Prior to the Global Financial Crisis (GFC) in 2008, G20 was a Finance Ministers' forum, providing them a platform to discuss and coordinate global developmental, financial, and tax issues.
For managing the fallout of the GFC originating in the US in the Housing Finance sector and to secure cooperation and coordination of all the major industrialised and emerging market countries, US President George Bush got the G20 elevated to the Heads of State level.
There was a big flurry of activity with the G20 Heads of States meeting five times over the first two years. The coordinated infusion of liquidity in the global financial markets and fiscal largesse unleased everywhere smothered the financial crisis. The G20 became a great instrument of global financial coordination and crisis resolution.
It is ironic that when another major financial crisis, this time in the banking sector is spinning out from the US, G20 is not in the ring. The crisis has spread to Europe with their marquee banks like Credit Suisse falling. Its AT1 bondholders have seen their bonds of over USD 17 billion getting wiped out.
Two US banks have already collapsed and folded up into other banks. We don’t know what lies ahead. The financial sector work in more mysterious ways. Another global financial crisis cannot be ruled out.
What is startling is that no one is rushing to the G20 for finding solutions. Neither the US nor Europeans, China or any other emerging market country. India holds the G20 Presidency but has not initiated any action to activate G20 for finding solutions either.
India is amongst the last three presidencies in the G20 Head of States meeting cycle of 2008-2025. If G20 is not for solving and coordinating such a major global banking crisis, what is it for? Is it the end of the road for G20?
G20 Did Contribute Significantly Initially
G20 Summit communiques of the first five meetings in Washington DC (November 2008), London (April 2009), Pittsburgh (September 2009), and Toronto (June 2010), and Seoul (November 2010) tell fascinating stories of remarkable coordination and action. These were short documents and listed specific agreements and actions to be taken almost exclusively on globally significant economic and financial matters.
G20 also achieved a lot. Global financial institutions such as IMF, World Bank etc, saw their capital and resources increase significantly. There was a significant shift of their ownership to emerging market countries, including India.
A new SDR allocation was agreed upon and a new Financial Stability Board (FSB) was established with equal participation from all G20 countries to reshape regulation and oversight of systematically important financial institutions, instruments, and markets, prevention of excessive leverage, and many more issues. Global Forum and Financial Action Task Force (FATF) were strengthened to bring greater transparency in the operation of tax havens and containing money laundering and terrorist financing activities.
A global framework for laying out policies and coordination to generate strong, sustainable, and balanced global growth was thrashed out. Major tax reforms including addressing base erosion and profit shifting issues, treaty shopping, global minimum tax, and taxation of digital corporations were agreed upon though it took a longer time to finalise.
The G20 did become a primary forum for global economic and financial coordination and reforms for some years after the Heads of States (the Presidents and Prime Ministers) assumed its leadership.
Geopolitics Slowly Takes Over G20
Heads of States are essentially the political leaders. They get to focus on finance and economic issues only when these become dominant political issues. Geopolitics, however, take them over as soon as the economic and financial issues get less demanding.
With the global financial crisis receding into the background after 2010, the G10 Summits became annual and morphed into the forum for the Presidents and Prime Ministers to primarily serve their political interests and indulge in political brinkmanship.
There is an unmistakable change in the contents, tone, and diplomatese in the G20 Communiques from 2011 onwards. The paragraphs in the leaders’ declarations kept expanding. Every subject under the sun was brought in from health, energy, digital payments, agriculture, food, terrorism, corruption, and whatever you name—to serve everyone’s pet hobby horse.
Lot of words were used but there was no agreement nor any action in these verbose paragraphs. There was no action on real financial and economic reforms. The time spent on these issues kept dwindling.
G20 has also gotten increasingly polarised. The Chinese-US rivalry, particularly under Trump’s US Presidency, converted the G20 into a place where attempts were made how to get the better of the other. Trump’s dim view of the global climate cooperation and trade agreements made the world-made G20 increasingly dysfunctional. G20 seems to have lost its mojo and purpose. Formalities, inane words, and photographs have taken precedence. The substance is getting out of the window.
The Russia-Ukraine war and consequential sanctions imposed on Russia have cast the final salvo. The G20 has become an open forum to spar and to take potshots—not the place where powerful nations cooperated on economic and financial issues.
