Hamburgdämmerung: The End of G20 as a “Premier Forum for International Economic Cooperation”?

By Jesse Griffiths* – nakedcapitalism.com

The strangest aspect of the G20 communiqué, and the part that has dominated media coverage, is the section on the Paris climate agreement. The strangeness arises not because of the topic—the G20 has always played second fiddle to the UN on climate issues—but because, for the first time, a whole paragraph is devoted solely to one member, the USA, explaining why it doesn’t agree with the others, followed by a paragraph by the others explaining why they will go ahead without the USA anyway, including through agreeing a “G19” action plan on energy and climate for growth.

The climate change issue is a jarring symbol of the G20’s difficulty in reaching agreement. However, the Trump administration’s “America first” stance and resulting lack of movement on economic issues—the raison d’etre of the G20—is evident throughout the document.

Two things stand out.

Firstly, many key economic issues receive very little attention. The opening paragraphs on the global economy, trade and investment are masterpieces of bureaucratic obfuscation, offering something for everyone, while saying very little, and presenting no new initiatives. Financial sector reform—an issue at the centre of G20 work since the global financial crash of 2007/8—merits one short paragraph, with no new promises. The Action Plan which accompanies the communique has a more detailed summary of work in this area, highlighting that the G20 has essentially outsourced this work to the Financial Stability Board (FSB)—a worrying development given the major governance problems with that institution. In addition to being one of the least transparent and accountable international financial institutions, the FSB replicates the flawed G20 governance model, but makes it worse by adding the financial centres of Switzerland, Hong Kong, and Singapore to the G20 membership list (as well as Spain and the Netherlands).

Secondly, the continued expansion of G20 interest into a whole host of issues outside its traditional mandate is striking, with the G20 concerning itself with, for example, health, women’s empowerment, food security, rural youth employment, and marine pollution.

Debt Problems, What Debt Problems?

Shockingly, despite developing country debts reaching record levels, and a significant number of countries being in debt distress, not a single mention was made of the need to tackle current and future debt crises in the communiqué. This came after the Finance Ministers earlier this year ignored the strong work being done at the UN on the need for a fair and transparent debt workout mechanism to rapidly resolve and help prevent debt crises, preferring instead to endorse a two page Operational Guidelines for Sustainable Financing that simply emphasises better information sharing informal methods of creditor coordination. They are a step backwards when compared to existing guidelines such as the UNCTAD Principles on Promoting Responsible Lending and Borrowing, which have already been endorsed by the UN General Assembly.

The G20’s Action Plan also fails to mention the UN’s work on multilateral sovereign debt restructuring frameworks, and offers only one new initiative—a Compass for GDP-linked Bonds. While it makes sense to focus on linking debt repayments in bond contracts to the ability of the borrower to pay, the vast majority of low-income country debt does not involve bonds: countries suffering from debt crises need a comprehensive approach which deals rapidly and fairly with all kinds of debt. The way the G20 deals—or fails to deal—with debt issues faced intensive critique by Eurodad members and partners at a major event that took place alongside the Hamburg Summit.

The German government had hoped to make management of international capital flows a central issue at this G20, but, as Eurodad predicted, the issue merits barely a mention in the communiqué, due probably to long-standing differences between some developed countries that are keen to further liberalise international finance, and emerging markets, who are rightly wary of this agenda.

As noted previously by Eurodad, promises to conclude governance reform of the IMF by 2019 shows how glacial progress is, given that the last of these “every five year” reforms was concluded in 2010 (though only implemented in 2016).

Tax—A Blacklist of One

G20 efforts to tackle tax dodging by multinationals continue to centre on the flawed OECD Base Erosion and Profit Shifting (BEPS) initiative. Eurodad has already noted the major flaws of BEPS—it lacks transparency, contains significant loopholes, and has failed to incorporate the needs and interests of developing countries, the vast majority of which have had little meaningful participation in decision-making.

In March, Finance Ministers called on the OECD to prepare a blacklist of countries not meeting “agreed international standards of tax transparency.” The result was that the OECD—a body that boasts well known tax offenders such as Luxembourg, Switzerland, the Netherlands and the UK amongst its members—produced a blacklist naming only tiny Trinidad and Tobago as “non-compliant” with international standards. Almost comically, the G20 chose to see this as a sign that all was well, and asked the OECD to repeat the flawed exercise for the next summit. Finally, the G20 leaders noted the work they are doing on “enhancing tax certainty” which previous Eurodad analysis suggests is an effort to shift attention away from ensuring that multinationals pay taxes in the country where they do business, to a focus on ensuring they don’t receive any surprises—in other words, protecting the status quo.

Private Finance

There is remarkably little in the communiqué on previous G20 pushes to increase the role of private finance, particularly for infrastructure. However, the leaders endorsed the Joint Principles and Ambitions on Crowding-In Private Finance, which Eurodad has previously raised concerns about, including its emphasis on mechanisms to “de-risk” private finance—a euphemism which can often mean the risks are not actually reduced, but simply transferred to the public sector.

As one centrepiece of its presidency, the German government had launched a new Compact with Africa initiative, aimed at encouraging foreign private investment in Africa, but this is not mentioned in the communiqué. Instead, the G20 groups a number of smaller initiatives under the umbrella of an Africa Partnership. Perhaps this downplaying of the Compact was due to the small number of African countries that signed up—only seven are listed in the communiqué—or it may be a response to the substantive criticism of the Compact and the real motives behind it. For example, Eurodad’s sister organisation, Afrodad, launched a comprehensive critique of the initiative, after consultation with groups from across the African continent. While noting that “the initiative could be beneficial,” Afrodad goes on to highlight major concerns, including noting that developed countries that support such initiatives are “in search of space for their expansionism” and that the end result may be “how to integrate Africa into the global division of labour … with Africa playing the same old role of raw materials provider.”

The “digital economy” was a particular focus of the German G20, which published a “G20 Roadmap for Digitalisation.” The G20 promise to “constructively engage in WTO discussions relating to E-commerce” is a warning flag for critics of the WTO’s work in this area. A recent analysis by the think tank the Center for Economic Policy Research (CEPR) found that current e-commerce proposals being considered by the WTO “are designed around a borderless, digitized global economy in which major technology, financial, logistics, and other corporations like Amazon, FedEx, Visa and Google can move labor, capital, inputs, and data seamlessly across time and space without restriction. They also want to force the opening of new markets, while limiting obligations on corporations to ensure that workers, communities, or countries benefit from their activities.”

Finally, green finance, a major topic of China’s presidency, seems to have been sidelined: it is not mentioned in the communiqué, though both the accompanying G20 Hamburg Action Plan and the Climate and Energy Action Plan take note of the work of the G20 study group on green finance, and the recommendations of the Task Force on Climate-related Financial Disclosures.

The lack of concrete outcomes in the G20’s core areas as the self-proclaimed “premier forum for international economic cooperation” underlines the governance shortcomings of the G20. As an informal club with no permanent secretariat and which operates by consensus, its ability to reach agreement can be held to ransom by powerful countries, such as the U.S., refusing to cooperate. This governance problem is inherent in the G20 design, which is one reason Eurodad and others have called for its replacement by an Economic Coordination Council elected by all UN member states, as proposed by the UN Commission of Experts on reforms of the international monetary and financial system. 7/14/2017

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* Director of the European Network on Debt and Development (Eurodad). Originally published at Triple Crisis.

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