the can was kicked firmly down the road by asking the G20 finance ministers’ meeting in November to report back on climate financing. [33] An effort to outline principles for climate finance in an earlier draft of the communiqué was dropped.

Reportedly, there was lengthy discussion on climate change at the leaders’ lunch at the summit. Swedish Prime Minister Fredrik Reinfeldt and French President Nicholas Sarkozy both suggested that the leaders could talk again on climate change in as little as two weeks time – possibly by videocon. Other reports suggest, however, that President Obama indicated that reaching a final global deal at Copenhagen was not vital, suggesting that if anything the summit may have undermined momentum.

On aid, there was no new money for the poorest countries, but at least an endorsement (reportedly after a struggle) of the promises made at the Gleneagles summit in 2005.   There was a recognition that a number of G20 members will recycle their SDRs (the IMF’s version of quantitative easing) through the IMF.  It is not yet clear how much more they will recycle but it is likely it will only be used to deliver the amounts already promised in London.

On Tax Havens, the vaguely promising language around exploring a multilateral mechanism that was in the communiqué for the G20 finance ministers meeting in London in early September was dropped from the Pittsburgh communiqué, which instead patted itself on the back for ‘impressive results.’[15]. Really? Care to offer some examples of increased flows of tax payments to poor countries? There is, however, a threat to go further: ‘We stand ready to use countermeasures against tax havens from March 2010.’ [15]

Finally, at the opposite extreme from the bank mega-bailouts that have characterized the crisis, the G20 set up a ‘G-20 Financial Inclusion Experts Group’ to look at how to promote financial services for the poor and specifically for small and medium enterprises (SMEs).[41] Oxfam has a rather good paper coming out on this next month, so we may have some useful suggestions for them.

Overall verdict? Even though the impact of the crisis on the poorest countries has become more pressing since the g20etchingpoliteLondon Summit in April, it felt like development had slid down the agenda this time around. No more money on the table, missing the moment on climate change, and a general sense that the regulatory tide is receding as we move to ‘a critical transition from crisis to recovery’, in the words of the communique’s triumphalist first para. As I discussed in a recent lecture at Notre Dame, maybe the crisis simply isn’t proving big and painful enough to trigger the structural changes we need.

September 29, 2009
Duncan Green