The G20

Evolution, Interrelationships, Documentation

Peter I. Hajnal

• Publisher: Routledge
• Year: 2019
• Edition: 2
• eBook ISBN:
  9781351266789
• Topic: Politics & International Relations
• Subtopic: International Economics
• Index: Politics & International Relations

This revised and updated edition presents detailed analysis of the history and current state of the G20, and the challenges it faces.

The emergence of the G20 was the result of calls for full inclusion of major developing and other systemically important countries and to reflect new global economic and political realities. The growth of Chinese power, growing significance of other major developing countries and new concerns concerning anti-globalization and rising protectionism in the West have all resulted in important changes to the dynamics of the institution. The suspension of Russia's membership in the G8 has also necessitated a change in G7/G20 dynamics and the G20's processes, agenda priorities and role in global governance. Providing a historical overview and analysis of the evolving agenda, methods of performance evaluation, relationship with structured international organizations and other external actors, Hajnal's text is an authoritative work of history, analysis and reference on the G20 and also G7/G8/G20 reform.

This book is an essential source for researchers and students focusing on the G20, international organizations and global governance, and more generally for scholars in the fields of political science, economics, and finance.

1
The origins of the G20

Introduction

Both the Group of 20 (G20) and its creator, the Group of 7/Group of 8 (G7/G8), were born of crises. The group of seven industrialized democracies (in its first incarnation as the G6, with France, [West] Germany, Italy, Japan, the UK and the US as members) emerged in response to the twin exchange rate and oil crises in the early 1970s. (For a detailed account of the origins and evolution of the G7/G8, see Putnam and Bayne, 1987, and Hajnal, 2007a.) Canada became a member in 1976, forming the G7; Russia was accepted as a full member in 1998, thus transforming the group into the G8. In 2014, in response to its action in Ukraine, Russia’s membership was suspended, thus reverting the group back to the G7.

Finance Ministers and Central Bank Governors of the G7/G8 have been meeting regularly since 1986; this forum survived as the only remaining G7 component of the broader G8 system while it existed as the Group of 8 – although occasionally, usually just prior to leaders’ G8 summits, they included their Russian counterparts. The Finance Ministers’ and Central Bank Governors’ G20 arose in 1999 in the aftermath of the Asian/Latin American financial crisis and in response to the growing recognition that some significant emerging-economy countries were not adequately represented in global economic discussions and governance.

This chapter tracks the developments leading to the creation of the G20 Finance Ministers’ and Central Bank Governors’ forum (including a discussion of predecessor bodies) and the subsequent emergence of the G20 leaders’ summits. For a review of the series of G20 summits since their inception and the evolution of the G20 agenda, as well as a discussion of the G20’s composition and invited non-member countries, see Chapter 2. Chapter 3 reviews the components of the broader G20 system: leaders’ summits and supporting structures and officials, ministerial fora and other sub-summit groups. Chapter 7 surveys and analyzes proposals to reform the G7/G8 and G20, discusses reforms already achieved and examines the relationship between the G7/G8 and the G20.

Predecessors

The 1995 Halifax G7 summit expressed support for including important emerging-economy countries in the international financial system, stating that ‘[g]reater resources and attention should be devoted to those countries of global significance, including both industrial countries and emerging economies’. Following up on that lead, the International Monetary Fund (IMF) established the New Arrangement to Borrow (NAB) in 1997 (it came into force in 1998), which provided for emergency credit lines among 26 participating governments. As the Asian financial crisis erupted and spread to Russia and Latin America, NAB led, successively, to two main groupings that preceded the formation of the G20 Finance Ministers’ and Central Bank Governors’ forum: the Group of 22 and the Group of 33.

John Kirton (2013b, pp. 58–63) conceptualizes the emergence of the G20 Finance Ministers’ and Central Bank Directors’ forum as occurring in several steps:

1. the 1988 Toronto G7 summit’s recognition of the growing role of newly industrializing economies in the Asia-Pacific region;
2. creation of APEC (Asia-Pacific Economic Cooperation) forum at the Finance and Foreign Ministers’ level in 1989;
3. creation of NAB in 1998;
4. establishment of the G22;
5. expansion of the G22 into the G33;
6. the convening of the Financial Stability Forum (FSF) by the G7 Finance Ministers in 1999 (G7 Finance Ministers, 1999a);
7. creation of the IMF’s 24-member International Monetary and Financial Committee (IMFC), which was welcomed at the 1999 Cologne G8 summit; and
8. formation of the financial G20 itself in December 1999.

