Formed in 1999, during the uproar of the Asian financial crisis, the G20, initially, united financial ministers and central bankers from twenty of the world’s largest established and emerging economies. The group perpetually became a global forum which included the heads of the respective states and their governments. This elevation in its position occurred due to the shocking world financial crisis which was witnessed in the year 2008. The group “rescued a global financial system in free fall” by spending nearly $4 trillion to rebuild and consolidate their economies by rejecting trade barriers and implementing far-reaching reforms of the financial system.
The G20 comprises nineteen countries and the European Union (EU). The countries are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom(UK) and the United States. Spain is a permanent guest to the forum.
The G20 members meet every year to discuss mainly economic and financial matters and coordinate policies on various issues of mutual interest. This year India is hosting the other G20 members and a crucial policy has been discussed that needs to be undertaken by all the member states. India’s G20 presidency aims to develop a ‘Common Framework’ to deal with the crypto risks. Owing to the current shocks witnessed in the crypto market, Finance Minister Nirmala Sitharaman considered this initiative as a necessity.
The FTX’s bankruptcy episode of last year and its contention with Binance triggered a huge sell-off in the market and reduced liquidity. This event served as a clarion call to the world and made the world realise the vulnerability of this asset class as they do not have any underlying value. Earlier at a discussion in Peterson Institute for International Economics in Washington, the Finance Minister said,” Cryptocurrencies are a very important part of the discussion under the #G20India presidency, given so
many collapses and shocks in cryptocurrencies. We seek to develop a common framework for all countries to deal with this matter.”
G20 is trying to bring together all states to address the debt distress in middle-income and low-income nations like Sri Lanka and Ghana. Thus, it would make sense to enlarge the scope of the Common Framework. Many other middle-income countries are struggling with debt issues too. They must not suffer protracted liquidity problems or even insolvency.
But the problem is that the Common Framework only deals with governmental bilateral claims. This is insufficient, as loans from private-sector creditors matter very much. Private financiers must be involved in debt restructuring. Otherwise, burdens will not be shared fairly and the temptation to “free ride” will stay strong, with relevant players trying to benefit from joint action without contributing to it.
Clear guidelines are needed for the Common Framework’s cooperation with international financial institutions. It would be useful, for example, if the IMF declared that its emergency lending to governments in areas regarding private and bilateral loans will continue even when those governments ask for restructuring and start good-faith negotiations with the Common Framework and other creditors. More debt transparency is therefore needed. Debtors as well as creditors should have the obligation to disclose all relevant information to a trustworthy international agency, which might be hosted by an international institution like the IMF. The information would include all loans and cover amounts, terms, guarantees, assurances etc.
Improved transparency would support sound practices in public debt management. Making the information available to the public in general would have an even stronger beneficial impact on governance, fiscal discipline and adequate risk management.
The better the Common Framework manages to provide transparency, the more lending policies will improve in the long run. In the short run, transparency is needed to restructure debts in an equitably fair manner.
The G20 which initially focused on broad macroeconomic policy has expanded its ambit and now works in areas of fair and sustainable development, corruption, money laundering, and international tax havens, climate change, terrorism, global health. The group however suffers in terms of reaching a consensus among themselves. The rising economic gap between the high-income and the low-income countries has been the major cause behind this. The group has been severely criticized because of its failure to address the Covid-19 pandemic properly. The group also received a major jolt when Russia declared war against Ukraine in 2022. Russia’s move has been condemned and there arose divisions among the members themselves where some countries backed Russia whereas others deplored its actions. A fear of nuclear confrontation crowded the major states of the world. Strategic competition between China and the United States have threatened cooperation.
The G20 has several defects of its own. It is a self-selected forum with explicit bias towards big members at the expense of other countries in the global system. G20 has the embedded characteristics of what Michael Zurn terms ‘executive multilateralism’.
The G20 diplomacy provides us with necessary analytical granularity by shedding a different light on the dialectics of stability and change on the world stage. As it proclaims itself the ‘premier forum’ for international economic cooperation, to use the Pittsburgh summit declaration language, the G20’s rise to prominence on the world stage raises a series of questions about global governance. In terms of the redistribution of power among states, David Held suggests that the G20 features ‘an unprecedented successful attempt by developing countries to extend their participation in key institutions of global governance.’ The G20 still continues to exhibit many features of the Western-dominated order, including club dynamics and executive multilateralism. The G20 does not rest on a constitutional treaty, its procedures are not written or formalised.
Given the current scenario, India’s G20 presidency specifically faces a challenge due to the ongoing Russia-Ukraine war. The pandemic has threatened the global economy which is experiencing disrupted supply chains, cost of living crisis, soaring energy prices and challenges to climate action. The Indian Presidency has set G20 priorities with a special focus on macroeconomic implications of food and energy insecurity, climate change, strengthening Multilateral Development Banks (MBDs), financing inclusivity, equitable and sustainable growth, digital public infrastructure, and climate financing.
All countries must be able to rise to the challenges of the current poly crisis. Debt issues are restraining many of them.
So far, however, the Common Framework has not achieved much. Only three countries – Chad, Ethiopia, and Zambia – have applied for debt treatment under the Common Framework, and none has accomplished debt restructuring.
More must obviously happen. According to the International Monetary Fund (IMF), 60 % of low-income countries were deemed to be at risk of – or already in – debt distress at the start of 2022. That was twice the level of 2015. Rising interest rates, moreover, are further reducing governments’ fiscal space. The implication is that the governments concerned cannot respond assertively to the poly crisis that humankind must rise to. Failure to act fast, however, means more difficult and more expensive action will become necessary in the future. The Common Framework is not the problem-solving mechanism the international community needs today – it mostly remains a vague promise.
- COOPER, A. F. (2010). The G20 as an improvised crisis committee and/or a contested “steering committee” for the world. International Affairs (Royal Institute of International Affairs 1944-), 86(3), 741–757. http://www.jstor.org/stable/40664279.
Aishwarya Dutta is a Research Intern at IMPRI.
Read more on IMPRI : India Space Policy, 2023: The Way Forward.