One has to see the leaders’ declaration for Bali Summit held in November 2022 to realise how verbosity has completely trumped substance; how lip service has replaced any real plan of action.
The Bali Summit Leaders’ statement did finally come out. There was also only a small disagreement recorded openly. Indonesians made all efforts to make sure that a statement at least, is issued. They did not want to be the first country to get left red-faced becoming when G20 Leaders did not produce even a paper statement.
If one were to score the G20 Leaders’ statements to look for global financial coordination and problem solution, there will hardly be anything to find there.
What Can India Achieve?
India has presented its G20 Presidency as its assumption of global leadership. This is primarily for the domestic constituency though. An unprecedented level of event promotions is being undertaken. Chief Ministers are issuing full-page advertisements for meetings taking place at the level of Joint Secretaries. Cities are being spruced up, at least the roads from airports to the meeting venues. Tourism is a larger focus than deliberations or thrashing out any agreement in over 200 G20 meetings which India will be hosting in 2023.
There is hardly any coordination and agreements being thrashed out. Two senior-level G20 meetings have taken place—one at the level of finance ministers and the other of the foreign ministers. In both, China and Russia went back even on the minimal language adopted on the Russia-Ukraine war issue in Bali.
India is friendly to both US and Russia. India is continuing to do business with Russia for serving its domestic interests. India should have been able to broker some understanding on issues before the G20 between the US and China/Russia. That, however, does not seem to be happening.
It is increasingly becoming clear that India would not be able to get an agreement on any geopolitical issue when the principal parties—US and China—have openly divergent interests and preferences.
The world is indeed amidst a major banking crisis.
Excessive fiscal and monetary stimulus post Covid 19 in the face of global supply-chain disruption did unleash the inflation genie out of the bottle globally. Quantitative easing and ultra-cheap money also made asset prices rise all over the world. For the last some time, the efforts to contain inflation are more upending the asset prices with all markets equity, bonds, and currencies in major turmoil. Inflationary impulses though continue to remain strong for different reasons—elevated interest rates, higher labour costs, and certain sectoral supply disruptions.
Falling asset prices are worsening the asset-liabilities mismatches of banks and financial institutions making depositors quite nervous. As banks fall or are taken over, the equity and bond investments will come under greater pressure creating their own spiral. There is a serious likelihood of the financial sector situation getting out of control.
This is indeed a tough time. Global cooperation is definitely needed most in such situations. However, there is no demand for tuning in G20 to bring about this cooperation. The lack of trust amongst the major G20 parties is making all G20 countries either take action on their own or watch the action from the sidelines.
There is hardly anything India’s G20 Presidency can contribute in such a situation. India might struggle to get even the G20 Leaders’ Summit agreed statement.
The larger question is does anyone really care about it any longer?
Is This the End of Road for G20?
A fragmented and polarised world is not a fit place for any serious economic and financial cooperation. 2008 was a different world. G20 at the Heads of State level could come together and make a good job of solving the global financial crisis.
Though we have a global financial crisis again and the G20 also exists, the world in 2023 is, however, very different. Powerful members are busy finding their solutions on their own or in groupings with compatible interests.
G20 will be able to do nothing to bring out any global coordination to help solve the banking crisis. Has G20 lost its ability?
When G20 is becoming increasingly irrelevant, does it make sense for the global leaders to come to and attend summits only for the sake of attending? As this sense starts dawning on the leaders, one would not be surprised if the leaders opt out of personally attending the G20 Summits.
The Summit meeting in India in September 2023 might see a situation when it is given a miss by one or two leaders. Even if everyone comes, the likelihood of any meaningful deal on any of the major global economic and financial issues is next to nothing.
It will not be long before Presidents and Prime Ministers lose interest in G20. Who is interested in attending when it achieves nothing? If this were to happen, it might make sense to revert to G20 at the level of Finance Ministers and Central Bank Governors. That perhaps, might salvage something worthwhile for the purpose for which G20 was originally set up and make it a better functional forum.
(The Author is the Chief Policy Advisor, SUBHANJALI, Author: The $10 Trillion Dream and Former Finance and Economic Affairs Secretary, Government of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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