The Group of 22 (G22)

Also known as the Willard Group after the Washington, DC, hotel where the group first met, the G22 was set up in April 1998 as a result of a US initiative announced by President Bill Clinton at the meeting of APEC countries in Vancouver in November 1997. The leaders who were present reached an agreement to convene a meeting of Finance Ministers and Central Bank Governors to move forward the reform of global financial architecture. The resulting group – which characterized itself as ‘Finance Ministers and Central Bank Governors from a number of systemically significant economies’ – was originally conceived as a one-time meeting to resolve global aspects of the financial crisis in emerging-market economies (IMF, 1998).

A second meeting was called on 5 October 1998 on the margin of meetings of the World Bank and the IMF in Washington, DC, adding four more countries to the group. Represented at the first meeting were the G7 plus 15 other countries or economies: Argentina, Australia, Brazil, China, Hong Kong, India, Indonesia, Malaysia, Mexico, Poland, Russia, Singapore, South Africa, the Republic of Korea and Thailand. The second meeting was also attended by Belgium, the Netherlands, Sweden and Switzerland (G22, 1998; G20, 2007).

The Group of 33 (G33)

An even more inclusive group, the G33, was convened on the initiative of the G7, succeeding the G22 in early 1999. Its members were the Finance Ministers and Central Bank Governors of the G7 countries as well as the rest of the G22, plus Belgium, Chile, Côte d’Ivoire, Egypt, Morocco, the Netherlands, Saudi Arabia, Spain, Sweden, Switzerland and Turkey (IMF, 2006; G20, 2007).

The G33 met twice, in March and April 1999, to discuss reforms of the global economy and the international financial system. But ‘[d]issatisfaction with the ad hoc nature of both the G-22 and G-33 processes by both advanced and emerging economies was an important reason behind the establishment of the G-20’. The other, arguably more significant, impetus came from ‘the wariness of G-7 countries of the merit in engaging systemically important emerging-market economies in a regular informal dialogue’ (G20, 2007). Such a regular dialogue took shape with the creation of the G20 Finance Ministers’ and Central Bank Governors’ forum in 1999.

The Finance Ministers’ and Central Bank Governors’ G20

The G20 Finance Ministers’ and Central Bank Governors’ forum was established following the recommendation of the G7 Finance Ministers in their report to the Cologne G8 summit on strengthening the international financial architecture. This, as noted earlier, was motivated by the Asian/Latin American financial crisis and the recognition that the most important emerging-economy countries had to be included as full partners in global economic governance (Smith, 2011a). It had become clear that the G8 countries alone could not tackle economic and financial problems without the full participation of other systemically important economies.

Former Canadian Prime Minister and, previously, Finance Minister Paul Martin, together with former US Treasury Secretary Lawrence Summers, pushed for the expansion of the Finance Ministers’ and Central Bank Governors’ forum to 20 members. Cooper and Thakur (2013, p. 37) state,

The champion of this new model was Martin, the finance minister of Canada. However, when Martin called on Lawrence Summers, the Clinton nominee for treasury secretary, in April 1999, there was instant buy-in. In a classic variation of informal ‘back of the envelope’ diplomacy, Martin and Summers put together a framework that constituted the basic ingredients of G20 Finance.

Summers (2008), recalling these beginnings, acknowledged Martin’s role in recognizing the need to move the global financial system from various ad hoc groupings, such as the G22 and G33, onto a more regularized path. That was the germ of the idea of creating a more permanent group of Finance Ministers and Central Bank Governors, one that was to include systemically important emerging countries in discussions on a political level. Former UK Prime Minister Gordon Brown also credits Martin for his strong role in bringing this forum into being (Brown, 2010). Thus, the inspiration and initiative came from Martin and Summers, but the formal creator of the G20 was the G7. Samans, Uzan and Lopez-Carlos (2007a) review and analyze these beginnings in detail.

In addition to G8 countries, the G20 includes Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, the Republic of Korea and Turkey, and the European Union as the twentieth member. This number and composition were and continue to be seen as striking a balance between representativeness and efficiency.

The new forum was confirmed by the G7 Finance Ministers and Central Bank Governors in their joint communiqué in September 1999. The communiqué stated,

We propose to establish a new mechanism for informal dialogue in the framework of the Bretton Woods institutional system, to broaden the dialogue on key economic and financial policy issues among systemically significant economies and promote cooperation to achieve stable and sustainable world economic growth that benefits all. We believe that discussions held in this group will prove useful to complement and reinforce the role of the governing bodies of the Bretton Woods institutions. Accordingly, in December in Berlin, we will invite our counterparts from a number of systemically important countries from regions around the world to launch this new group.

