Development Agenda of the G20:Time for a Strategic Shift?
2013/06/20
abstract
Under the 2013 Russian presidency, the G20 seems set for a reorientation of its development agenda. The envisaged changes refer to two policy shifts: Firstly, the long catalogue of development-related workstreams adopted at the 2010 Seoul summit has been narrowed down to a more manageable shortlist of sectoral priorities. Secondly, “Financing for investment” has been identified as promising lever for growth and employment in the developing world. The new concept has evolved as unifying approach for G20 leaders, from industrialized countries and rising powers alike. Critical observers, however, fear that the focus on material infrastructure could sideline essential prerequisites for inclusive sustainable development. This text tries to shed some light on new trends in the G20 and considers possible implications for international development cooperation.
I. Transforming the Development Framework
Ever since the Seoul summit in 2010, development has been considered a top priority by the G20. The increased attention to the global South has been driven by two considerations. On the one hand, G20 leaders know that their prime objective of “strong, sustainable and balanced growth” in the world economy can only be achieved with full integration of low- and middle-income countries. On the other hand, they recognize the need of enhanced legitimacy for their unique brand of club governance. By addressing the needs of poor countries, they aim to project an image of benign world powers. Moral pressure is particularly felt by developing member states since they continue to proclaim their allegiance to a united Southern front under the umbrella of the G-77/China.
Since 2010, the development work of the G20 has been guided by two basic documents: the Seoul development consensus and the multi-year action plan. While the Consensus focuses on framework conditions for stable growth, the Action Plan specifies a myriad of time-bound commitments which are structured along nine pillars. Pushed by the Russian presidency, the G20 development working group has concentrated on four sectoral priorities: food security, human resource development, financial inclusion and infrastructure.[①]
Five additional pillars, adopted at the Seoul summit, have quietly disappeared from the screen of the development working group: namely trade, private investment/job creation, social protection, domestic resource mobilization and knowledge sharing. The fact that the Working Group has streamlined its efforts, however, does not imply that the G20 has lost sight of such objectives. They have rather been moved to other spaces, particularly the new “Financing for investment” initiative outlined below. Considering procedural aspects, the Working Group intends to participate in shaping the United Nations post-2015 agenda. It has also decided to set up an accountability mechanism for assessing progress on previous commitments. According to Russian plans, two documents on development will be submitted to the September 2013 summit: a St Petersburg action plan and an accountability report.
The reduced workload seems to reflect a more realistic assessment of what G20 development actors can accomplish, due to limited capacity and political constraints, and where they should rather cede to the superior agency of finance ministries. To understand internal G20 dynamics, it is important to keep in mind that two clearly separated G20 tracks exist parallel to each other. One is being chaired by finance ministers while the other is controlled by summit sherpas who act as personal representatives of heads of state and government. The reason behind this dichotomy can be found in the history of the summit architecture. Top leaders of member states became only part of the G20 in 2008 with the onset of the recent financial crisis, whereas the G20 of finance ministers and central banks has been in operation since 1999.
II. “Financing for Investment” – The New Paradigm?
It can be expected that future development efforts by the G20 will be, directly or indirectly, shaped by its initiative “Financing for Investment” which puts special emphasis on new sources for long-term infrastructure funding, e. g. in the form of public-private partnerships (PPP). The G20 is guided by the understanding that developing regions have been particularly hard hit by the credit crunch in the aftermath of the 2008 financial crisis. As pointed out by Russian finance minister, Anton Siluanov, a key task will be the transformation of resources from institutional investors, such as pension and insurance funds, into investment funding for developing countries.[②] Local currency bonds and domestic capital markets are equally recognized as important levers for resource mobilization.
A comprehensive report by the World Bank on the issue,[③] with inputs from other international organizations (OECD, IMF, UNCTAD, UN, etc.), was presented to the G20 meeting of finance ministers in Moscow, February 2013. The G20 established a study group at that meeting and selected Indonesia and Germany as co-chairs. The new body will seek to identify obstacles and limitations to long-term financing and has been mandated to draft a work plan. In this context, the G20 has assigned a key role to the OECD for policy advice and for preparing intergovernmental agreements. On request, the OECD will deliver a report on “High Level Principles of Long-Term Investment Financing by Institutional Investors” to the St Petersburg summit which could form the basis for a G20 agreement.
It is no coincidence that member states of the G20 can easily find common ground on investment financing as top priority for developing countries. Industrialized countries as well as rising powers are committed to a traditional (export-oriented) growth model founded on the expansion of material infrastructure. And there is broad support for strengthening the involvement of the private sector in such undertakings. In addition, the new approach of the G20 is well aligned with the recent decision by the BRICS to set up a development bank with the primary goal of funding infrastructure in low-income countries.
The study group will apparently focus its attention on middle-income countries. This can be interpreted as a reaction to frustrated efforts by the G20 high-level panel on infrastructure (established in 2010) which was strongly oriented towards low-income countries. Nothing much has come from this, since the Panel could not attract funding for its project list from member countries. In order to fare better, the new study group will need to convince G20 governments to provide fresh resources for middle-income countries.
III. Tracking Progress and Accountability
The pioneer accountability report of the development working group, to be delivered to the St Petersburg summit, represents a welcome step towards increased transparency in global governance. It promises comprehensive empirical evidence since the analysis will go beyond the multi-year action plan, adopted in 2010 in Seoul. The document will also address the implementation of development-related summit declarations and assess the implications of the work on green growth. Commitments from the finance track will be excluded. The report will reveal the extent of consensus within the G20 in assessing progress. This could prove to be difficult since rising powers sympathizing with developing countries may be harsher in their judgment than high-income countries. It will also be interesting to note what spaces the G20 will offer to discuss findings with developing countries and civil society organizations. Looking ahead, the accountability mechanism for development could serve as a precedent for monitoring, evaluation and outreach across all areas of G20 work.
Critical observers are concerned about possible implications of the new “Financing for investment” framework established by the finance ministers’ track. A prominent voice from civil society, Nancy Alexander, has pointed out that tilting public expenditures towards material infrastructure may displace spending for social sectors (health, education, social protection, etc.) and impede low-carbon transformation of domestic economies.[④] Her analysis shows that only one of the 12 annexes attached to the World Bank’s umbrella paper[⑤] addresses aspects related to the natural environment. There seems to be hardly any mention of social dimensions and human development. On a more positive note, civil society organizations will now expect the same kind of transparency and accountability in the financial track as demonstrated by the development section of the G20. For the sake of coherence within the G20, the “Financing for investment” framework will need to be aligned with the objectives of the development working group. In a broader global governance perspective, the G20 should ensure that the evolving regime for infrastructure investment is compatible with existing international agreements, in areas such as human rights, poverty eradication, climate change and biodiversity.
[①] Government of Russia, “The Russian Presidency of the G20: Outline,” G20 Russia Website, 2013, http://en.g20russia.ru/docs/g20_russia/outline##11.
[②] Government of Russia, “G20 Priorities for 2013: Financing for Investment and Public Debt Management,” G20 Website, November 5, 2012, http://www.g20.org/news/20121105/780959002. html.
[③] World Bank, “Long-Term Investment Financing for Growth and Development,” Umbrella Paper, February 2013, Presented to the Meeting of the G20 Ministers of Finance and Central Bank Governors, February 2013, Moscow, Russia.
[④] Nancy Alexander, “Documents from the G20,” Triplecrisis, 2013, http://triplecrisis.com/ documents-from-the-g20/#more-8093.
[⑤] World Bank, “Long-Term Investment Financing for Growth and Development”.
Thomas Tues