THE G-20: BOON OR BANE?

WORKING PAPER November 2011

This IBON International Working Paper is an introductory material that explains the basics of the G-20. It is intended to generate broader awareness about this emergent global institution, its growing role in international governance, and its impact on other multilateral bodies, on countries in general and on developing countries in particular.
Copyright IBON International, 2011 IBON International holds the rights to this publication. The publication may be cited in parts as long as IBON is properly acknowledged as the source and IBON is furnished copies of the final work where the quotation or citation appears.

THE G-20: BOON OR BANE?

The Group of Twenty or G-20 will hold its sixth summit in Cannes, France on November 3-4, 2011 to tackle the problems besetting the world economy amidst the persistence of the global recession that started with the crash of 2008. Collectively, the G-20 is the most powerful economic grouping of countries that produce about 85 percent of global wealth. To many people, the G-20 came into prominence at the G-20 London Summit of 2009 in the wake of the crash of 2008. The magnitude of the crisis has moved people to describe it as the worst global economic crisis since the Great Depression. The leaders of the countries belonging to some of the most developed and emerging economies composing the G-20 converged in London with the pledge to save the world economy from falling into the precipice. The financial meltdowns in the US and Europe caused even such financial and industrial giants as the Lehman Brothers and General Motors to collapse. Governments were forced to rush to the rescue of the worlds biggest banks to prevent a worse catastrophe. Excessive and unfettered speculation in the financial markets was blamed for the crisis. There was a universal call for government intervention and more regulation. Government intervention by way of bailing out the biggest banks through massive infusion of public money seemed to have arrested the rush to the precipice. Developed and some emerging economies moved back from negative to positive growth. But the global recession has persisted. In the US, the biggest economy in the world, there is the phenomenon of jobless growth. The 2008 crash forced governments to intervene massively pouring trillions in public money to rescue the big banks in danger of going under. Now it is the turn of governments to be in the red. Governments all over the world have imposed austerity measures that have punished the working people hardest. The people are angry because they are being made to pay the bill for bailing out the bankers and bosses who were responsible for the crisis. For the latter, it is back to business as usual, still enjoying high incomes and fat bonuses while the ordinary person in the street must tighten his belt even more. The global crisis has pushed an estimated 63 million into poverty. And the developing countries bear the brunt of the crisis for which they were least responsible. The persistence of the global recession and the recent turmoil in Europe in the wake of the Greek bankruptcy have alarmed the IMF and forced its managing director to issue warnings that if the trend continues a crash worse than that of 2008 is possible. When that happens, how many millions more will be pushed into poverty?

The persistence of the global recession has led critics to point to the failure of the G-20 to address the real problems besetting the global economy. Given its clout in the global economy, people are expecting it to be able to do more than put out fires. But is the G-20 really competent to adequately address not just the short-term issues such as restoring financial stability but long-term issues related to development especially with regards to the appropriate development strategy for developing countries? Questions of legitimacy and on the continuing bias of the key players on the primacy of the private sector in economic growth have also been raised against the G-20. The dilemma for the developing countries is that no matter if they do not place their bets on the G-20 given its dubious record in truly addressing the particular long-term needs of developing countries, whatever the G-20 decides will affect even the poorest developing country in the remotest corner of the globe. The eyes of the world will again be focused on the coming G-20 summit in Cannes in November 2011 with the continuing global recession, the current financial turbulence, the possibility of a double-dip recession, the prospects of continued high unemployment and the volatile situation in the Eurozone serving as backdrop.

Origins of the G-20

In 1997, Thailand suffered a financial meltdown when it floated the baht to address its growing trade and balance of payments problems. It triggered the Asian financial crisis of 1997. The crisis spread to Indonesia, South Korea and other Asian countries before going on to shake Russia and Latin America. Hot money was blamed as the culprit. Before the crisis struck, Asian countries like South Korea, Malaysia, Indonesia and Thailand were experiencing high-growth rates prompting some economists to hail it as the Asian economic miracle. This miracle was based on massive portfolio investments as a result of high interest rates in these countries which drove foreign investors to flock to Asia. The growth was also export-driven following IMF and World Bank prescriptions. These elements combined to make the economies of these countries susceptible to external factors. Thus when the US started to raise interest rates, footloose capital shifted to that country. The value of the dollar went up. The Asian currencies which were pegged to the dollar also went up. Their exports suddenly became more expensive and uncompetitive. Their foreign debts shot up and many faced the danger of default. Western governments whose banks had big exposures in the troubled countries where forced to come to the rescue. This crisis made governments aware that in a highly globalized world a crisis in one region can easily spread to other regions and to the whole world. International cooperation was needed to put out the fire in one place to keep it from spreading.

