For all of its branding as “the premier forum for international economic cooperation,” let’s recall that the Group of 20 was born under a bad sign. The heads of state first met in the maw of the 2008 financial crisis, in the dying days of the Bush administration. Now, as they limp toward a low-expectation summit in the twilight of the Trump era, under the presidency of a Saudi Arabia struggling to launder its global reputation, the stars look just as bad.
In April 2009, at just the second full summit meeting of the new great-power forum, Gordon Brown and Barack Obama chivvied and haggled with Hu Jintao, Angela Merkel, and Nikolas Sarkozy. The leaders of big developing economies were there too of course, with left-leaning technocrats like India’s Manmohan Singh and Brazil’s Lula Inacio da Silva lending more equitable look the high council of global economic governance.
Despite some opposition from the French and Germans, they emerged with an extraordinary deal: $1 trillion in new capacity for the International Monetary Fund: $250 billion in new funding from members, $500 billion in “New Arrangements to Borrow,” and $250 billion in additional Special Drawing Rights — the near-cash instrument available to IMF members on a proportional basis.
Intervention on a similar scale is if anything, more urgent now. Much of the G-20 has drifted into a widely-predicted second wave of Covid-19 cases, with public compliance faltering and governments unable to muster the will to contain a resurgent virus.
Something similar has happened to efforts to ensure a coordinated global economic response to the pandemic. From the most resilient economies to the most fragile, there is massive uncertainty. Global output has taken a $12 trillion hit, and the timeline to recovery remains uncertain.
The U.S. Federal Reserve continues to act as a de-facto global anchor, and China’s central bank has an increasingly large set of surpluses to invest. But a second round of stimulus funding in the U.S. remains in doubt, and in smaller economies, worries about debt and deficits are already causing a premature pull-back. A new IMF report notes that in economies where fiscal balances dropped by more than 10% of GDP this year, they are expected to improve by more than 5% of GDP in 2021. To be clear, that is an unwelcome development: most of the improvement will be down to reduced stimulus spending, which will starve the recovery of oxygen.
The Fund itself has provided $70 billion in loans through its existing programs, and around $29 billion in through its rapid-credit and financing facilities. These are big numbers, but derisory relative to the scale of the problem.
The Trump administration has vetoed widespread calls to expand SDRs. Treasury Secretary Steven Mnuchin claims that the funds would go mostly to G20 members who, he says, don’t need them.
Tell that to South Africa, which faces a 15% budget deficit this year.
Mnuchin clearly hasn’t studied the numbers. Poorer countries would realize enormous benefits too. Mozambique, for instance, would see its international reserves bolstered by some 18% if the stock of SDRs was increased to $1 trillion. Bangladesh would get around $9 billion, which, the Center for Economic Policy Research reminds us, would enable it to purchase around 12 million COVID-19 test kits or fund 50% of its annual imports from the US.
The G-20’s current leadership dynamics are no cause for optimism. Donald Trump is looking to prove that a lame duck can still smash things, and his good friend Mohammed bin Salman lacks the moral authority to secure a deal. Singh and Lula have been replaced by Narendra Modi and Jair Bolsonaro, who combine hollow economic rhetoric with rightwing populism. As for Boris Johnson, he may be anxious for a reset, but he is no Gordon Brown on questions of global development.
If nothing else, however, the summit is an opportunity to focus minds on the dangers of ongoing inaction.
Zambia has just become the first African country to default on its debt since the advent of the pandemic, and similar pressure is piling up elsewhere. Even where there is little risk of default, austerity will cause deep scarring, with consequences for both individual countries, and what remains of the multilateral system.
Perhaps the most damaging legacy of 2008 is the global rise of the same nationalist, anti-democratic leaders who are an obstacle to coordinated action now. Cutbacks in social spending and investment in fractured democracies like South Africa, Mexico, and Nigeria, threatens to give space to more of the same.
There is some hope in the recent past, however.
As Adam Tooze writes of the first G-20 summit in Crashed – How a Decade of Financial Crises Change the World, “On his way out of office, Bush’s administration, which had given unilateralism a bad name, would reluctantly inaugurate a new chapter in multilateralism.”
Joe Biden and his team may have to work around a reluctant Senate, but they have more scope internationally. They should be telegraphing now — to Europe, to China, and to big emerging markets — that they will support a G-20 plan with four basic elements: An expansion of existing debt relief and fiscal support, headlined by increasing to $1 trillion the available pool of SDRs; a shared political commitment to expansionary spending; firm climate commitments for recovery investment; and open, rules based global trade.
That may the basis for positioning now, and more substantial action early in the new year. Just maintaining stimulus spending would be no small victory.
The next chapter in multilateralism will look very different from the last, but if it is put off much longer, it won’t begin at all. – Bloomberg
