Gerald Holtham's article, "All together now" (Prospect, April) set out three principal goals for the G20: a global reflation plan, support to poorer countries, and reform of the IMF. April's G20 summit in London was a modest success against these measures. But Holtham passed over two critical components on which the summit fared poorly: measures to address climate change and a clear statement concerning the G20's own future.
So what of Holtham's triumvirate? The G20 came up short of announcing a new round of stimulus spending, but the communiqué did declare that countries were already undertaking "an unprecedented and concerted fiscal expansion… that will, by the end of next year, amount to $5 trillion." Although the money was not new and did not amount to a co-ordinated response, it does outline in stark terms how much the G20 is already doing. Indeed every G20 country with the exception of Brazil and Saudi Arabia is carrying out a fiscal stimulus (a position that would have left Britain isolated under a Conservative government).
On top of the existing commitments, the G20 announced new money for global lending facilities, with an increase in resources for the IMF from $250 billion to $1.1 trillion. Even though some of this funding was pre-announced, it was still an impressive feat. But the question remains: who will benefit? Initial indications suggest that it will be emerging economies in eastern Europe and Latin America. Although the IMF recently changed their lending rules, poorer countries are put off by the stigma attached to taking loans, and the necessity of paying the money back in the future. It is a travesty that no new money was made available for grants and aid given the risk that 200m people will fall back into the $1 a day definition of poverty as a result of the economic crisis. World Bank President Robert Zoellick's proposition that 0.7 per cent of stimulus funds go to the developing world fell on deaf ears.
But the communiqué did generate genuine surprise in its treatment of the IMF. A line stating that senior staff "should be appointed through an open, transparent, and merit-based selection process" opens the door for the World Bank and IMF to be run for the first time by someone from a developing country. There are rumors that this may mean a Brazilian or Indian at the helm of the IMF within eighteen months. But progress in giving developing countries a greater say within these bodies is, according to former IMF Chief Economist Simon Johnson, moving at a "glacial" pace. Indeed, timelines for reforms to voting shares (one of the measures Holtham calls for) appear to have slowed down.
The key missing ingredient at the G20 summit was a lack of any concrete proposal to address climate change. While the debate rages over whether deficit spending to stimulate the economy is unfair on future generations, there can be no question that global warming is precisely that. The communiqué should have outlined that a portion of the stimulus funds and new lending should be spent on measures to reduce carbon emissions. Improving energy efficiency, tax incentives for clean energy, and research and development for renewables could all have been encouraged. And, in preparation for the UN framework convention on climate change later in 2009, a global fund for the transfer of technology related to combating global warming should have been announced. This has become one of the biggest hurdles to a post-Kyoto agreement, since developing countries are loath to accept caps on greenhouse gas emissions without support for their transition to low-carbon energy infrastructure.
There is still time for the G20 to act, since the members have pledged to meet again later this year. It is not yet clear whether this will be alongside the July G8 meeting in Sardinia, or the UN General Assembly in September, or at some other time. But since the G8 has been losing legitimacy for years, global leaders should take this opportunity to make the G20 the key body responsible for global economic governance—with a proper mandate, a mechanism for the membership to evolve over time, and a fully funded secretariat. In a recent report, the Centre for American Progress proposed formalising the G20's structures and giving it responsibility to hatch deals on issues such as climate change, development funding and trade reform.
Despite its shortcomings, the G20 summit in London exceeded expectations—with a strong show of unity and some genuine help for middle income countries. But much more will be needed if the G20 is to recast the world economy on a more stable and fair footing.
