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On the eve of the London Summit, CGD president Nancy Birdsall discusses what the global development community might reasonably expect from a one-day meeting of the G-20 that is focused on addressing the global economic crisis. Will developing countries' needs be addressed?
Q: What's the single most important thing that you would like to see come out of the London Summit--and believe to actually be possible?
A: A long and deep global recession would be a catastrophe for many people in the developing world. To prevent that requires a serious and robust globally coordinated fiscal stimulus. Development advocates should bemoan the failure of courage (or of domestic politics) that is limiting European stimulus packages and cross their fingers that what's already on the table--mostly the United States and China--will be sufficient to sustain global demand. And they should hope that the G-20 leaders will support the UN Secretary-General's call to make at least $1 trillion available over the next two years for transfers to developing and transitional economies, including the poorest among them, to cope with the global downturn. The addition of $500 million borrowing capacity at the IMF is a big step in that direction, though it will not increase resources for the poorest countries (see Vijaya Ramachandran’s blog post: At the G20 Summit: Nothing for Africa). As I've argued, a good part of that sum can be made available by more aggressively tapping existing resources, not just at the IMF and but at the multilateral banks as well.
Q: At the Washington Summit in November, the participants pledged to avoid protectionist measures, but since then, 17 of the 20 participating countries have engaged in some type of protectionist behavior, according to the World Bank. What could the G-20 do in London to make such pledges more credible going forward?
A: I am not keen on another failed resolution to complete the Doha Round—the call by the G-20 at their November summit for completion by the end of 2008 only led to cynicism about summits. Besides, as Subramanian and Mattoo argued in Multilateralism Beyond Doha, a Doha Round trade agreement would not address new challenges to open markets, such as the WTO-consistent Buy America provisions inserted into the U.S. stimulus package or, for that matter, the food export restrictions India and other developing countries imposed last year. These new ways of intervening in global markets come at high cost to the world's poor.
Q: So what can the G-20 do to discourage such actions?
A: Subramanian and Mattoo have called for a special "crisis round" in which countries would agree to temporarily abstain from WTO-consistent but trade-destructive measures, such as increases in tariffs within the allowed levels. I’m inclined to agree with Kim Elliott that a crisis round may be overambitious but that there is real merit in Subramanian and Matoo's call for the G-20 to agree on an expedited dispute settlement mechanism. The G-20 could endorse this principle in their communiqué and ask their trade ministers to come up with a proposal within a specified time, perhaps a few weeks. They know that they need to do something concrete beyond pledging to complete Doha. This could be just what they need.
Q: The UN has also argued that the current economic crisis, coupled with new and increasingly grim evidence of climate change, makes adopting a new climate framework all the more urgent. Is this realistic, or should the G-20 focus on fixing the global economy first?
A: Both crises will hurt poor people, and both require timely action. In fact, the recession, with slack demand and lower prices (including for energy) offers an opportunity to put in place cap-and-trade or other carbon emissions charges, as David Wheeler has argued. Moreover, since public spending has to fill the hole left by a sudden decline in private demand, it makes eminent sense for governments to try to generate green jobs. And developing countries offer excellent opportunities for investing in renewable technologies that are already close to commercially attractive (and which would be profitable today with CO2 emissions priced at as little as $30 a ton), as Wheeler has shown in a recent paper, Desert Power: The Economics of Solar Thermal Electricity for Europe, North Africa, and the Middle East.
Q: Are the right countries participating in the London Summit? Who decides which countries should attend, and on what basis?
A: Precedent matters, and so do the preferences of the host country (the UK in this case). The current meeting amounts to a G-20 Plus—the 20 leading economies that participated in a 1998 financial crisis summit plus the heads of the IMF, World Bank, the United Nations, and the NEPAD. There are some anomalies: for example, the EU is represented by the head of the European Commission, yet European countries are also represented individually.
Personally, I think there's a trade-off at the G-20 between the advantages of a more objective and transparent method of deciding who participates (for example, Rueda-Sabater and Ramachandran suggest 2 percent of world population or world GDP as the cut-off point) and the value of letting the issues of the day and the savvy of the host prevail. I suspect that efforts to improve the representation of less rich and powerful economies in decision-making on global economic matters are better concentrated on changes at the official institutions such as the IMF, the World Bank, the Financial Stability Forum, and so on.
Q: Do you see any signs of progress in reforming the governance of these international financial institutions?
A: The communiqué of the G-20 finance ministers who met in mid-March called for open and meritocratic elections of the future heads of the IMF and World Bank, but they left out the key words "without regard to nationality." Allegedly this was because of U.S. resistance—but who knows? I hope President Obama bites the bullet and supports adding those words.
Of course, there is more to governance reform at these two institutions than leadership selection, but that's the one issue that this summit could pronounce on, and with tremendous positive effect. Personally, I think it would be great if they also alluded to the logic of double majority voting on leadership selection. The newly released final report of a commission on IMF governance reform headed by South African finance minister Trevor Manuel recommended considering double majority voting as a means for "ensuring that decisions affecting key aspects of the institution command the support of the majority of members." For other fresh ideas on improved global governance, see CGD's Bretton Woods Non-Commission.