Brazil’s Contribution to G20 and Global Governance

John Kirton
Co-director, G20 Research Group, University of Toronto
Paper prepared for the 16th ENERI Conference, Brasilia, May 18-19, 2011. This paper draws extensively on G20 Governance for a Globalized World (Ashgate: Farnham, forthcoming).
Draft of May 18, 2011

Introduction

Boa noite, é uma grande honra e um enorme prazer participar nesta conferência - logo após o cinquenta aniversário de Brasília.

I am particularly pleased to come here as a Canadian. Canada’s Prime Minister, Stephen Harper, has described my country, as an emerging energy superpower, a clean energy superpower, the economic growth leader in the Group of Seven and a bastion of stability amidst the great financial crisis and global recession of the past few years. I thus feel fully at home here in Brazil, for it is clear that such accolades apply even more to Brazil. The important responsibilities and opportunities that come with such a top-tier position belong to Brazil as well.

This is my second time in Brazil. My first was only a few years ago, in November 2008, in Sao Paulo, for the 10th annual meeting of the G20 finance ministers and central bankers forum. There I witnessed at first hand the dawn of a new age in G20 governance – the era of Brazil’s leadership, now unfolding at the leaders’ level with the G20 summit serving as the permanent, premier forum for its members’ international economic co-operation in the world. We in the G20 Research Group have watched the G20 progress through its summits in Washington DC in November 2008, London, England, in April 2009, Pittsburgh, USA, in September 2009, my own Toronto, Canada, in June 2010 and Seoul, Korea, in November 2010. We have thus witnessed Brazil’s growing leadership in G20 governance. As we look forward to future G20 summits, in France in November this year, in Mexico next year and beyond, we can anticipate a further expansion in Brazil’s leadership. We can work together to strengthen its effectiveness for the greater global good.

Today I want to address three subjects. The first is to chart the beginning of G20 governance and Brazil’s pivotal place in it from the start. The second is to examine Brazil’s growing contribution to G20 summits. The third is to look ahead to the possibilities for Brazil’s leadership in G20 and global governance in the years to come.

This review will show that Brazil started as a core member of the G20, making the new group more genuinely a democratically devoted club of equals, where the influence of emerging countries and the issues of development and the reform of the IMF had their proper place. Brazil then became a leader in G20 summitry, with well-loved President Lula making it more of a personal club of leaders and helping broker the deals to modernize the IMF and liberalize trade. In the future, Brazil is well positioned to take the lead in strengthening G20 governance, through initiatives in democratization, human rights, accountability and civil society involvement, in domestic financial reform to develop the poor, in health, and in clean energy and the environment, especially in the lead-up to Rio+20 in Brazil in 2012.

1. Brazil as a Core Contributor to G20 Governance, 1999-2008

The G20 was born in the wake of the Asian-turned-global financial crisis of 1997-99. This was a painful period, especially for those in Thailand, Indonesia and Korea, in Russia, in America’s hedge fund industry and in Brazil, and then in Argentina and Turkey too. That crisis confirmed that the International Monetary Fund (IMF) born in 1944, the G7 born in 1975 and the United States alone were no longer able to produce financial stability for a now globalized world. In this tightly wired world, a countries’ own capabilities could no longer protect its people from global financial contagion. Effective global economic governance required the combined efforts of all the countries that were highly connected as well as highly capable, for now major consumers as well as producers of financial security could each bring the global system down.

American treasury secretary Larry Summers and Canadian finance minister Paul Martin thus conceived of the new Group of Twenty systemically significant states. They included Brazil as a core member from the start. No one doubted the need for Brazil to be there. Together the G20 members represented more than 80 percent of the world’s population and 60 percent of global GDP.

Brazil was initially a reluctant participant. It feared the new G20 might undermine the traditional United Nations–based multilateralism of the “G192.” But a reforming and rising Brazil soon made its mark.

Financial Crisis Prevention

The first focus of the G20 was, understandably, crisis prevention. After the first G20 meeting in 1999 in Berlin, Brazil and China continued to express their concerns about IMF programs. All G20 countries agreed to ask the IMF and the World Bank to examine how their members’ national financial rules measured up to international standards and how those rules might be strengthened.

At the third G20 meeting, in Ottawa in October 2001, the G7 members of the G20 focused, right after the 9/11 attacks, on terrorist finance. But Brazil spoke up on behalf of emerging countries. At a time of economic turbulence in South America, the Brazilian and Argentinean central bankers shaped a G20 framework on crisis prevention and on the effects of globalization.

By the G20 meeting in Berlin in 2004, Brazil strongly supported a code of good conduct on sovereign debt defaults. It was agreed to by all G20 members, with the exception of Argentina. The principles of this code were to strengthen transparency by the issuer of bonds, to maintain close dialogue in good and bad times, to take good-faith actions during restructuring and to ensure fair treatment of all creditors.

Brazil also argued that the IMF needed a proper crisis prevention facility for emerging markets. Brazil’s finance minister asked for a precautionary arrangement in the IMF to prevent crises. He challenged the G20 to come up with a position the following year.

