Transcript Emerging economies in the G20

Operation of the G20 to date:
Emerging country perspectives
Changyong Rhee
Alok Sheel
Chief Economist
Secretary, Prime Minister’s Advisory Council
Asian Development Bank
Government of India
The views expressed in this document are those of the authors and do not necessarily reflect the views and policies of
the Asian Development Bank or its Board of Governors or the governments they represent, nor of the Government of
India.
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Outline of the paper
1. Introduction
2. Emerging markets in the G20
3. Role of emerging economies in major G20
initiatives
4. Conclusion
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Emerging markets in the G20
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G20 summit as platform to address
the global financial crisis
• Why the G20? Why not the G8+5, the
G7+BRICS, or some other forum?
– To reflect delayed recognition of new geometry of
the global economy – Heiligendamm process
– Emerging G20 economies’ shares in output,
population, and trade were growing rapidly
– Functional platform already existed for discussions
on economic and financial issues through
meetings of G20 Finance Ministers and Central
Bank Governors and Deputies
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Emerging economies in the G20
Share of non-G8 economies
in G20 GDP, population, and trade
(% of G20 total)
Share of non-G8 economies
in global GDP, population, and
trade
(% of world total)
70
45
60
40
55
90
60
85
50
80
35
50
40
75
45
30
25
40
20
20
35
15
30
30
70
65
10
60
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
0
GDP (left scale)
GDP (left scale)
Trade (left scale)
Trade (left scale)
Population (right scale)
Population (right scale)
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Emerging economies in the G20
Share in Global GDP
At Market Exchange rates
At PPP
Year AD Economies EMDEs
AD Economies EMDEs
1990
79.9
20.1
69.3
30.7
2000
79.7
20.3
62.8
37.2
2008
68.7
31.3
54.5
45.5
2013
60.7
39.3
49.1
50.9
Source: WEO April 2013 , IMF
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If Financial market problems are key,
why EMs?
• Financial market regulation and reform were
solutions to the crisis. But emerging
economies’ financial markets remain limited
in size and scope, so why include them?
– Burgeoning global imbalances, for which emerging
economies were partly responsible, were one of
the underlying causes of the crisis
– In retrospect, including emerging economies in
the dialogue to address the crisis proved
beneficial to the global recovery
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Financial Markets of EMs in the G20
Stock market capitalization
of G20 economies ($ trillion)
70
Outstanding debt securities
of G20 economies ($ trillion)
80
70
60
60
50
50
40
40
30
30
20
20
10
10
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
19951996199719981999200020012002200320042005200620072008200920102011
G8
G8
Non-G8
non-G8
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Role of emerging market economies
(EMEs) in major G20 initiatives
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Financial regulatory reform (1)
• Most ambitious agenda since the Great Depression,
but still work in progress is most areas other than
BASEL III. Shadow finance (source of the recent crisis)
remains a major concern.
• Impact of ongoing financial regulatory reforms on
EMEs relatively benign
– Capital flows to EMEs are back to pre-crisis levels, and they
appear more impacted by advanced economies’ monetary
policies than regulatory reform
• But Basel III implementation may have unintended
effects on EMEs
– Rising cost of capital
– Pullback in trade finance
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Financial regulatory reform (2)
• EMEs played a less significant role in financial
regulatory reform discussions
– Despite the sudden stop, their financial markets
held up quite well during the crisis.
– Emerging economies’ financial markets remain
underdeveloped
– G 20 discussions focus on financial stability rather
than on deepening of the financial sector and its
relationship with growth
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G20 Framework for Strong, Sustainable,
and Balanced Growth (1)
• Strong, coordinated fiscal policy response helped avert
a second Great Depression
• While external imbalances have declined, only loose
agreement reached on acceptable policy thrusts – such
as reducing current account imbalances, exchange
rates, trade off between continued stimulus and fiscal
management, monetary policy spillovers, etc.
