Blog Post

The turn of emerging countries

The distinguishing trait of the G20 is the inclusion of the emerging economies (EME) alongside with the advanced ones. The main industrial countries have long had their proprietary policy forum: the G7. On the contrary, until the launch of the G20 summit in November 2008, the group of EME, that together with the developing bloc […]

By: Date: February 24, 2012 Topic: Global Economics & Governance

The distinguishing trait of the G20 is the inclusion of the emerging economies (EME) alongside with the advanced ones. The main industrial countries have long had their proprietary policy forum: the G7. On the contrary, until the launch of the G20 summit in November 2008, the group of EME, that together with the developing bloc represent 85 percent of the people on earth and produce half of global output (a share that is rising quickly), did not enjoy this privilege. True, they are members of the IMF and the World Bank; but their influence on 19th Street still does not match their actual economic weight, let alone the prospective one. Their presence is substantial in the development banks; but these are regional financial institutions, with limited functional and geographical scope. The G20 is different: it is global, exclusive, and political. This is why the creation of the G20 summit marked, potentially, a watershed in terms of the EME’s ability to exert a global economic influence.

Surprisingly, EMEs do not seem in a hurry to exploit this opportunity. Their contribution to the G20 agenda has been modest so far, and their compliance with adopted decisions even lower; a joint paper with Jean Pisani Ferry, about to appear in the Bruegel website[1], gives quantitative substance to these statements. In some circumstances, their effort was entirely devoted to impeding negotiating progress; for example when China adamantly refused, against common sense and with tacit agreement of its peers, to consider exchange rates among the factors driving global imbalances and among the policy variables that can be used to correct them.

Whatever the reasons for this failure (lack of cohesion, lack of interest, diplomatic inexperience, or else), an opportunity for change is coming up: EMEs are chairing the G20 this year (Mexico) and again next year (Russia). After an interval in 2014 (Australia), it will be again their turn in 2015 (Turkey). Now or never, one is tempted to say. For this reason, at least, one should look with interest at the preparatory documents circulated recently by the Mexican presidency, which is convening the first meeting of ministers and governors this weekend in Mexico City. In a discussion paper issued in January (http://www.g20.utoronto.ca/2012/2012-loscabos-disc-en.pdf), the Mexicans listed five priorities: 1) Macroeconomic stabilisation and reform (including macro-coordination and global imbalances); 2) Financial reform; 3) International financial architecture; 4) Commodity prices, including food security; 5) Development and climate change. Another disappointment: not only are these themes a carbon-copy of those proposed by the French presidency in 2011, but the document offers no clue on where and what progress is expected to be made compared to the results of last year  – not very exciting themselves, as we have already noted in this webpage.

Not surprisingly, the press has ignored these unremarkable announcements and concentrated on something more concrete and immediate: whether and how the G20 will help contain the European debt crisis. Some expectations have developed. The IMF managing director, Christine Lagarde, has proposed to increase the Find’s resources by $600 billion, which would bring the lending power of the organisation close to 1 trillion. Though helping Europe was not specifically mentioned as a motivation, the IMF’s current and prospective exposure to Europe suggests that any enhancement of the organisation’s capacity would be first in line in case funding was needed to shore up Europe’s ailing sovereign sector.

There is no doubt that the EMEs, that together supply over a third of global exports and hold two thirds of total existing international reserves, are in a position to contribute to enhance IMF resources, with modest effort.  The issue is whether they should and will do it. At present, the balance of opinions on the second question is in the negative. On the first question, views are more divided. The US have suggested EMEs should refrain from contributing, at least until Europeans will be willing to dig deeper in their pockets, deep enough – so the argument goes – to solve their domestic financial hurdles.

That Europe could, if willing, mobilise enough resources to address its own financial troubles is hard to refute. Whether this is a good reason for EMEs to hold back is more doubtful. EMEs already channel their current account surpluses massively to industrial economies in different forms – through banks and securities markets and, to some extent, FDIs. Supporting IMF resources would amount to a moderate shift of these flows from the private to the official channel. This would enhance their negotiating position and relevance in the international organisations, first and foremost in the IMF. An agreement reached while they hold the rotating chair would enhance the role of the G20 and their own position in it: two results in one. Not to mention the fact that a stronger lending capacity of the IMF, whether used in Europe or elsewhere depending on future needs, would contribute to global financial stability; a desirable side effect for a group of countries that represent, now and in the foreseeable future, the largest global concentration of financial wealth.

