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Analysis

A Sound Start:
The G20 Meeting of Finance Ministers and Central Bank Governors

John Kirton
Co-director, G20 Research Group
February 19, 2011

The meeting of G20 finance ministers and central bank governors, held in Paris on February 18-19, 2011, was a worker-like event. As the first gathering of France’s year as host and chair of the G20, it got the G20 off to a sound, if slow, start, with a well-defined work plan to structure and speed up the hard slogging still to come.

The most impressive achievement came in its macroeconomic message, where it clearly put the need for fiscal consolidation first, in keeping with the commitment of its advanced economy members at the Toronto Summit in June 2010 to cut fiscal deficit in half as a share of gross domestic product by 2013. The G20 finance ministerial also affirmed the need for "appropriate monetary policy," as China wanted with United States quantitative easing in mind, as well as the need for "enhancing exchange rate flexibility," as the U.S. wanted with China in mind.

An adequate advance came on the high-profile centrepiece of identifying the indicators for the imbalances to be addressed as part of the G20 leaders' Framework for Strong, Sustained and Balanced Growth. Here the G20 lived up to the standards set in introductory economics textbooks by selecting public debt and fiscal deficits first (in another reaffirmation of the "Toronto terms" on fiscal consolidation), the private savings rate and private second debt second, and the "external imbalance composed of the trade balance and net investment income flows and transfers" third. To further expand the convoluted language in the interest of political face saving for China, the latter would be done "taking due consideration of exchange rate, fiscal, monetary and other policies."

A more innovative achievement came on accountability. The G20 finance ministers and central bank governors directly declared: “We will also review an assessment of progress made in meeting commitments made in Seoul.” To be sure, the G20 still looked to bodies they controlled to do this and other monitoring and compliance assessment tasks, rather than outside, independent, authoritative ones that market participants and citizens might trust more. However, this was a move in the right direction, to ensure that the slow, hard slogging on several small but important components would actually produce the required results on time.

Elsewhere, the treatment of the rest of the G20's built-in agenda was disappointing, with no real advance of any consequences anywhere. The finance ministers and central bankers offered the proper prosaic passages on commodity prices and food security but did not integrate their approach with their governance of the economy, climate change, development and health. Their pronouncements of financial regulation and reform touched on much but left out the need for globally convergent accounting standards. Their desultory language on trade dropped their leaders’ commitment to redress and protectionist moves that the members had undertaken.

The passages in the communiqué on development ignored the innovative Seoul Summit addition of the need to control non-communicable diseases (NCDs) if the development of poor countries and poor people in emerging and developed countries is to proceed. This omission meant that the G20 missed an important opportunity to support the United Nations, which will be hold a high-level meeting in September this year to address the global challenge of the killer NCDs of heart disease, cancer, diabetes and lung disease. Unless these are controlled, too many people will unnecessarily die and G20 countries will struggle to control the soaring healthcare costs that are a critical component in meeting the fiscal consolidation goals.

Similar disappointment came on climate change. Here the G20 finance ministers and central bank governors ignored their leaders’ impressively innovative commitment at the Pittsburgh Summit to phase out fossil fuel subsidies. They did so right on the heels of a report by the International Energy Agency that governments globally, led by G20 members such as India, could save over $300 billion annually if they did so, as well as doing much for climate change control and human health — above all maternal, newborn and child health — at the same time.

The communiqué, however, ended on a promising note, with a pledge to support Egypt and Tunisia’s "reforms designed to the benefit of the whole population." For a G20 club that includes Saudi Arabia and China, that was an impressive affirmation of support for the democratic revolution now sweeping the broader Middle East and North Africa, as the G8 had initiated at its Sea Island Summit in 2004.

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