When was the G-20 founded?

At the APEC leaders summit held in Vancouver, Canada in November 1997, U.S. President Clinton asked Treasury Secretary Robert Rubin to organize a special meeting of finance ministers from around the world to examine the problems besetting the global economy and find solutions with the ongoing Asian financial crisis serving as the backdrop. The U.S. Treasury organized two meetings of what came to be known as the Group of TwentyTwo (G-22) composed of finance ministers and central bank governors from advanced and emerging economies to study the functioning of the international financial system. The G-22 arrived at a consensus that a collective, international response to the growing crisis in Asia was urgently needed if stability was to be restored. It was acknowledged that serious reforms in the international financial architecture were necessary which would require a global consensus transcending the G-7 or the G-10 group of industrial countries. Since the G-22 was an ad hoc group assembled to deal with a specific crisis, meetings of the G-22 ended once the Asian financial crisis was resolved. However, the Canadian government expressed the need to develop a permanent forum like the G-22 that would meet regularly. On 25 September 1999, G-7 finance ministers and central bank governors who had been meeting in Washington, D.C. announced that they were proposing to initiate a broader dialogue on key economic and financial policy issues among systemically significant economies and promote co-operation to achieve stable and sustainable world economic growth that benefits all. They further announced that they were inviting their counterparts from a number of systemically important countries from regions around the world to a meeting in Berlin in December 1999. This announcement marked the official birth of what eventually came to be known as the Group of Twenty countries (the G-20). It consists of 19 countriesArgentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, the Republic of Korea, Mexico, the Russian Federation, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United Statesand the European Union. The Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, along with the chairs of the International Monetary and Financial Committee (IMFC) and the Development Committee (DC), have also participated in G-20 meetings of finance ministers and central bank governors ex officio since its inception. The G-20 brings together advanced and emerging economies that represent roughly 85 per cent of global GDP and about two-thirds of the worlds population. The G-20 was created as a response both to the financial crises of the late 1990s and a growing recognition that key emerging-market countries like China, Brazil and India were not adequately represented in the core of global economic discussion and governance.

Original mandate
According to its own pronouncements, the G-20 was established to provide a new mechanism for informal dialogue in the framework of the Bretton Woods institutional system, to broaden the discussions on key economic and financial policy issues among systemically significant economies and promote co-operation to achieve stable and sustainable world economic growth that benefits all. (Communique, Berlin 1999) The G-20s self-appointed mandate was to help shape the international agenda, to discuss economic and financial issues in areas where consensus had not yet been achieved. Its avowed purpose is to serve as a forum for the discussion of ways to prevent and resolve international financial crises. While its initial focus was on issues related to international financial stability, the G-20 has gone further into tackling a broad range of longer-term economic issues affecting the global economy. Among these are the issues of stable and sustainable development that benefits all countries, the effectiveness of aid programs, regional economic integration, the development of domestic financial markets, food security, aid for trade and knowledge sharing.

Membership in the G-20

Membership in the G-20 does not exactly reflect the 19 largest national economies of the world. The limited size of membership in the organization was deliberate. The initiators stated that it was necessary to keep the number of countries in the G-20 restricted and fixed purportedly to ensure effectiveness and continuity. The G-7 did not have a formal set of criteria to determine which countries would be invited to join the new forum. It was only stated that countries had to be systemically important to the global economy and have the ability to contribute to global economic and financial stability. Other considerations were that the group be broadly representative of the global economy and be regionally balanced. Country representation in the group was to be at a very high level, consisting of finance ministers and central bank governors. High-level political backing was seen as essential if the group was to be effective. Given concerns about the number of participants, the size of country delegations to ministerial meetings was deliberately limited to threethe finance minister, the central bank governor, and one deputy.

Chair of the G-20 and the Establishment of the Troika

The G-20 elects a chair with a one- year term. Paul Martin, then Canadas Minister of Finance, was chosen by the G-7 to be the G-20s first chairman. Indias Finance Minister succeeded Martin after the latters term expired in 2001. The chairs term begins at the start of the calendar year. The following set of principles has been established to guide the selection of future chairs. As far as possible, future chairs would be selected well in advance to ensure continuity and allow a country time to prepare for its chairmanship. The choice of chair should ensure an equitable annual rotation among all regions and between countries at different levels of development.

