G20 Presidency: Encouraging Action, Beyond Rhetoric
The message was loud and clear, from the majority of G20 members in the first two paragraphs of the Chair's Summary, that the war in Ukraine has caused a slowdown in the global recovery.
Two high-level Group of 20 events under the Indonesian presidency in July have just ended.
The first meeting of foreign ministers (FMM) on 7-8 July and the third meeting of finance ministers and central bank governors (FMCBG) on 15-16 July were held during a time of two global crises: the unfinished Covid-19 pandemic and the war in Ukraine.
After the meetings, appreciation from various sides was expressed because Indonesia was capable of holding a dialogue, which was fully attended by G20 members, and of encouraging G20 members to be committed to discussing and agreeing on concrete deliverables in response to various global problems. Indonesia acts as an honest mediator and has succeeded in maintaining the integrity of the G20 forum and proving that this forum remains effective.
Conflict slows down recovery
Specifically for the FMCBG meeting, seven agendas were discussed, namely the global economy, global health, international financial architecture, sustainable finance, digital finance, infrastructure and international taxation. This time, the FMCBG meeting resulted in a Chair's Summary document (notes of discussions and agreements), which was accepted by all G20 members and published. The Chair's Summary consists of two parts and fourteen paragraphs.
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The message was loud and clear, from the majority of G20 members in the first two paragraphs of the Chair's Summary, that the war in Ukraine has caused a slowdown in the global recovery. The impact of the conflict has spread to various parts of the world in the form of supply chain disruptions that have resulted in the scarcity and increase in commodity prices, higher global inflation and a continued impact in various sectors, including finance.
This time, however, the matter was much more complicated.
G20 members also prioritized the food-insecurity issue and emphasized the need for joint action to mitigate its impacts. The G20 already has two previous experiences discussing the topic, namely in 2010 (Korean presidency) and 2011 (French presidency). This time, however, the matter was much more complicated.
The World Food Program indicates that the number of those facing acute food insecurity has more than doubled since 2019, from 135 million people to 276 million people. The United Nations (UN) also predicts an increase in the cost of global food imports by US$268 billion compared to before the pandemic, two-thirds of which is borne by developing countries.
This is all not to mention the potential for a fertilizer-supply crisis that threatens the growing season and is expected to worsen food insecurity until 2023 and beyond if the conflict has not subsided.
G20 members also called for various global initiatives to address food insecurity, including the Global Alliance for Food Security, International Financial Institutions' Action Plan to Address Food Insecurity, the UN’s Global Crisis Response Group and the Global Crisis Response Group. Development initiatives, whether initiated by the state or international financial institutions, can collaborate so that they are more integrated and have multiple impacts.
Action goes beyond rhetoric
Apart from the dynamics related to geopolitical conflicts, the next 12 paragraphs of the Chair's Summary explain the support of the majority of G20 members to voice real collective action against various global challenges, in addition to various developments resulting from discussions on various topics in the financial line.
So far, there have been at least six real G20 actions produced in the third FMCBG meeting. First, the approval of the establishment of a Financial Intermediary Fund for prevention, preparedness and response to future pandemics (Financial Intermediary Fund for Pandemic Prevention, Preparation and Response -- FIF for Pandemic PPR). The FIF was developed by the G20 task force on health and finance, administered by the World Bank and takes into account the key role of the World Health Organization (WHO).
The commitment of funding contributions of $1.3 billion from 11 countries and G20 members as well as three philanthropies has been secured. Indonesia itself committed $50 million, is among the initiators of further discussions related to the governance structure and plans to officially launch FIF during the Indonesian presidency.
This agreement was made to strengthen tax transparency and increase cooperation against tax avoidance and illicit financial flows.
Second, the Indonesian presidency succeeded in launching the Asia Initiative Bali Declaration as an effort to increase transparency and exchange of tax information which was agreed by 11 countries in the Asian region. This agreement was made to strengthen tax transparency and increase cooperation against tax avoidance and illicit financial flows.
Third, the commitment to reallocate special drawing rights (SDR), which so far has collected $73 billion into one of the International Monetary Fund (IMF) loan instruments called the Resilience and Sustainability Trust (RST). RST is a kind of trust fund that focuses on medium- and long-term funding support, for example related to climate change and treatment of the pandemic.
Fourth, the approval of funding support for Zambia's debt restructuring in the Common Framework for Debt Treatment beyond DSSI program by the creditor committee, which will then follow the approval process for funding assistance from the IMF. With this achievement, Zambia was an early example of the success of the Common Framework.
Fifth, the completion and publication of a report on the results of an independent study related to the Capital Adequacy Framework (CAF), which can be a reference for Multilateral Development Banks (MDBs) to optimize their balance sheets and increase the capacity of development funding, especially for low- and middle-income countries. This CAF report has the potential to significantly increase the funding capacity of MDBs while still taking into account their status as special creditors in the eyes of credit-rating agencies.
Sixth, the Indonesian presidency has taken the initiative for preparation and has launched the Indonesia Energy Transition Mechanism Country Platform, which is supported by collaboration with MDBs, state-owned enterprises, philanthropists and various other stakeholders as evidence of commitment to the transition to a green economy.
In addition to the achievements above, there are also various reports that have been produced by the G20, especially in the financial channel, including notes for the formulation of an exit strategy and scarring effects policies, blueprints for financing and infrastructure-technology development, summaries and an infrastructure-investment quality-indicator guide, crypto-asset reporting framework and payment systems.
The urgency of global leadership
G20 real action can be optimized if the conflict ends soon. As a country that holds the presidency, Indonesia's efforts need to be supported by all G20 members in minimizing the potential for fragmentation within the G20 forum. Indonesia has also been and continues to strive to be a bridge over the absence of global leadership, which should be the orchestrator for solving various global problems.
We know that the G20 is a forum for international economic cooperation, but it is not immune to international politics. We also realize that differences in political views and global security have been the cause of geopolitical conflicts which have resulted in the deterioration of the global economy that has been felt by almost all countries.
For this reason, global leadership must be present so that peace, which is the main condition for global economic recovery, can be realized immediately. Global problems require global solutions and global solutions require global leadership. We hope that the G20 will be able to encourage the emergence of this global leadership. The G20 has had a reputation for resolving previous global crises and needs to prove it again.
Wempi Saputra
Wempi Saputra, Expert Staff to the Minister of Finance for Macroeconomics and International Finance; Deputy for Finance of the G20 Indonesia
(This article was translated by Kurniawan Siswo)
