2017. vol. 12. No. 2

The G20 summit system has successfully controlled financial crises, restoring global financial stability after the shock from the US in 2008 and preventing the third shock from Europe in 2010 from resulting in a global contagion. After the G20 finance ministers effectively responded to the Asian-turned-global financial crisis in 1999, they failed to prevent the greater American-turned-global financial crisis in 2008, yet their leaders together responded effectively to it, then prevented the escalating euro crisis from going global, and finally reduced the likelihood of another global financial crisis emanating from a systemically significant country. Since 2013, the G20 has also enhanced economic equality between rich and poor countries, but has not fully made up for the loss in economic growth experienced in 2008 to 2013 or eliminated the socioeconomic scarring created during that period.

It will not be easy for Germany to build a meaningful legacy from its current presidency of the Group of 20 (G20). This is not a question of political will; rather, it is related to the constraints posed by international and domestic factors. On the external front, the uncertainty associated with the inauguration of U.S. president Donald Trump has fundamentally disrupted the G20 process. It seems highly unlikely that leaders will find common ground on critical issues of global economic governance before the Hamburg Summit in early July. Until then, we can expect stalemate and polarization rather than joint action. Given Trump’s statements, his administration will openly challenge the G20 paradigm of economic globalization and international cooperation. In addition, his leaning toward Russia and antagonism toward China will put pressure on traditional alliances, the Group of Seven and the BRICS grouping of Brazil, Russia, India, China and South Africa. The domestic context is also complicated and is certainly not benign from the perspective of German chancellor Angela Merkel. Although she and her conservative party are set to win the upcoming national election, a surging populist party on the right is attracting significant attention. The electoral process will make it impossible for Merkel to meet outside fiscal demands, including for the use of fiscal space to reduce the persistent current account surplus.

Despite such adversarial conditions, the German government is determined to lead the fight against protectionism. Building on China’s preceding G20 presidency, Berlin will also emphasize the key relevance of the Sustainable Development Goals to a universal policy framework and will call for special efforts on Africa. However, it remains to be seen if Germany can achieve anything of relevance in the face of these mounting challenges.

Born in response to economic and financial crises which existing institutions were unable to address adequately, the G20 transformed from a crisis management group into the premier forum for international economic cooperation. Like its predecessor, the G7 (which was set up in 1975), and BRICS (established in 2009), G20 is an informal club or summit institution. To ensure continuity, legitimacy and efficiency in fulfilling their global governance functions of deliberation, direction-setting, decision-making, delivery and the development of global governance, the G20 members engage other international organizations. It is hypothesized that to maximize benefits from its engagement with international organizations, the G20 resorts to a combination of the “catalyst”, “core group” and “parallel treatment” approaches exercised by summit institutions. These include exerting an influence in promoting changes to international organizations through endorsement or stimulus, compelling them to reform, imparting a new direction by giving a lead that the other organizations would follow, and creating original mechanisms, working in parallel with existing institutions. The article tests this assumption. To trace the dynamics of G20 engagement with multilateral organizations and identify preferred models across the presidencies and policy areas, the analysis is carried out within the rational choice institutionalist paradigm, drawing on the quantitative and qualitative analysis of documents adopted by the G20.

Findings from the study indicate that the intensity of the G20 engagement with the IOs is very high and G20 mostly resorts to a combination of the catalyst and core group approaches, though the pattern depends on the policy area, the IOs and the presidency agenda. The intensity of G20 engagement with the IMF, Financial Stability Board, World Bank, and Organization for Economic Co-operation and Development by far exceeds the intensity of its interaction with other institutions. The UN comes only seventh in the G20 discourse in terms of the sharing and intensity of references. There are very few cases of parallel treatment and most of them are in the sphere of infrastructure investment, which can be interpreted as a G20 response to a persistent gap in the demand and supply for infrastructure investment and governance leadership in this area. Thus in implementing the forum mission and functions, G20 prefer to engage with key international organizations, acting as “a hub of a global network”.

The article starts with a brief overview of the study’s analytical paradigm and methodology. It then proceeds to examine the dynamics and modes of G20 engagement with international organizations across a wide spectrum of policy areas. The final section summaries and concludes.

In 2009 the members of the Group of 20 (G20) proclaimed the forum to be the premier body for their international economic cooperation. But the G20’s success in facilitating such cooperation is mixed. The G20’s immediate response to the 2008 financial crisis was considered to be a success, but its effectiveness has waned since then. There are, however, two aspects of business regulation where the G20 has successfully facilitated international cooperation to achieve significant outcomes that have affected the business climate in G20 members. These are the efforts to strengthen financial regulation and to modernize the international taxation system. This article identifies the characteristics that have contributed to the G20 achieving greater progress in these two areas, how these differed from other issue areas and the lessons that can be derived for the G20. Some of the key points identified for the G20’s relative success with financial regulation and international taxation include: broad agreement in advance on the underlying problem and solution; agreement on a common course of action for each member; agreement on a mechanism to monitor compliance; the presence of domestic public pressure on countries to act; and the continuity provided by successive G20 chairs. 