A century ago, the US – then an emerging economy with small global influence – promoted its role on the world stage by financing the wartime debt of Europeans; the influence gained in that way was never lost. There is no reason why today’s EMEs should not follow a similar path with today’s peacetime debts.


[1] The G20: characters in search of an author, by I. Angeloni and J. Pisani Ferry; Bruegel Working Papers, forthcoming.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read article More on this topic More by this author

Blog Post

Global income inequality is declining – largely thanks to China and India

Income inequality among citizens of 146 continues to fall, though at a somewhat reduced pace, according to the updated Bruegel dataset. Income convergence of China and India accounts for the bulk of the decline in global income inequality from 1988-2015.

By: Zsolt Darvas Topic: Global Economics & Governance Date: April 19, 2018
Read about event More on this topic

Past Event

Past Event

The current state and future of the world trading system

This event will discuss the current state of the multilateral trading system and how it might evolve in the future.

Speakers: Iana Dreyer, Marc Vanheukelen, Everton Vargas, André Sapir and Xia Xiang Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 19, 2018
Read about event More on this topic

Upcoming Event

Apr
25
07:45

What European trade policy in face of an emerging global trade war

On 25 April Bruegel is pleased to host Bernd Lange, Chair of the European Parliament's committee on International Trade.

Speakers: André Sapir, Bernd Lange and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Apr
24
12:00

European development policy in a global context

What is the role of Europe in development finance and how effective is the current institutional structure? How can we leverage the private sector to support development objectives?

Speakers: Cecilia Akerman, Sir Suma Chakrabarti, Thierry Déau, Marjeta Jager and Jean Pisani-Ferry Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Podcast

Podcast

Director's Cut: EU risks US tariff pain in standing by the WTO

As global trade war continues to unfold, Bruegel director Guntram Wolff is joined for this Director's Cut of 'The Sound of Economics' podcast by Bernd Lange MEP, chair of the Committee on International Trade (INTA), to discuss Europe's options.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Global Economics & Governance Date: April 18, 2018
Read article More on this topic

Blog Post

Free trade in Africa: An important goal but not easy to achieve

The signing of the African Continental Free Trade Agreement and the Kigali Declaration may signal a new push towards economic integration on the African continent. However, it remains to be seen how many more countries sign up, how successfully 'phase two' is implemented later this year, and whether the agreement can be built upon to more comprehensively promote trade in services and a reduction of non-tariff barriers.

By: Marek Dabrowski and Yana Myachenkova Topic: Global Economics & Governance Date: April 13, 2018
Read article More on this topic More by this author

Opinion

US Tariffs Aim to Contain China’s Technological Rise

While tension increases with each of the imports listed under the new tariffs, it now seems clear that the US are trying to slow down China's technological advances. Though such a protectionist attitude represents an obstacle, China should consider it an opportunity to strengthen relations with its Asian neighbours and the EU.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 10, 2018
Read article More on this topic More by this author

Opinion

What Are the Targets in the US–China Trade War?

Following the US announcement of new, high tariffs on imports, China is answering the Trump administration by applying its own series of tariffs. In this article, the author identifies the list of products that each country will be targeting, going beyond purely trade issues as each attempts to weaken the other.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 10, 2018
Read about event More on this topic

Upcoming Event

May
25
08:30

Where is China’s financial system heading? Implications for Europe

An event on the Chinese Banking Sector.

Speakers: Alicia García-Herrero and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Opinion

How Should the EU Position Itself in a Global Trade War?

It is high time for the EU to work on more than just wishful thinking in response to the US challenge to global trade. With the first cracks appearing in the multilateral system, it will be difficult for the EU to maintain a middle course between the US and China.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Global Economics & Governance Date: April 5, 2018
Read article More on this topic More by this author

Blog Post

Milton Friedman's " The role of monetary policy" - 50 years later

In March 1968, Milton Friedman’s “The Role of Monetary Policy” - after his famous presidential address to the American Economic Association - was published in the American Economic Review. 50 years later, economists reflect on this famous work.

By: Silvia Merler Topic: Global Economics & Governance Date: April 3, 2018
Read article More on this topic More by this author

Podcast

Podcast

Director’s Cut: A global trade triumvirate?

In this week’s Director’s Cut of ‘The Sound of Economics’ podcast, Bruegel director Guntram Wolff hosts a discussion with Bruegel fellows Alicia García-Herrero and André Sapir on where Europe will position itself between the two major trading powers of China and the United States if relations continue to cool.

By: The Sound of Economics Topic: Global Economics & Governance Date: March 27, 2018
Load more posts