6 giugno 2020

G20 and COVID-19. Revamping multilateralism?

 Scenari internazionali

 

Faced with a crisis that knows no borders, political leaders around the world must compromise between the need for international coordination and the fears and worries of their electorate at home. While the former aspect involves complex negotiations, the latter poses the problem of democratic sustainability, with resurgent threats of nationalism and protectionism.

 

The hectic nature of the current crisis is challenging policymakers’ ability to conceive comprehensive, effective, and sustainable solutions, forcing the international community into a trade-off with no easy way out. In this critical context, is G20 doing enough to support national decision-making? Answering this question will be key to understand what role multilateralism and international cooperation can play in promoting global development.

 

G20 and global economic governance

Founded in 1999 in response to the massive debt crises that hit emerging markets in the late 1990s, the Group of Twenty (G20) has become one of the primary international platforms to discuss global policy coordination. The G20 gathers governments and central bank governors from 19 countries plus the European Union, which all together represent around 80% of the world’s economic output, two-thirds of the global population and three-quarters of international trade volume.

 

Initially, G20 meetings were mainly carried out by Finance Ministers and Central Bank governors to discuss exclusively macro-financial issues, on the side lines of G7/G8 formats. Then, the economic success of BRICS countries and the consequent reshuffling of global economic power made the traditional G7/G8 format obsolete. Therefore, on the verge of the 2008 financial crisis, the Group was elevated to include leaders of Member countries, and its agenda gradually expanded to include socio-economic and development issues as well.

 

According to high-level observers, the 2009 G20 Leaders’ Summit held in London, in the middle of the financial crisis, is an appropriate benchmark to gauge the significance of G20 response in managing global crises. In that occasion the G20 proved to be a forceful coordination device, able to bolster global commitment and provide credibility at national level.

 

Initial deadlock

The Group’s initial response in the wake of COVID-19 outbreak fell short of matching expectations. Communiqués issued by G20 finance ministers and central bank governors in late February and early March failed to soothe the widespread sentiment of fear and bewilderment, as they mainly focused on monitoring the evolution of the outbreak, without proposing tangible measures to face the crisis.

 

As a reaction to the increasingly disruptive and broad impact of the pandemic, on March 26, G20 leaders met in an extraordinary Summit, to develop proposals tackling both the health and socio-economic dimension of the crisis. Some progress was achieved in that context, with leaders asserting a shared purpose to do “whatever it takes to minimize the economic and social damage from the pandemic, restore global growth, maintain market stability and strengthen resilience”. However, some analysts pointed out that leaders substantially endorsed already existing measures, not driving forward coordinated leadership with new and concrete initiatives for the future.

 

From a health policy perspective, national leaders mainly committed to shore up financial resources to expand the capacity and preparedness of regional and national health systems; to improve sharing of essential data and information to strengthen research and development; and to support the World Health Organisation’s mandate in coordinating international fight against the pandemic. Most of these pledges endorsed measures already taken by national authorities, without further lack of tangible guidance. However, one specific initiative has been praised as an example of the G20’s added value as a driver for international coordination: the set-up of joint finance and health ministers meetings where the WHO reports on gaps in pandemic preparedness. By proposing such an integrated approach, the G20 managed to take ownership of its role of catalyser of integrated cooperation, showing that a sustainable solution to the economic fallout cannot be conceived without addressing its root cause, the pandemic itself.

 

Measures agreed to tackle the economic dimension of the crisis were developed along the same lines: overall support to actions already in place, but few to no brand-new commitments. The core of the proposal revolves around an injection of over $5 trillion into the global economy, through targeted fiscal policies, economic measures, and guarantee schemes. While this figure caught the attention of media and news reports, it mainly represents an aggregation of already existing measures by G20 countries. Moreover, the outcome of the March Summit shows how leaders’ need to account for local specificities have hindered the effectiveness of G20 in leading global policy coordination. This trade-off emerges quite explicitly in the section of the Communiqué focused on disruptions in international trade. While preserving trade flows was presented as the key objective, no explicit commitment to avoid protectionism or reducing trade barriers has been made. In addition, the opening line “Consistent with the needs of our citizens” kept the door open for restrictive measures necessary to serve leaders’ national interests.

