In today’s Finshots, we explore the history of the Group of Twenty and its relevance in today’s world.
India might have just made the G20 the most important forum in world affairs!
How, you ask?
By inviting the African Union (AU) — and its 55 member nations — to the table. It’s now the G21 really. Already, the 19 countries and the EU represent around 85% of the global GDP, over 75% of the global trade, and about 70% of the world population. With the addition of the AU, it’s basically bringing the entire world together.
And that means this could be another nail in the coffin of the G7.
See, the G7’s history began in 1975. The world was going through an oil crisis due to a conflict in the Middle East and inflation was hurting the common folks. That’s when the big, western, non-communist nations decided that they needed to band together to dictate world affairs. It was an informal organization but the point was to find a way where they could put their heads together and find economic and policy solutions.
But over the years, the world became more globalized. Any event in one part of the world could have a ripple effect elsewhere. And when the Asian financial crisis struck in 1997, maybe the West realized that they needed to get more people involved. Or maybe they realized that the tide was changing. China was emerging as a threat to the Western hegemony. India’s growth was promising. Global economic decision-making needed their participation. So they got together a bunch of diverse nations — emerging and advanced — and formed the G20.
But the Prime Ministers and Presidents didn’t get their hands dirty back then. It was left to the Finance Ministers to hash out the matters. It was meant only for economic affairs
Then, the global financial crisis struck in 2008. The world was thrown into complete chaos. Growth rates plummeted. People lost jobs. And that’s when the world leaders got involved. They slotted in an annual meeting into their busy calendars. The agenda expanded to include foreign policy and climate change.
And with that, it was the beginning of the end of the G7. It just seemed like an old boys’ club. The G20 has arrived to take its place at the world table. It would capture the new multipolar world.
And if you were looking for a perfect example of this — this year they announced a massive economic corridor that will link India to the EU via the Middle East. Imagine a ship setting sail from India with goods. Docking in the UAE. And then moving via railways through Saudi Arabia, Jordan, and Israel to finally being transferred again to a ship that’ll head towards Europe. It’ll cut down freight times and make trade faster, easier, and cheaper. And the export benefits could be substantial.
Could this have been done only with the G7?
And you can see how important this year’s Presidency was for India just by the dog and pony show that we put on last week. Delhi literally became the epicentre of world politics for a couple of days. We even scored brownie points because we were able to get to a unanimous decision on the final declaration statement. We got all countries to agree on the key points of the discussion. It wasn’t something anyone expected — there’s the rift between the US and China. And also the contentious issue of Russia’s war in Ukraine.
So yeah, with this statement and the invite to the AU, it looks like India certainly stamped its mark on G20 leadership.
But there’s one thing we need to remember about the G20 — declarations are just the first step. Now they all have to go back home and actually act upon these items. And the problem is that if we rely on past performance to predict the future, things don’t look too rosy. It’s really a mixed bag.
For instance, at one of the first such meetings in the US in 2009, the final declaration stated that countries would end fossil fuel subsidies. But apparently, that’s the same thing being repeated even this year. There hasn’t been any progress.
And when the leaders of the G20 gathered together in Rome in 2021, global warming was front and centre of the agenda. Probably because it just came after the global lockdowns revealed how quickly nature could recover if humans took a backseat. Anyway, the pledge was to end the financing of the massively polluting coal power plants overseas.
But, come 2022, coal-fired power generation hit an all-time high in the world.
The same year, the G20 said they would overhaul corporate taxes. There would be a minimum tax of at least 15% in each country. This would be a way to kill tax havens. But nothing has come out of it yet. The IMF calls it “unfinished business.”
Oh, and speaking of the IMF — way back in 2010, the G20 promised they’d reform the organization itself. They’d change the structure to give emerging economies a bigger vote in how the financial resources would be distributed. But simply type “IMF reforms G20” into your search bar and you’ll see that reforms still remain a talking point. Nothing substantial has come out of it.
Some argue that the G20 couldn’t bring nations together during the pandemic too. Everyone had their own agenda. They took two years to first set up a task force. And then failed to put money behind it. The contours of Pandemic Preparedness Funds are still being discussed.
Now that’s not to say that the G20 is just another photo opportunity for world leaders. They’ve had some wins too.
Remember we said that the G20 in its current form emerged during the global financial crisis, right? Well, it was here that countries decided to work together and impose stricter reserve requirements on banks. Even coordinate central bank response to avert a bigger meltdown.
And while people say that the G20 failed in coordinating global response to the pandemic, they did manage to wrangle the Debt Service Suspension Initiative (DSSI). Low-income countries could delay payments on their loans for a while. It was at least something.
So yeah, while the G20 might be the most important informal forum of countries today, it’s time to change the perception that it's "all words and no action." As India hands over the G20 Presidency to Brazil, we'll have to see what comes out of this one.
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