The G20, an informal grouping comprising 19 states and the European Union (EU) came into existence in September 1999 at the level of finance ministers but was elevated to the level of the Heads of State in 2008. It both absorbed and superseded the G7 given the rapidly changing global economic context. The United Nations, International Labour Organization (ILO), World Bank, International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), World Trade Organisation (WTO), and Financial Stability Board are invited to participate in pre-summit meetings. Civil society organisations, think tanks, and labour and business groupings such as the C20, T20, L20, and B20 have their own parallel meetings.
Despite being advisory, the importance and influence of its decisions grew significantly over the second decade of the 21st century. The G20 can be seen to occupy—on global economic governance matters—a similar role to what the UN Security Council occupies on global peace and security issues.
The G20 in crisis
The credibility of the G20 is being questioned because in the past few months, it has been embroiled in an internal crisis, unable to agree on communiques, with direct negative implications for both its functioning and substantive agenda. As India assumes its presidency in December 2022, it has a unique leadership opportunity to suggest innovative solutions for the resolution of some of the critical issues confronting the G20.
The challenges are daunting. Current dilemmas suggest the need for serious, urgent internal governance reform, the effectiveness of which will determine whether the G20 can credibly address the major substantive global economic and financing challenges it was established to resolve. If it is to remain credible and relevant, it will first need to overcome its recent, continuing inability to reach an agreement on vital and urgent issues confronting the world.
Five big substantive challenges the G20 needs to address includes rising unsustainable debt of a large number of middle and low-income countries; continuing significant underperformance in the delivery of the climate financing pledged by wealthy countries who have historically disproportionately negatively impacted the environment over a long period; fiscal and other challenges of the green energy transition; appropriate Bretton Woods institutions reform; global food insecurity.
Failure to issue a joint communique at the G20 Bali September 2022 meeting has even raised concerns about backtracking on what was agreed on climate financing in Paris in 2015 and Glasgow at COP26 in 2021.
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Internal governance challenges
- Inclusiveness:Although the G20 was designed to be more inclusive than the G7, it is still not inclusive enough. Whilst there are no formal membership criteria, membership is based on a country’s systemic importance to global financial markets and its contribution to global gross domestic product (GDP) and trade. Current membership represents more than 80 percent of the world’s GDP, 75 percent of international trade and 60 percent of its population. These criteria need to be expanded to include representatives of major UN recognised groupings such as the Least Developed Countries (LDCs) and Small Island Developing States (SIDS)—groups most vulnerable to or negatively impacted by global economic governance developments and decisions. Membership should also include major regional groupings such as the African Union which currently has observer status. Such groupings and their members lack any real voice in global economic governance but continue to be significantly, negatively impacted by global economic governance decisions and challenges, not of their making. Other groupings whose vulnerabilities or concerns are directly impacted by the G20 Agenda such as the V20 should be given observer status for as long as their concerns remain high on the global economic governance agenda.
- A code of conduct: Russia’s invasion of Ukraine has highlighted the urgent need for a code of conduct for members and clear, enforceable rules that enable action against rogue members if they are breached. The recent inability to issue agreed-upon communiques, increasingly because of the war in Ukraine, is the most visible symbol of the internal governance crisis the G20 finds itself in at a time when its global leadership is needed more than ever. Whilst the G20/OECD revised Principles of Corporate Governance are expected in 2023, the G20 needs to urgently look inward and agree on a code of conduct for its members as early as possible.
Key aspects of the unresolved G20 global substantive agenda
The global substantive agenda includes rising and unsustainable debt; significant climate financing gaps; multiple challenges of a clean energy transition; global food insecurity. Linked are IMF reforms to ensure debt sustainability and the success of climate change action and energy transition.
- On debt: The COVID-19 Debt Service Suspension Initiative (DSSI)designed by the Bretton Woods institutions in response to COVID-19 was far from adequate. Only 43 of 78 eligible countries participated in the initiative which suspended US$ 12.9 billion in debt-service payments from May 2020-December 2021. Despite G20 calls on private creditors to participate, only one did. More proactive G20 engagement with private creditors is needed along with appropriate incentives/disincentives to facilitate their constructive participation. This is critical because unlike the earlier Highly Indebted Poor Country (HIPC) initiative, private creditors hold significant portions of current debt and there is no sustainable solution without engaging them.
The G20 should also directly engage with the V20 and their concerns and proposed solutions, especially since they are willing to link genuine debt relief to climate change mitigation and adaptation financing.
Reforming the IMF is urgent to help it to more effectively deal with the current debt crisis. The G20 is in a strong position to enable this. Particularly important in this regard is the need to immediately eliminate IMF surcharges on countries with large borrowings precisely when they cannot afford them.
- On climate financing:Clear, strong, positive signals need to be given by the G20 to the COP27 in Egypt later this year , honouring, at the very least, the 2015 Paris Agreement and commitments made at COP26 in Glasgow, last year.
- On a clean energy transition:The G20 will need to ensure that the IMF monitors the fiscal space impacts of the decline in fossil fuel revenues on developing country economies making the transition and help equip them to reap the benefits of the opportunities created by a clean energy economy.
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India’s 2023 presidency
India inherits a presidency full of challenges from Indonesia, including the increasing inability to agree on basic communiques as a result of the Russian invasion of Ukraine. This allows India to provide global leadership and statesmanship at a time of acute geopolitical and geoeconomic crises. It will be called upon to provide bold and innovative solutions to the internal governance-related challenges and the full substantive agenda inherited from Indonesia, in addition to showcasing its strengths which are most relevant to the emerging global context.
In the context of COVID-19, climate change challenges, and the urgent need for a clean energy transition, India should highlight its global leadership in low-cost vaccine technology, effective health immunisation delivery on scale, generic pharmaceutical manufacturing, and solar energy. India should also demonstrate how its global leadership in digital and information technology can help facilitate solutions for global food insecurity and the other acute global economic governance challenges facing the world.
Such contributions will need to be translated into tangible offerings backed by a substantial financing package for the Global South not just through the G20 but also through the IBSA Forum for two important reasons. First, because the BRICS, at this global conjuncture, are no longer a credible or coherent grouping, especially after Russia’s war in Ukraine and growing regional and global concerns about China’s intentions. Second, because it is a rare global conjuncture moment when the three major emerging developing countries which created IBSA will hold the G20 Presidency consecutively—India in 2023, Brazil in 2024, and South Africa in 2025. India, therefore, has the rare opportunity to lead the way in forging a three-year common G20 and IBSA agenda but it must seize the moment and move quickly and decisively if its presidency is to be judged a success.
Kamal Malhotra is Non-Resident Senior Research Fellow at Boston University’s Global Development Policy Center. He led the UN in Vietnam, Turkey, Malaysia, Singapore and Brunei (2008-2021), and was UNDP Senior Adviser on Inclusive Globalization (2002-2008). Views are personal.
The article originally appeared on the Observer Research Foundation website.