Will the G20 be able to Navigate the Multidimensional Crisis?
The first crisis is the unfinished Covid-19 pandemic. The second crisis is the geopolitical crisis, the war in Ukraine. Georgieva is not alone.
The world is experiencing a perfect storm, a multidimensional crisis in which various problems of very high complexity are occurring simultaneously.
“We are facing a crisis on top of a crisis. […] And for the first time in many years, inflation has become a clear and present danger.” This statement from International Monetary Fund (IMF) Managing Director Kristalina Georgieva at the IMF Managing Director's Curtain Raiser-Spring Meeting on 14 April 2022 was full of concern regarding the global economic condition.
The first crisis is the unfinished Covid-19 pandemic. The second crisis is the geopolitical crisis, the war in Ukraine. Georgieva is not alone.
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Two weeks later, United Nations Secretary-General Antonio Guterres voiced the same concern, that the impact of the war in Ukraine had caused and further exacerbated the triple crises in food, energy and finance, particularly in African countries and several other vulnerable countries.
The GCRG aims to help overcome the triple crises, which is feared might trigger political instability, narrow the discretionary space for economic policies and the potential for social unrest if it is not mitigated properly.
The UN has formed an initiative called the Global Crises Response Group (GCRG) and invited Indonesia to become one of its leaders along with five other countries: Germany, Denmark, Senegal, Bangladesh, and Barbados. The GCRG aims to help overcome the triple crises, which is feared might trigger political instability, narrow the discretionary space for economic policies and the potential for social unrest if it is not mitigated properly.
It is no exaggeration that many people are saying that the world is currently experiencing a perfect storm. Various problems of very high complexity are occurring simultaneously.
Multidimensional crisis
The Covid-19 pandemic, which has infected more than half a billion people, killed more than 6 million people, and plunged 100 million people into extreme poverty, has left deep scars in various economic sectors. The IMF estimated that the cost of dealing with the pandemic-induced crisis had exceeded US$13 trillion, the largest in the history of handling global crises.
The pandemic is not over yet, and we are all still feeling its effects. Individuals have lost their jobs and experienced a decline in the quality of education and health. Business activities have stopped, and some companies have gone bankrupt.
Meanwhile, states must spend huge amounts of money, particularly in health, social protection, and corporate assistance. We are fortunate that global cooperation in overcoming the pandemic is
progressing well. Accelerated vaccination and debt restructuring assistance, particularly in low-income countries, and the adoption of international health protocols have been beneficial.
In the context of the debt restructuring program for poor countries, the G20 initiative has also been quite successful in its debt service suspension initiative (DSSI) from May 2020 to December 2021 for 48 low-income countries with US$12.9 billion in total debts.
The war in Ukraine has caused millions of people to be displaced and global economic recovery is growing more complicated and prolonged.
Countries strived to release various economic stimulus packages in early 2022 because the prospect of global economic recovery (exit strategy) faces a steep road.
At least 50 countries depend on Russia and Ukraine for their wheat supply.
The aftereffects of the war and various economic sanctions have led to the threat of global inflation due to rising commodity prices, particularly energy and food, as well as financial system disruptions. Data from the Food and Agriculture Agency (FAO) show that Russia and Ukraine are important players in the global food market. Together, the countries export 30 percent of the world's wheat, 20 percent of corn and 60 percent of sunflower oil. At least 50 countries depend on Russia and Ukraine for their wheat supply.
Besides that, Russia is a major exporter of nitrogen fertilizers, the second largest supplier of kalium (potassium), and the third largest exporter of phosphorus in the world. Around 30 countries depend on Russia for their fertilizers. The war will clearly cause serious disruption to global food security.
Besides that, the increase in energy prices has led to global policy fragmentation between focusing on transitioning to renewable energy sources and focusing on using fossil energy. The latter will lower transitioning to a green economy as a priority.
Meanwhile, there are concerns that discussions over other important global agendas will run slowly and non optimally: on the health issues of prevention, preparedness and response to future pandemics, on increasing debt for poor and vulnerable countries, and on climate change mitigation and adaptation.
G20’s role in dealing with the crisis
The G20 was born, passed and successfully handled two crises, namely the Asian financial crisis in 1998 and the global financial crisis in 2008. The multidimensional crisis that is facing the world today is a test of the solidarity and effectiveness of the G20 as the premier forum for international economic cooperation, in accordance with the 2009 agreement made at the G20 Summit in Pittsburgh, the United States.
There is a sense of optimism that the G20 can once again be expected to succeed in overcoming a global crisis. There is evidence supporting this belief. The G20 Finance Ministers and Central Bank Governors (FMCBG) meeting of the IMF and World Bank Spring Meetings was held successfully on 20 April 2022 in Washington, D.C. The first ministerial-level meeting was held in a very challenging situation, because the world is still in the midst of an uncontrolled situation due to the war in Ukraine.
Many G20 members expressed appreciation for Indonesia’s presidency in its success in holding the meeting in an impartial and balanced manner. To prepare for the FMCBG, Indonesia held 50 bilateral meetings with each G20 member as well as several other countries to map and arrange various views. There were indications of internal fragmentation within the G20 due to the war in Ukraine and several G20 members walked out during the meeting, but discussions on the global agenda continued.
Finance ministers, central bank governors, and the leaders of a number of international organizations remained disciplined and strongly committed to discussing and finding solutions to the four global risks: to economic recovery, global health, international financial architecture, and sustainable finance. This global issue will continue to be discussed at the third FMCBG in July, along with the addition of other priority financial pathways, namely infrastructure, financial inclusion, and international taxation.
Indonesia's G20 presidency encourages this.
The war in Ukraine must end immediately and economic sanctions must be lifted as an absolute condition for the speedy recovery of the global economy. In this situation of high uncertainty, policies that are well planned, well calibrated, and well communicated are absolutely necessary. Indonesia's G20 presidency encourages this.
Global health initiatives in preventing, preparing for, and responding to future pandemics must be realized in the form of a global health fund, more structured coordination between finance and health ministers and by promoting the central role of the World Health Organization (WHO).
Besides that, concrete and measurable steps for dealing with debt sustainability issues, especially for vulnerable and low-income countries, must be agreed upon. On top of that, discussions must continue on the transition to a green economy through formulating a framework and increasing access to global finance, international tax cooperation, and private sector involvement in infrastructure development.
The G20 must remain the world leader in providing solutions to global problems. The effectiveness of the G20 principles on solidarity and multilateralism is once again being tested in navigating crisis and proving itself as a solid, solution-based forum.
Wempi Saputra
Wempi Saputra,Expert Staffer to the Finance Minister for Macroeconomics and International Finance; Finance Deputy for G20 Indonesia
This article was translated by Hyginus Hardoyo.