To highlight the high-level of political support given to the G-20, all chairs would have to be finance or treasury ministers. In 2002, a management Troika was established consisting of the previous, current, and immediately upcoming chairs. This has ensured the continuity of the group. The Troika proposes agenda issues for the G-20, selects speakers in consultation with members, and deals with the logistics of meetings. It also gives the current and upcoming chairs ready also from access to the experience of the previous years chairman. The G-20 operates without a permanent secretariat or staff. The incumbent chair establishes a temporary secretariat for the duration of his term to coordinate the group's work and organize its meetings. In 2010, French President Nicolas Sarkozy proposed that a permanent secretariat should be established. Seoul and Paris were suggested as possible locations for its headquarters. China and Brazil supported the proposal while Japan and Italy opposed it. South Korea proposed a "cyber secretariat" as an alternative.

The G-20 Summits

The G-20 Summit was created as a response to the financial crisis of 2007 upon the recognition that the severity of this crisis demanded the decision and action by the highest political authorities of the G-20 countries. Since 2008, the G-20 Summits of heads of state or government have been held in addition to the G-20 Meetings of Finance Ministers and Central Bank Governors who continued to meet to prepare the leaders' summit and implement their decisions. After the first summit in Washington, D.C. in 2008, G-20 leaders have met twice a year in London and Pittsburgh in 2009, Toronto and Seoul in 2010. Beginning in 2011, when France will chair and host the G-20, the summits will only be held once a year. Mexico will chair and host the leaders' summit in 2012.

Washington Summit of 2008

The leaders expressed satisfaction over the result of this summit declaring that they had achieved five key objectives. They declared that they had reached a common understanding of the root causes of the global crisis. They had agreed to take measures to address the immediate crisis and strengthen growth. They had agreed on common principles for reforming the financial markets. They had drawn up an action plan. And they had reaffirmed their commitment to free market principles. They traced the roots of the crisis to the fact that in the period of strong and stable global growth market participants sought higher and higher yields without sufficient appreciation of the risks and failed to exercise the necessary prudence. The G-20 promised to reform the international financial architecture by strengthening transparency in the international financial markets, introducing sound regulation and reforming the Bretton Woods institutions to increase their legitimacy and effectiveness.

London Summit of April 2009

Faced with the worst financial and economic crisis since the Great Depression, the G-20 leaders were unanimous in their decision to intervene massively to save the big banks from going under. A fund of US$1.1 trillion was pledged to increase the resources to lend money to struggling economies, to increase trade finance, added allocation to SDR and commitments for the multilateral development banks to lend to poor countries. However, there was disagreement on how best to move forward. On one hand, the U.K. and the U.S. wanted a large financial stimulus. On the other hand, France and Germany favored stricter financial regulation and austerity measures. There was general agreement to bring wider global regulation of hedge funds and credit-rating agencies and a common approach to cleaning up bank toxic assets. The summit also saw the need to devise an early-warning system for future financial crises.

Pittsburg Summit of Sept 2009

One of the major announcements to come out of the meeting was that the group would become the new permanent council for international economic cooperation. This meant that the much larger G-20 meeting would essentially replace the smaller G8, which would continue to meet on major security issues but would carry reduced influence. This decision was supposed to have been made to include important developing nations such as China, India and Brazil which were originally not included in the G-8 into the realm of international economic decision-making and governance.

Toronto Summit of June 2010

The prime focus of the summit discussions was the recovery from the ongoing global recession and the European debt crisis. Summit leaders were divided over which strategies would be best for tackling these problems. The European Union emphasized the need to cut their deficits by focusing on austerity measures. In contrast, the United States and China argued for the importance of economic stimulus spending to encourage growth. In summit discussions, the countries of the European Union explained projected reductions in spending and balanced budgets. A different approach was projected by the China, India, and the United States, arguing in favor of increased stimulus funding to mitigate the effects of recession. Among the specifics proposed by the European Union were a global bank tax and a Robin Hood tax, but these plans were opposed by the United States and Canada. Other topics of concern were international development and continuing international aid to Africa and other developing nations.

Seoul Summit of Nov 2010

The summit discussions covered the following: ensuring global economic recovery; a framework for strong, sustainable, and balanced global growth; strengthening the international financial regulatory system; modernizing the international financial institutions; global financial safety nets; development issues; and the risk of a currency war Addressing the need to rebalance the world economy, agreement was reached to work on guidelines that will set suggested maximum limits for current account surpluses and deficits. G-20 leaders also agreed to endorse the Seoul Development Consensus, a set of guidelines and principles purportedly intended for working together with less developed nations to improve economic growth and reduce poverty. In contrast to the older Washington Consensus, the Seoul Consensus appears at one brush to be less overly free market oriented and open to a bigger role for state intervention.