In November 2008 the G20 became the premier forum for international economic and financial affairs. As a result, the international monetary system has come to reflect the transformation of the global economy brought about by China’s emergence as the second largest economy and major exporter, and by the related limits of international governance, especially of the so-called Bretton Woods institutions. This article argues that Zhou Xiaochuan, governor of the People’s Bank of China, started an international debate about the shortfalls of the international monetary system in March 2009, after which China pursued the internationalization of its own currency, the renminbi, to turn it into one of the key international currencies. To this purpose, China has put together a policy framework that facilitates the international use of the renminbi without opening domestic capital markets — a requisite for a fully convertible international currency. This article discusses the renminbi’s trajectory over the last five years and suggests that it has become more regionalized rather than internationalized. It also discusses the challenges that Chinese authorities experience as they try to put the renminbi in the pockets of foreign investors and at the same time maintain control — “managed convertibility” — of capital flows in and out of the domestic market. The article concludes that the decision to include the renminbi in the International Monetary Fund’s basket for its special drawing rights reflects expectations that the international monetary system will shift from a dollar-dominated to a multi-currency system. However, this will take several years; in the meantime, international governance will continue to reflect the influences of the issuers of the key international currencies.

Increasingly, the G20 needs to be examined as a decentred focal point in the global system. The dominant formative image of the G20 has been that of a 21^st C concert of powers. Yet, as witnessed by the ongoing dynamics of the summit process, the G20 has become fragmented. As the G20 has moved away from its apex function, it has become a nexus forum/networked focal point. Of key importance in this context is the role of the BRICS grouping of Brazil, Russia, India, China and South Africa. At the same time as this major challenger is increasingly embedded at the hub of global governance represented by the G20, it is also engaged in a diverse array of parallel initiatives. In terms of their informal modes of operation, the G20 and the BRICS share some marked similarities. As the roles of networked fora are consolidated, the diversity of activities expands to incorporate a range of state and non-state actors. However, at the same time the club culture of both the G20 and the BRICS is contested, reducing the like-mindedness associated with traditional concerts of power.

The conceptual arguments developed in this paper are illustrated and reinforced by recent practices, including the Hangzhou G20 and the Goa BRICS summit. The global system is in the midst of a protracted period of discontinuity characterized by profound and intense tension between the push for a consolidated form of institutional synergy (with the G20 as the hub focal point) and the pull towards potential fragmentation (with the BRICS as the core agent of change). The nature and impact of this dynamic will animate the central debate over global governance in the 21^st C. 

Development and environmental sustainability, infrastructure and economic growth are closely interconnected. The world will need to more than double investment in infrastructure from current levels to meet its growth and development objectives over the next 15 years. This means raising infrastructure investment to more than $6 trillion a year. Energy, transport and cities dominate infrastructure needs. As much as three quarters of the incremental investment requirements will be in emerging and developing economies. Developing this new infrastructure capacity in sustainable ways can be a game changer in the fight against climate change.

The agenda involves important transformations in the way infrastructure is developed and financed. It spans boosting investment in public and private sectors, and increasingly through public-private partnerships; reforming incentives to channel new investment toward efficient and sustainable infrastructure; strengthening institutions to ensure the feasibility and quality of investments; and promoting innovation in infrastructure technology to better address climate risks and sustainability, and in public and private financing modalities. Strong public policy leadership must be combined with new ways to catalyze private investment and financing, especially from institutional investors. More than half of the incremental financing will need to be mobilized from the private sector.

The global commons faces a myriad of increasingly complex, interrelated challenges spanning a range of environmental, security, economic, health and development issues.  Addressing these challenges requires a concerted effort on behalf of the most influential political leaders representing the world’s most significant countries.

Getting traction on these issues thus requires a process of global governance in which these leaders can regularly meet and forge a consensus on how to confront this groundswell of evolving global challenges.

The G20 and BRICS sit at the very epicentre of this important global governance structure, serving as the key plurilateral summit institutions (PSIs) able to confront these critical and complex challenges.

The question of why and how the BRICS and G20 can provide better global governance is essential to understanding the value and prominence of these high-level plurilateral summit institutions. 

This paper argues that in order for these PSIs to govern more effectively, they must forge a consensus and generate concrete commitments, against which they can be effectively evaluated and assessed. Without a scorecard against which to measure their accountability, the issue of their legitimacy as global governance leaders is called into question.

High-quality macroeconomic forecasts are crucial inputs for economic decisions and policy making. Both the accuracy of forecasts and the efficiency with which information is incorporated into forecasts are critically important. At the same time, these forecasts are persistently too optimistic.

To explain this phenomenon, the authors explore common drivers of macroeconomic forecast overoptimism in different countries using the principal component analysis. They find that most of the variability in optimistic next-year forecast errors can be explained by four common factors. The optimism or pessimism with respect to gross domestic product (GDP) targets exhibits a certain degree of consistency across countries. Uncertainty about U.S. macrofinancial developments and global demand are the key drivers of forecast overoptimism. These common factors matter most for advanced economies and G20 members. Moreover, the explicit link between uncertainty about U.S. macroeconomic developments and next-year forecast errors has implications for the trajectory of macroeconomic variables. A vector autoregression (VAR) analysis shows that upward surges in uncertainty about U.S. business conditions lead to a decline in the next-year GDP growth rate in advanced economies and emerging countries. This result supports the link between uncertainty and overoptimism in next-year forecast errors. It also implies that incorporating the common structure governing forecast errors across countries can help improve subsequent forecasts and future policy making.