The leader-level version of the G20 was founded in 2008 to coordinate the international response to the global financial crisis across advanced and major emerging economies.
At the outset it was judged a great success. The 2009 London Summit demonstrated a high degree of unity among the world’s largest economies on a comprehensive action plan to tackle the crisis.
The group’s subsequent performance has disappointed. Particularly during the pandemic and the Donald Trump presidency in the US, the group made only a limited additional contribution to policies which national governments were pursuing in any case.
Nonetheless, its members continued to see it as an essential forum without which it would be even harder to tackle a growing list of global economic challenges. This faith was partly repaid when, following the election of the Joe Biden administration in the US, agreement was reached on the $650 billion special drawing rights (SDR) general allocation by the International Monetary Fund (IMF) in summer 2021.
Impact of the war in Ukraine
Following Russia’s attack on Ukraine earlier this year, leading western members of the group called for Russia to be suspended from the G20 as Russia’s action ran directly against the key principles of the rules-based international system on which the G20 was founded.
Western countries also walked out of meetings of the G20 Finance Ministers’ and International Monetary and Financial Committee this spring rather than sit at the same table as Russian representatives.
This contrasted with 2014 when Russia was suspended indefinitely from the G7 for its takeover of Crimea but no action was taken against it in the G20.
However, China and India, supported by several other emerging economies declined to suspend Russia, creating a standoff which could have resulted in a rapid collapse of the G20, particularly as its informal structure means that, in contrast to the international financial institutions (IFIs), there are no legal principles or procedures to determine how to address such a situation.
It appears the West has now concluded (rightly) that the G20 is too important as a forum for working with China and the other major emerging economies to be allowed to disappear.
This is likely to be because there are no straightforward alternatives. The G7 is too narrow to fill the role and China is now highly unlikely to attend a future G7 Summit as a guest. The boards of the IFIs are not equipped to coordinate across institutions, which is a vital role of the G20, and the United Nations (UN) system does not offer the scope, speed, leader-level engagement, or flexibility of the G20.
Moreover, as evidenced by the chair’s summary of the third G20 Finance Ministers’ and Central Bank Governors’ meeting in July, once the group gets past the dispute over how to handle Russia, there is a worthwhile agenda of issues which can be agreed on.
As the 2022 president of the G20, Indonesia has been determined to produce a final communique for the leaders’ summit and it looks increasingly like this will be achieved, even though it was impossible to agree concluding statements for some earlier G20 ministerial meetings.
The key will be to deal with the differences over Ukraine between the West and emerging economies with a short opening paragraph reflecting both views. This would then be followed by a consensus text on all the areas where the two groups do agree.
Russia is unlikely to play a disruptive role as preserving its membership of the group will be its key objective, and it will not want to undermine support among other emerging economies by blocking issues that all agree on.
However, even with a final communique achieved, returning to a fully functioning agenda setting, coordination, and decision-making role for G20 will be very challenging, particularly while the war in Ukraine continues.
Tackling sovereign debt distress should be a top priority
There are critically important issues on which G20 action is urgently needed. Top of the list is the acute problem of sovereign debt distress. Some 60 per cent of low-income countries are now judged to be in debt distress or at high risk of debt distress.
But the existing G20 approach for tackling debt distress in low-income countries, the ‘Common Framework’, is progressing far too slowly, and there is no agreed mechanism for handling the growing list of emerging economies in debt distress.
Without tackling debt distress, it is extremely hard to see how it will be possible to generate the vast flow of private sector climate finance necessary to help the developing world progress to net zero.
And yet the G20 is one of the few forums in which a high-level approach to debt distress can be defined because China – along with the IFIs and the western-based private sector – is a key player in any solution.
Urgent repairs needed
However, there is a critical lack of trust among G20 participants which, although in part a reflection of the disagreements over handling Russia, is also about longer-term factors such as the growing geopolitical tensions between China and the US on trade and investment in high tech.
An example of how this has played out was the action China and India took at the Rome G20 Summit in 2021 in blocking Italy’s efforts to establish a new ministerial task force designed to address the threat of future pandemics – a subject which all G20 countries agree is important.