What is the G20?
The G-20 was set up to 'smooth out the bumps' of financial globalization. It was established in the wake of the financial crises that gripped the global economy and devastated much of Asia, Russia and Latin America in the late 1990's. The G-20's mandate is 'To promote discussion, and study and review policy issues among industrialized countries and emerging markets with a view to promoting international financial stability.'
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Who sits at the G20 table?
Finance ministers and central bank governors of the following countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United Kingdom, and the United States. The G-20 also includes the European Union, the International Monetary Fund and the World Bank. Taken together, G-20 member countries account for about two-thirds of the world's population and 87% of the world's economic production.
The G-20 first met in Berlin in December, 1999. Ministerial meetings have taken place annually since then. See the official G-20 website for details. http://www.hacienda.gob.mx/g20-2003/background.html
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What are the talking about?
Canada’s Prime Minister, Paul Martin has announced that 'There is virtually no major aspect of the global economy or international financial system that will be outside ofthe group's purview.' To date, however, the discussion has been restricted to issues of domestic financial stability in emerging market economies. Among the proposals that emerged from the G-20's first meeting were to:
- Strengthen the surveillance of national financial sectors by the IMF and World Bank;
- Encourage the adoption of a uniform set of international standards and codes in the supervision of domestic banking and financial sectors;
- Encourage 'debt management' as a means of avoiding excessive build-ups of short-term debt;
- Examine the role of exchange rate regimes in reducing countries' vulnerability to economic crises.
The G-20 is also trying to involve the private sector in order to help prevent future financial crisis. The concept, known as 'bailing in' the private sector is simple: stop short-term private investors from fleeing emerging markets during times of financial instability. It is done by forcing short- term investors and creditors, who are largely responsible for crisis, to bear a large portion of the costs, rather than being 'bailed out' through international rescue packages funded by public dollars. It is an attempt to keep private debt private. In principle, it is difficult to object to the goal of bailing in the private sector. How it will be done and who will really benefit remains unclear, however.
While there is undoubtedly room for improvement in the regulation of financial sectors, these proposals reflect a profound failure to deal with the systemic aspects of recent financial turmoil. If anything is clear from recent events in Asia, Russia, Brazil and Mexico, it is that fundamental changes are needed at the level of the international financial system as a whole - changes that marginal improvements in surveillance and transparency are unlikely to produce.
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Does the G20 differ frmo the Financial Stability Forum?
The G20 works closely with the Financial Stability Forum http://www.fsforum.org/home/home.html also created in 1999 to promote international financial stability through information exchange and international co-operation in financial supervision and surveillance.
The Forum brings together on a regular basis national authorities, technocrats, responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
The FSF seeks to co-ordinate the efforts of these various bodies in order to promote international financial stability, improve the functioning of markets, and reduce systemic risk.
The work, analysis and recommendations of the Financial Stability Forum are poorly known as their meetings are held in secret, nor are their reports made public in their entirety. The narrow participation in the Financial Stability Forum means a narrow set of options to global financial crisis are being considered.
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What's wrong with the G-20?
It is exclusive, secretive and too narrow in its agenda. The G-20 meet behind closed doors; there is no public access and there will be no public statements to which the G-20 members can be held accountable. The G-20 is effectively a private club for the financial elite. Decisions that will have a profound impact on billions of people around the world are being left to a narrow group of 'experts', with no provision for public or civil society input.
Although the G-20 includes representation from many developing countries that would otherwise be excluded from these types of discussions, one third of the world's population is not even represented. While many small least developed countries are unlikely to have a great impact on the health of the global financial markets, the reverse is not true. The livelihood and welfare of millions of citizens in the least developed countries are likely to be profoundly affected by changes in the global financial architecture - changes over which they have no control or voice. This raises the question: is the G-20 the appropriate forum for addressing the crucial issues of global financial reform?
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Alternatives to the G20
Since 1998, the Halifax Initiative has been calling for a global financial commission conducted under the auspices of the UN, which would investigate issues of global financial reform. Such a body would have the advantage of a truly global representation of countries, and would allow participation by a wide variety of actors and civil society representatives.
Interest in the idea is growing within the non-governmental community and select governments. NGOs advocate the use of a rights-based approach that puts the interests of the poor at the heart of the economic rule-making process.
The global finance commission could follow up on recommendations resulting from the United Nations 'Financing for Development' conference in 2001. The conference will examine concrete policy recommendations on domestic and international means to mobilize resources for development. A broad range of issues will be addressed including debt, overseas development assistance, trade, and increased coordination of monetary and fiscal policy in the interests of development.