(G7 Finance Ministers, 1999b)

The IMFC of the IMF was already in place in 1999, with 15 of its 24 members also G20 members – a significant overlap. A major distinction between the two bodies is that, while the IMFC represents its constituencies and functions under the IMF Articles of Agreement, the G20 ministers are independent of the IMF and do not take positions on behalf of a larger body. Samans, Uzan and Lopez-Carlos (2007b, p. xvii) note that

[w]hile the International Monetary Fund’s Board remains the formal locus of decision-making on immediate questions of Fund policy, the [Finance Ministers’ and Central Bank Governors’] G-20 appears to be evolving into the most influential forum for exploration of longer-term issues and institutional reform, by virtue of the greater legitimacy conferred by its more representative character.

Paul Martin (2005), in advocating the transformation of the Finance Ministers’ and Central Bank Governors’ G20 into a leaders’-level forum, reviews and analyzes the circumstances of the emergence and functioning of the G20. The official history of the first nine years, published by the G20 (The Group of Twenty, 2007), documents and describes the historical background, establishment, structure, objectives, work programme and evolution of the G20 forum of Finance Ministers and Central Bank Governors, and discusses the relationship of the G20 to other international institutions and groups, particularly the G7 Finance Ministers’ and Central Bank Governors’ forum; it also comments on the operational and institutional effectiveness of the G20. Others analysing these issues include, for example, Porter (2000), Helleiner (2000), Culpeper (2003) and Kirton (2005a).

Following a preparatory meeting of G20 Finance and Central Bank Deputies in Vancouver in November 1999, the inaugural meeting of the G20 Finance Ministers and Central Bank Governors was convened in Berlin on 15–16 December 1999. Its joint hosts were Finance Ministers Hans Eichel of Germany and Paul Martin of Canada. According to Nancy Alexander (2011c) of the Heinrich Böll Foundation, Larry Summers, Martin and Eichel jointly chose the membership of the G20.

The G20 at the leaders’ level

Earlier proposals to create a G20 leaders’ forum, championed by Paul Martin, had not at first found enough support among some of his fellow leaders, despite the fact that ‘the practical disadvantages occasioned by the unrepresentative nature of G7/G8 membership were becoming clearer’ (Smith, 2011a, p. 5). An interim measure to address this anomaly came from UK Prime Minister Tony Blair, who, in 2005, invited five major developing countries to participate in some specific parts of the 2005 Gleneagles G8 summit: Brazil, China, India, Mexico and South Africa. This ‘G8+5’ formula, under various names, continued at the following G8 summits: 2006 in St Petersburg, 2007 in Heiligendamm (where host Chancellor Angela Merkel rechristened the ‘+5’ the ‘Outreach 5’) and 2008 at Hokkaido (where the five formed their own ‘G5’).

The Heiligendamm G8 summit created the so-called Heiligendamm Process (HP), which, following a two-year extension of its life by the 2009 L’Aquila G8 summit, was renamed the Heiligendamm/L’Aquila Process (HAP). The HAP was mandated to present a substantive report to the Muskoka G8 summit in 2010 and its concluding report to the Deauville G8 summit in 2011 (G8, 2009). The four main pillars of HAP were: promoting and protecting innovation; enhancing freedom of investments by means of a transparent investment regime; energy, particularly energy efficiency and technological cooperation; and better cooperation and coordination in the field of sustainable development, especially in Africa.

The G8+5 formula and HAP failed to address the problem of lack of representation of key emerging countries in summit-centred governance, indeed in global governance. Paul Martin (2008, pp. 358–359), recalling the Gleneagles summit in his memoir, expressed his concern at the exclusion of major emerging countries:

[T]he image of Hu Jintao, the president of China, and Manmohan Singh, the prime minister of India – leaders of the two most populous countries on earth, quite possibly destined to be the largest economies on earth within our lifetimes – waiting outside while we held our G8 meetings, coming in for lunch, and then being ushered from the room, so that we could resume our discussions…. How long will the emerging titan...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of tables
• Preface and acknowledgements
• Abbreviations and acronyms
• Introduction
• 1 The origins of the G20
• 2 Members, invitees, summit meetings, agenda
• 3 The evolving G20 system
• 4 Relations with international governmental organizations
• 5 Relations with the business sector
• 6 Relations with civil society
• 7 Reforming the ‘Gs’: proposals, achievements, interactions, challenges
• 8 Monitoring and evaluating G20 performance
• 9 G20 documentation
• 10 Other sources of information
• Conclusion
• Bibliography
• Index