Rethinking the G20

The G20 in its current format, with the participation of the countries’ leaders, marks its 10th anniversary in 2018. In this relatively short period, G20 members have demonstrated their ability to respond promptly and effectively to the challenges of global governance.

The group’s breakthrough decisions were taken during the response to the global financial crisis of 2007–08. Coordinated measures brought stability to the international monetary and financial system, and laid the groundwork for the recovery in world trade and cross-border capital flows – two key factors underlying growth and development. It would not be an exaggeration to assert that without multilateral accords, the reform of national financial and banking regulations and combatting tax base erosion and profit shifting would hardly be possible.

However, there is no correlation between the increasingly frequent use of economic knowledge and organisational resources and the deepening and expansion of multilateral cooperation. Even with comprehensive conclusions drawn by the most sound international organisations and experts regarding the negative socio-economic effects of restrictive measures in international trade and capital movements, the G20 is falling into the trap of escalating confrontation and intensification of inward-looking policies. There is a growing appetite to use the existing system of international settlements – which has proven effective – and its financial infrastructure for political purposes. Artificial barriers that are well known as sanctions or tariff restrictions are being raised for trade and cross-border capital flows.

Eroded foundations

The G20 also does not seem to notice the expansion of the extraterritorial application of national legislation, primarily in the very sensitive areas of banking and cross-border capital flows. Such a policy, especially the so-called secondary sanctions, erode the foundations of entrepreneurship and fair competition. Extraterritoriality infringes upon the interest of almost all G20 members. However, the G20’s rotating presidencies and constantly changing agenda do not react to this issue. Since the Eminent Persons Group and its proposals and recommendations have highlighted the use of cross-border capital flows in the interests of all the economies, I hope that the issue of the extraterritoriality of national legislation will become a subject for research and discussion.

Multilateral financial institutions, particularly development banks, are also suffering from the impact of such destructive policies. They are forced to participate – to the detriment of their own economic interests and contrary to their mandates – in political games.

The G20 distances itself from ‘uncomfortable’ discussions. This can be witnessed on sensitive topics as, for example, the responsibility of countries that issue reserve currencies to maintain the stability of the international monetary and financial system. The G20, with enviable ease, recommends that least-developed economies curb their public debt. Yet the G20 pretends not to notice the immense debt overhangs in the advanced economies, including the United States, Japan and several western European countries. A debt crisis in any of these countries would be a major setback for the global economy.

Two-dimensional solutions

The international rules that have been carved out of stone over several decades, including those developed at the G20, are being ignored. The exploration of solutions is shifting to a two-dimensional system of coordinates. Under the influence of these factors, the international financial architecture is unsurprisingly deviating from established standards to regionalisation and fragmentation. This past year has been marked by a surge of interest – in many cases forced – in the settlement of payments in national currencies for international trade and finance. If we continue to test the strength of the international monetary and financial system, over the medium term the trends mentioned above will strengthen, with consequences that will be hard to predict. I am not sure that this is the optimal scenario.

Globally, the solution to the problems of the G20 cannot be found in engineering new technical tools, which are already in place. Rather, the G20 needs to work with a consciousness and recognition of the common challenges. No problem can be solved at the same level of consciousness that created it. This is the core challenge for the G20 as a high-level strategic forum – to reach a new level of understanding of the problems and the awareness of the interdependence of our economies. I expect the discussion at the G20 leaders’ Buenos Aires Summit to follow this scenario.

What our children’s future will look like depends on us, on our willingness to seek compromises and ways to reach agreements and implement win-win strategies. Maintaining an inward-looking approach will only contribute to new disagreements and the aggravation of existing ones. For our part, we will continue to take advantage of every opportunity in multilateral and bilateral formats to seek solutions in order to contribute to strong, sustainable, balanced and inclusive growth.