The G20 and Global Economic Governance
Discussions in the G20 continue to develop from time to time. At the time of its formation in 1999, the G20 held discussions at the level of finance ministers and central bank governors.
Indonesia will hold the presidency of the Group of 20 for the first time next year.
Holding the G20 presidency reflects the international world's trust in Indonesia to lead the discussion of current issues that are very important in determining the direction of global economic governance.
In the context of the G20, this important role will be implemented through the preparation of a discussion agenda that will be discussed in meetings from the working group level to the head of state/government level (high-level conference/summit).
So what is the significance of this G20 presidency for us? The G20, which consists of the 19 countries with the largest gross domestic products (GDP) and the European Union, was established to coordinate policies to achieve global economic stability and sustainable growth, promote financial sector reform to mitigate risks and prevent financial crises, as well as to create a new international financial architecture (G20 Leaders' Statement 2011).
The G20 agreements have been used to guide economic reform and finance at the domestic and global levels.
According to Hajnal (2019), the G20 has become the main player in global economic governance following the 2008 global financial crisis, especially since the G20 Summit in Pittsburgh in 2009. The G20 agreements have been used to guide economic reform and finance at the domestic and global levels.
G20 agenda development
Discussions in the G20 continue to develop from time to time. At the time of its formation in 1999, the G20 held discussions at the level of finance ministers and central bank governors. The discussions were focused more on crisis prevention and resolution, globalization, development, demography and financial assistance. In its journey, the G20 also responded to non-economic shocks, such as the terrorist attacks of 11 Sept., 2001, through financial cooperation, namely combating the financing of terrorism.
The G20 held its first summit meeting in 2008 involving each member's head of government or state, finance minister, foreign minister and other high-ranking officials to address the global financial crisis and to build the foundations of global economic governance to ensure that similar crises would not recur. With the summit meeting, the G20 plays a more strategic role in guiding global economic governance.
During the 2008-2012 period, the G-20 focused on dealing with the global financial crisis, reforming the financial sector and ensuring the economy’s recovery. This can be seen from the focus of the agenda of each presidency. The Washington Summit (2008) produced 47 action plans for mid-term financial sector regulatory reform. The London Summit (2009) approved a US$1.1 trillion stimulus and established the Financial Stability Board (FSB) to strengthen the global financial architecture, and to reform the International Monetary Fund (IMF), the World Bank, and the Regional Development Bank.
The Pittsburgh Summit (2009) produced a commitment to creating a more resilient international financial system and stricter financial sector regulations for hedge funds and rating agencies.
The Toronto Summit (2010) focused on post-global financial crisis economic recovery, fiscal sustainability and structural reforms to encourage investment. The Seoul Summit (2010) produced a framework for strong, balanced, sustainable global economic growth and established the Global Partnership for Financial Inclusion (GPFI) as a platform to promote financial inclusion.
The Cannes Summit (2011) launched the Action Plan for Growth and Jobs to guide employment and social protection policies. The Los Cabos Summit (2012) issued an Accountability Framework to ensure the effective implementation of the G-20 growth policy commitments.
During the 2013-2019 period, the G-20 agenda focused on reforming economic governance in promoting strong, sustainable, balanced and inclusive global economic growth.
Among the most important outputs or deliverables are action plans for strong, sustainable and balanced global growth (2013); infrastructure investment for growth (2014); tax reform through the adoption of the G20/OECD Base Erosion and Profit Shifting (2015) policy; action plans for pro-innovation growth and action plans for the 2030 Agenda for Sustainable Development (2016); a global cooperation framework in overcoming global warming, protectionism and terrorism (2017); future of work, WTO reforms and infrastructure as an asset class (2018); and investment in quality infrastructure, universal health coverage (UHC) and economic digitization and financial innovation (2019).
In facing the global crisis due to the Covid-19 pandemic, the G20 presidencies of Saudi Arabia (2020) and Italy (2021) focused on handling the pandemic. Through the spirit of multilateralism, the G20 has been able to coordinate policies for handling Covid-19 and efforts to ensure the economy’s recovery. The G20 arranges the programs very systematically and monitors their implementation through the G20 action plan, which is regularly updated.
