G20 Finance Ministers: Is the Agenda too Broad?

Overview: The G-20 has emerged as the key economic grouping in the response to the global financial crisis as it is more representative than the smaller G-7.  G-20 finance ministers have been meeting frequently ever few months to coordinate the crisis response and to promote economic stabilization and growth but the topics of focus. 

G-20 finance ministers meeting in Scotland Nov 6-7 provided more details on policies approved at past meetings including a timeline for implementing the sustainable growth framework and financial reforms. However major economies remained divided on the implementation of compensation reforms and a Tobin Tax scheme to fund any future financial bailouts as well as ways of funding carbon emission reductions. 

The G20 Work Agenda 

•  According to the Telegraph, the UK managed to guarantee “assurances” from the G20 that global financial support for world economies will not be reduced “until it is clear that any nascent recovery is sustainable.”
• The G-20 areas of focus have become increasingly broad encompassing development issues, climate change, financial regulation as well as coordinating fiscal and monetary policies.  As the recovery takes shape at different speeds, major policy responses will likely be national not multilateral.
• Meeting in Pittsburgh at the end of September 2009, G20 leaders noted that their approach to do what “necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital” worked. The meeting concluded with agreements on financial regulation, some compensation restrictions a new peer review of economic policies to avoid future financial crises as well as statements on trade, climate change. 

Financial Sector Regulation: Divide Over a Tobin Tax

•  G-20 communiques have continued to push for swift implementation of all past commitments and to put in place a “transparent, credible… and coordinated” exit strategy from the fiscal and monetary surplus once recovery has been reached. Finance ministers have turned to the Financial Stability Board to finalize recommendations to align remuneration incentives with the long-term performance of financial institutions. 
• FT: “The Fed will promote new risk-adjusted bonus schemes, along with plans that would defer compensation, establish multiyear periods for assessing performance and encourage less payment for short-term results.” Similar rules, including the threat of sanctions in each G20 country, were adopted at the extraordinary EU summit on September 17, 2009 in preparation for the G20 meeting in Pittsburgh. (EurActiv, 09/18/09)
  Climate Change and Energy Price Volatility
• Global leaders are divided on financing climate change mitigation policies, threatening consensus at the forthcoming Copenhagen climate summit.  Divides among the G7 and between the G7 and emerging market economies remain over the short- and medium-term horizon policy goals. RGE’s Rachel Ziemba notes that “despite the fact that almost all the major countries are making significant steps in promoting renewable energy – in part because of job creation hopes – countries remain divided over the timing and scope of emissions cuts… as they doubt the sincerity of counterparts to make sacrifices.”
• Edmund Conway of the Telegraph worries about the “nasty standoff” between emerging and advanced economies. The G7 hoped that emerging market economies who will contribute a significant amount of future carbon emissions would chip in to pay for some of the new technologies. 
• The G20  agreed to remove subsidies on fuel, however doing so may be politically difficult and many countries do not consider energy sector support to be subsidies. Already some subsidy regimes were (partly) dismantled in the wake of 2008’s high fuel prices. 

Quiet on FX but Worried about Asset Bubbles

• The G-20 has shied away from saying much about exchange rates in public as talk of new reserve assets and reserve diversification only puts pressure on the U.S. dollar. 
• The Brazilians, who implemented a tax on portfolio capital inflows in late October tried to gain table some policy measures to reduce asset bubbles on a global level, but there was no mention in the communique Henrique Meirelles, the Brazilian central bank governor argued on November 3 that “here’s a need for international cooperation in preventing imbalances and bubble-building and some of that demands international regulation, symmetry of regulation among several countries.” (Via Bloomberg)

Imbalances/Long-term Global Growth

• Leaders agreed to a peer review of macro policies overseen by the IMF. However, past multilateral discussions, say on exchange rates have had limited results. 
• In November, countries agreed to a timeline to report on national policies by early in 2010.  
• Brad Setser of the National Economic Council/National Security Council highlights the sustainable growth framework. It assumes  that  borrowing by U.S. households cannot be the main source of global demand growth in the future. Setser notes that more balanced global growth would “boost the overall pace of global growth. ” (09/22/09)
• G-20 leaders have pledged to implement the previously agreed reallocation of the IMF’s voting power to boost emerging market votes by 5% but no countries want to cede power. The Europeans rejected the U.S. suggestion to reduce the number of IMF directors which might eliminate European permanent seats. 

Trade

• G20 leaders again wholeheartedly supported trade and commited themselves to the conclusion of the Doha round by the end of 2010, but actions may be less supportive.  Protectionist responses are on the rise eg the U.S. and China trade spat.
  Fiscal Support
• Telegraph: The UK managed to guarantee “assurances” from the G20 that global financial support for world economies will not be reduced “until it is clear that any nascent recovery is sustainable.”. (11/08/2009