 

Awakening?

By contrast, the agreement reached during the April 15 meeting of G20 finance ministers and central bank governors - the G20 “Finance Track” - may have marked a turning point in reasserting the role of the Group as the primary global platform for international economic coordination. In that occasion, G20 Finance Ministers and Central Bank Governors unfolded an Action Plan aimed to “swiftly deliver the appropriate international finance assistance”. Key financial responses outlined in the Action Plan include delivering a comprehensive $1 trillion support package by the International Monetary Fund, along with endorsement of the deployment of over $200 billion through the World Bank Group and other multilateral development banks.

 

However, the main announcement from the meeting concerned a one-year suspension of low-income countries’ debt payments, expected to free up $20 billion for them to spend on treating the coronavirus pandemic and shore up their economies. To be eligible for the debt relief, beneficiaries must fulfil the commitments laid out in the common term sheet annexed to the Action Plan, which requires them to “increase social, heath or economic spending in response to the crisis”, as well as transparently disclosing all public sector debts with the promise of technical assistance by international financial institutions as needed.

 

Despite the negative reactions in the press, mainly related to the inability to approve a new allocation of IMF Special Drawing Rights to developing countries, the agreement brings along a series of elements that may lead to positively reassess the role of G20 as a driver of international cooperation. The G20 Finance Track managed to deliver a prompt solution to an issue – debt restructuring – which normally requires time-consuming negotiations and lengthy discussions. Moreover, G20 finance ministers succeeded in conveying an important and concrete message, which could significantly affect the role of multilateral cooperation in future crisis management: tackling such a disruptive health crisis requires social and health spending to be prioritized over debt service.

 

The outcome of April’s meeting addresses two further critical issues, which predate the COVID-19 outbreak. First, the longstanding criticism that G20 has been facing due to its lack of inclusiveness. Throughout the years, the Group of Twenty has been increasingly perceived as an exclusive club of wealthy nations, where the needs of less affluent countries, which can participate to certain meetings only as observers, are often under-represented. Provided that conditions spelled out in the common term sheet are met, debt repayments suspension will affect public finances for 77 countries, proving the G20 ability to take actions with a truly global reach.

 

In addition, the agreement targets another long-identified weakness of international financial cooperation: the absence of a collective approach to debt restructuring that pulls together all the largest official creditors to developing countries.  This issue has historically been treated in the context of the Paris Club, a group of official major creditor countries committed to find a coordinated and sustainable solution to the repayment fragilities of debtor nations. Especially during the last years, the Paris Club has been unable to deliver truly coordinated and effective solutions, due to the rise on scene of “non-traditional” official lenders – notably China – which are not part of the group. By linking debt suspension to a common term sheet, “which is also agreed by the Paris Club”, the April agreement managed to bring together traditional and non-traditional official creditors into a coordinated approach.

 

The way forward

While the temporary debt standstill will probably be insufficient to meet the eventual needs of developing countries, the April agreement provides a promising leeway for further actions. Moreover, it has shown that the G20 can productively function even in hectic times, characterized by deep political divisions. Measures agreed so far may need to be reinforced. However, it must be recognized that, 11 years after the London summit, the G20 succeeded in reasserting its centrality in driving forward global economic coordination. Whether this will be enough to relaunch international cooperation and the idea of multilateralism, is a much greater question.

  

Immagine: Family photo of the 2019 G20 Osaka summit (28 giugno 2019). Crediti: Palácio do Planalto, Creative Commons Attribution 2.0 Generic licence.

© Istituto della Enciclopedia Italiana - Riproduzione riservata

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