• Mutual Assessment Process and Accountability
Assessments have underscored that international
policy coordination can achieve tangible results, but
have limited success so far in achieving strong,
sustainable, and balanced growth
• Little coordination on monetary policies
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G 20 FSSBG : Five Stages of macroeconomic policy co-operation (2)
• Five stages of macro-economic policy co-operation
• I: First two summits – aggressive, undifferentiated policy
response
• Pittsburgh: Framework launched – assumption: recovery
underway, but needed to be strong, sustainable and balanced
• II: From Toronto – differentiated policy response across
country groups.
• III: From Seoul – Country specific policy response and
commitments first considered
• IV: From Cannes – With green shoots withering, policy
response differentiated between short-term and long-term.
• V: From Los Cabos – Assessing country commitments and
holding them accountable – explain or comply
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Governance reform of international
financial institutions (1)
• Governance reform of IFIs may be one of the most
important and visible achievements of the G20 so far.
• But the resolve to reform the power structure of IFIs
is puzzling, even though it has long been overdue.
- If governance issues are opened up, this can only be at the
cost of advanced European economies.
- A recognition that governance was an essential prerequisite
for enhancing effectiveness of IFIs to prevent future crises?
- Opening up governance issues inevitable since the resource
replenishment issue was also on the table?
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Governance reform of international
financial institutions (2)
• It is a good example of G20 effectiveness and
the possibility of reaching political consensus
on difficult issues despite diverse vested
interests in an international forum.
– But deadlines have been missed for resolving IMF
quota and governance issues
– IMF resources enhanced substantially, but not
those of MDBs.
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Global safety nets
• EMEs continue to rely on self-insurance
mechanism - foreign exchange accumulation
• Need to strengthen Global Safety Nets – but
emerging economies were initially not supportive
amid concerns of the criticism against
accumulation of foreign currency reserves
• Bilateral Swaps; Improving IMF’s lending
Facilities; Coordination mechanisms between IMF
and RFAs; International Financial architecture
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Development
• Adoption of the development agenda made
the G20 more inclusive and representative
• But the development agenda has expanded
excessively , and needs to be pared down and
prioritized
• Need to strengthen the legitimacy of the
remaining items in the development agenda
through concrete deliverables
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Other issues
• G 20 agenda expanding with each Summit.
• Succeeded in accelerating implementation of,
and building upon, agreements already
reached in other forums, such as existing WTO
commitments, anti-corruption, and tax
evasion
• But continued polarity of G20 members on
issues such as trade and climate change,
which are also stuck in parent forums, is
undermining the credibility of the G20
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Conclusion
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Takeaways from G20 at Five
• More effective during the crisis, but less so in
coordinating policies during recovery
• Finance channel delivered more concrete outcomes
because it is involved in more readily actionable issues;
Sherpa channel focused on resolving difficult political
issues where consensus cannot easily be reached
• Expanding agenda and non-delivery risks a credibility
crisis for G20
• Need to reach out more to non-G20 members
• Collective G20 action can be more effective than
delivering individual country commitments because of
but difficulties of having binding commitments
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Summary
•
G20 helped prevent repeat of Great Depression, with emerging economies
significantly contributing to the global recovery through the G20 framework for
strong, sustainable, and balanced growth
•
But emerging markets played a less significant role in financial regulatory reform,
due to its underdeveloped financial markets and concerns about the greater focus
on financial stability rather than on growth of the financial sector
•
G20 also showed that political consensus on difficult issues such as governance
reform of international financial institutions is possible, despite diverse interests
between emerging and advanced economies
•
However, their continued polarity on other issues such as trade and climate
change is undermining the credibility of the G20
•
Adoption of the development agenda enhanced the legitimacy of the G20, but the
seemingly excessive expansion of the G20 agenda now needs to be pared down
and prioritized to enable the delivery of more concrete outcomes
•
Dynamic alliances have formed in G20 depending on the issues under discussion:
For example, strengthening global safety nets was intended to help emerging
economies, but their opinions were initially divided over concerns about the
treatment of foreign reserve accumulation
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