IFI Reform: Stage One

Brazil’s G20 initiatives extended beyond financial stability in the aftermath of crisis to reforming the international financial architecture itself. From the start Brazil encouraged the G20’s discussion of the reform of international financial institutions (IFIs). By the 2004 meeting Brazil wanted to know who would be making the decisions if there were to be a fundamental review of the Bretton Woods bodies. At the meeting in China in 2005, Brazil and others secured a G20 commitment that the first stage of IMF voice and vote reform would be done. Prior to the meeting in South Africa in 2007, ministers met in Brazil to address the second stage of IMF reform.

The Sao Paulo Ministerial, November 2008

The tenth meeting of the G20 ministers was held in Sao Paulo on November 9, 2008. This gathering was particularly important. U.S. president George Bush had already decided that in the wake of the new American-turned-global financial crisis, the leaders’ of the G20 countries would meet in Washington on November 14th. Sao Paulo thus added to its agenda the recent crisis in the credit market and financial sector. President Lula came to Sao Paulo to give the G20 ministers the inspiration and guidance that only leaders can impart.

Brazil’s G20 meeting was one of the most successful ever held. First, it largely endorsed the G7’s approach to financial regulatory reform. Second, in return the G20 agreed that the Financial Stability Board, created in 1999, “must expand to a broader membership of emerging economies,” that “emerging and developing economies should have greater voice and representation” in the Bretton Woods bodies, and that financial stability and global growth must have “poverty reduction and social inclusion” as equal goals. Third, the G20 welcomed the forthcoming G20 summit as an “important step in enhancing international co-operation” and committed to consider more frequent and well-timed ministerial meetings to help. Fourth, the G20 promised “comprehensive, coordinated and timely measures” but presciently endorsed additional fiscal stimulus only for countries where circumstances permitted and with due regard for “fiscal sustainability” over the longer term.

The G20 also pledged to support employment, to resist trade and investment protectionism and to promptly conclude the World Trade Organization’s Doha development round. It further called for official development assistance to be maintained and for the Bretton Woods bodies to help the poor more. It also addressed competition in the financial sector, clean energy and fiscal policies for growth and social inclusion.

Outreach in Global Governance

A few years before the crisis erupted, the balance of economic power between emerging and developed economies had shifted. By the 2004 G20 meeting, the relationship between Brazil and China was growing. They were both large powers, both suspicious of the United States and both eager to improve relations with each other.

That year, the G7 finance ministers reached out. They invited China to their meeting. In 2005 they added Brazil, Russia, India, South Africa and Mexico. In 2006, Korea and Australia attended too.

In 2007, the G8’s Summit in Germany launched the Heiligendamm Process, a two-year structured dialogue between the G8 and the “Outreach Five” of Brazil, China, India, Mexico and South Africa.

The next year, Brazil acted on its own. Prior to the Sao Paulo G20 gathering, Brazil hosted the “IBSA” group of India, Brazil and South Africa, with Mexico included as a guest.

Brazil also hosted the first ever formal meeting of the finance ministers of the BRICs — Brazil, Russia, India and China, plus South Africa and Mexico as guests. The BRICs offered strong support for the work of the G7 in responding to the current crisis. It welcomed the historic G20 summit in Washington. It promised “to take all necessary steps to lessen the impact of the recent turmoil on economic activity.”

In return, the BRICs demanded that the membership of the FSF be broadened. Brazilian economy minister Guido Mantega announced their agreement that the Bretton Woods bodies must be reformed, to reflect the increasing weight of emerging countries. The next day the G20 largely did what the BRICS had asked.

Outreach at the Leaders’ Level

Brazil’s rising relevance was also evident at the leaders’ level. In 2003, Brazil and several other countries were invited to the G8 summit in Evian, France. In 2005 at Gleneagles, the G8 established the formula of regularly inviting the Outreach Five. In 2008 and 2009, the G8’s discussion of climate change took place in the even broader form of the 17-member Major Economies Forum.

2. Brazil’s Leadership in G20 Summit Governance, 2008-2010

When the great global crisis came in the autumn of 2008, Brazil was ready. As President Lula noted just before the Sao Paulo meeting: “Since January 2006 our vulnerability has fallen sharply. Our foreign currency reserves exceed $205 billion. The country has become a net international creditor. The economy’s enhanced competitiveness and its diversified export base explain our growing share of international trade and attraction for foreign direct investment.” Unlike 1998, it was now economic imbalances in advanced countries and in the American financial system that were causing the crisis. Brazil was able and willing to assist.

This great reversal within a decade prompted Guido Mantega to host the first emergency G20 ministerial meeting, on October 11, 2008, in Washington DC. President George Bush joined the meeting. He acknowledged that the financial crisis had been born in the USA. He noted that they were all in this crisis together and needed to work through the G20 to get it solved. The meeting clearly showed that leadership was passing to a new generation of emerging powers with Brazil at the head.