The G20 promotes vaccines as a global public good and ensures that all countries can access the vaccines in a fair, equitable and affordable manner. Through the Access to Covid-19 Tools (ACT) Accelerator, the G20 encourages collaboration in the development, production and access to vaccines, as well as test and therapeutic equipment.
Meanwhile, COVAX is the vaccine pillar of the Access to COVID-19 Tools (ACT) Accelerator, which is jointly led by Gavi, CEPI and the WHO in the context of accelerating vaccine development and production and supporting access to vaccines for all countries. Through COVAX, as many as 1.8 billion doses of fully subsidized vaccine will be distributed to low-income countries in 2021 and 2022.
The G20 countries have taken extraordinary steps in responding to the pandemic in terms of fiscal, monetary and financial sectors.
Considering that the Covid-19 pandemic has turned into a health crisis that has caused a global economic crisis, the G20 also coordinates the economic policies of countries so that the economic policies of countries are well coordinated and harmonious. The G20 countries have taken extraordinary steps in responding to the pandemic in terms of fiscal, monetary and financial sectors.
The unique characteristics of the G20 have made the group an effective international cooperation platform in guiding global economic governance. First, the G20 provides flexibility in responding to various global economic developments because of its informal nature (Kathuria and Kukreja, 2019).
The flexibility of the G20 is different from formal institutions such as the United Nations, which are very much bound by formal treaties. Therefore, the G20 has become very adaptive in providing a consensus-based frameworks for discussing a solution-based and accommodative global economic governance agenda.
Second is the high level of compliance of the G20 members to the commitments they have made. Wang (2018) conducted a study on the number of global economic governance commitments made by the G20 from 2008 to 2017 and the level of compliance with these commitments.
The G20 has produced 457 commitments to global economic governance, in which there are 20 to 40 commitments in each summit. Using a sample of 28 commitments, Wang found that the level of compliance with the G20's global governance commitments reached 80 percent. This figure certainly shows the effectiveness of the G20 global agendas.
Third is the high commitment of the heads of state/government in discussing the global economic governance agenda. The G20 is seen as quite effective in responding to global economic turmoil and crises, or as a crisis responder, such as during the 2008 global financial crisis and the economic crisis due to the Covid-19 pandemic.
In coping with the 2008 global financial crisis, to which various multilateral institutions failed to respond adequately, thanks to the commitments made by the heads of the state/government, the G20 was very effective in coordinating global policies through various policies, deploying macroeconomic policies to stabilize the global economy and subsequently guiding the post-crisis economic recovery. Due to its ability to orchestrate the post-crisis economic recovery, the G20 has also become the steering committee of the global economy (Kathuria and Kukreja, 2019).
The significance of the Indonesian presidency
This timeline of the G20's important role is the basis for the significance of Indonesia's presidency at the G20. Indonesia's membership in the G20 is one of the important milestones in Indonesia's diplomatic history in playing its active role in international cooperation, in line with the constitutional mandate. The active role in international cooperation cannot be separated from Indonesia's commitment to global agendas, which of course, have potential impacts on Indonesia's domestic condition.
The Indonesian presidency next year will strengthen Indonesia's position as one of the emerging markets that has a strategic role. This presidency will provide an opportunity for Indonesia to strengthen diplomacy in order to support national interests and encourage stronger global cooperation.
The agenda of the Indonesian presidency must be able to align the global agenda with domestic priorities so that two goals can be simultaneously achieved: to take the leadership in the global agenda and to optimally take the advantage of the presidency for domestic development and reform, including in supporting economic recovery after the Covid-19 pandemic. The spirit of global cooperation that is mutually supportive is reflected in the theme of the Indonesian presidency “Recover together, recover stronger". Only by working together can we recover together and become stronger.
Suminto, Expert Staffer for the Finance Minister for Financial Services and Capital Markets/G20 Finance Deputy 2019-2021
(This article was translated by Hendarsyah Tarmizi).