On November 14, 2008, the leaders of the G20 countries met in Washington DC for their first summit, Brazil and China participated as leading voices for the emerging and developing worlds.

Toronto, Canada, June 27-28, 2010

At the fifth G20 summit in Toronto, Canada, in June 2010, Brazil contributed in several important ways. One was to join with Canada and virtually all other non-G8 members of the G20 to veto France’s idea for a global bank levy, an idea that the Europeans and the U.S. had endorsed. Another was to suggest that the G20 address health, by focusing on the major non-communicable diseases such as cancer, by far the largest killers in advanced and emerging countries alike. This initiative, backed by Indonesia, was accepted at the subsequent summit in Seoul.

Seoul, Korea, November 11-12, 2011

Both President Lula and President-Elect Dilma Rousseff attended the Seoul Summit in November last year. This was the first time a G20 summit had been hosted by an emerging country. It produced major agreements on banking regulation, on IMF reform and on financial safety nets. It advanced its Framework for Strong, Sustainable and Balanced Growth and the Mutual Assessment Process to contain current account imbalances and stave off currency wars. It liberalized trade, in part by pushing for the conclusion of the Doha Development Agenda in 2011. It drove development and health in new ways.

In these achievements, Brazil played an important part. At the summit’s opening dinner, the BRICs had a co-ordinated message. Russia, India and Brazil said it was important that the world leader — the U.S. — led, and acted as global leader in the monetary realm. Lula gently repeated Mantega’s public reference to a looming “currency war,” but said that there had been some progress and that more was needed. The need to advance an alternative monetary system, not based on the U.S. dollar, was also pushed by the BRICs. They challenged U.S. policies, saying first you caused the crisis and now you print money to devalue your currency and force adjustment costs on others.

The next morning, in the session on IFI reform, almost every G20 leader, including Hu Jintao and Barack Obama, agreed that the IMF was now more legitimate with the new quota share shift.

The working lunch was the most personal and productive part of the summit. Its key issue was trade. Pascal Lamy of the World Trade Organization led off. Obama then spoke at length, calling for more action and personal pledges to get the deal done. The UK’s David Cameron and Germany’s Angela Merkel agreed. France’s Nicolas Sarkozy called for a special summit on the subject. Then Lula spoke. He said he was personally committed. He noted that he had gone to the negotiations in 2008 but both the U.S. and India had elections and were not interested. Thus the deal that was 98 percent agreed was not completed. It was time to do so now.

Brazil’s High Compliance with G20 Summit Commitments

Brazil’s contribution to G20 governance is also evident in its strong record of compliance with the many commitments that G20 summits have made (see Appendix A). Brazil’s compliance score of 81 percent is well above the overall average. Indeed, Brazil ranks as high as the G8 members of the G20 in this regard.

Brazil’s compliance is highest in the areas of energy (+1.00), food and agriculture (+1.00), climate change (+.50) and macroeconomics (+.50). These are all areas where Brazil’s specialized capabilities are strong.

3. Brazil’s Future Leadership in G20 and Global Governance

Brazil is thus well positioned to take the lead in strengthening G20 governance. Institutionally, Brazil is well positioned to serve as a hub of global governance, as it is a permanent key member of several plurilateral summit and ministerial clubs. These include the trans-regional summits that combine developed and developing countries, notably the Portuguese-speaking group, the Summit of the Americas and the BRICS. With the current economic challenges facing Portugal and the United States, Brazil’s influence in these groups is enhanced.

On specific issues, Brazil can serve as a leader within the G20 on several challenges that will loom large in the coming years.

The first is energy and climate change. Brazil’s hosting of the historic Rio+20 conference is an important opportunity to address an imperative global need.

The second issue is democratization, human rights, and multiculturalism. There is a need to strengthen G20 governance here, in ways that are sensitive to the particular needs of emerging countries and their people as they economically advance.

The third issue is domestic financial regulation and supervision that responds to the needs of emerging and developing economies. The goal is to ensure that their financial systems help the poor have a better life.

The fourth issue is accountability in G20 governance, by giving civil society, the academic community and forums such as this a stronger place to make their voices and contributions felt.

Conclusion

In conclusion, let me note that these observations are those of an outsider, albeit one who has covered every G20 summit thus far. But they reflect the reality of consequential individuals inside the G20 itself.

On the final day of the last G20 summit, President Lula said this to his fellow G20 leaders:

I think that you can realize that your responsibility is going to be greater and greater. When we created the G20, perhaps we had no idea of the amount of responsibility of the G20 from now on. From now on, the G20 will take responsibility for world peace, for world development and for the Millennium Development Goals.”

I would like to once again express my thanks to President Lula of Brazil, who marks his last G20 summit. Thank you for your contributions thus far. And I need make no further remarks on the spectacular economic growth of Brazil … let’s have a big round of applause for President Lula of Brazil.

All G20 leaders immediately responded with yet another round of applause for President Lula, and for Brazil.

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