The G-20's evolving role and mandate

The G-20 Seoul Summit made a bold claim in proclaiming that the Seoul Consensus was to replace the Washington Consensus. Is the Seoul Consensus indeed radically different from the Washington Consensus?

The Seoul Development Consensus

The Seoul Development Consensus for Shared Growth proclaimed at the 2010 G-20 Summit in Seoul is a set of principles and guidelines to assist the G-20 nations and other global actors in working with less developed countries in order to boost their economic growth and to achieve the UN's Millennium Development Goals. In contrast with the older Washington Consensus, the Seoul Consensus allows a larger role for state intervention. Rather than seeking to impose a uniform "top down" solution, it postulates that solutions should be tailored to the requirements of individual developing nations, with the developing countries themselves taking the lead in designing packages of reforms and policies best suited to their needs. The Washington Consensus as originally defined was a set of ten key principles. The new Consensus is based on six core principles and has nine "key pillars".

Six Core Principles

The six core principles of the Seoul consensus are: 1. Focus on economic growth. Economic growth is closely linked with low income countries' (LICs) ability to achieve the Millennium Development Goals. Measures to promote inclusive, sustainable and resilient growth should take precedence over business as usual. 2. Global development partnership. LICs should be treated as equal partners, with national ownership for their own development. Partnerships should be transparent and accountable.
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3. Global or regional systemic issues. Priority is given to regional or systemic issues where their collective action is best placed to deliver beneficial changes. 4. Private sector participation. The importance of private actors is recognized in contributing to growth and therefore policies should be business friendly. 5. Complementarity. It is necessary to avoid duplicating the efforts of other global actors, focusing the G-20 efforts on areas where they have a comparative advantage. 6. Outcome orientation. Focus will be on carrying out practical measures to address significant problems to achieve tangible results.

Nine Key Pillars

The nine key pillars are areas believed to be most in need of attention within developing countries. These are 1) infrastructure, 2) private investment and job creation, 3) human resource development, 4) trade, 5) financial inclusion, 6) resilient growth , 7) food security, 8) domestic resource mobilization 9) knowledge sharing.

Multi-Year Action Plan

The Multi-Year Action Plan then outlines the specific, detailed actions to which the G-20 commits itself: a) Facilitate increased investment from public, semi-public and private sources and improve the implementation and maintenance of national and regional infrastructure projects in sectors where there are bottlenecks. b) Improve the development of employable skills according to employer and labor market needs in order to enhance the ability to attract investment, create decent jobs and increase productivity. c) Improve the access and availability to trade with advanced economies and between developing and Low Income Countries. d) Identify, enhance and promote responsible private investment and develop key indicators for measuring and maximizing the economic and employment impact of private sector investment; e) Enhance food security policy to increase agricultural productivity and food availability by advancing innovative results-based mechanisms, promoting responsible agriculture investment and fostering smallholder agriculture. f) Improve income security and resilience to adverse shocks by assisting developing countries enhance social protection programs, including through further implementation of the UN Global Pulse Initiative, and by facilitating implementation of initiatives aimed at a quantified reduction of the average cost of transferring remittances;

g) Increase access to finance for the poor and small and medium enterprises (SMEs). h) Build sustainable revenue bases for inclusive growth and social equity by improving developing country tax administration systems and policies; and i) Promote sharing of knowledge and experience, especially between developing countries, in order to improve their capacity and ensure that the broadest range of experiences are used in designing national policies.

Does the so-called Seoul Consensus really spell a radical departure from the now widely discredited Washington Consensus?
The so-called Seoul Consensus has become the avowed framework guiding the G-20 in its approach to global development issues. From this we can more or less figure out what to expect from the upcoming G-20 summit in Cannes. Aside from its focus on economic growth instead of the emphasis on the maintenance of a stable macro-economic environment that do not have any direct bearing on economic growth; and the acknowledgment of the right of countries to chart their own national development strategies instead of the one-size fits all concept of development, there is really not much difference from the old principles and policies promoted by the Washington Consensus. The Seoul Consensus still holds as sacred the primacy of the private sector and the market. Government intervention is desirable only for it to come to the rescue of the big banks and private corporations that are too big to fall. Governments main economic role is to formulate and implement policies that are private-sector friendly. Good infrastructure like roads and ports is certainly one of the prerequisites of economic development but it does not have a direct bearing on the development of local industries. It often happens that it is foreign corporations that are the main beneficiaries of improved roads, bridges and ports not to mention the big profits that foreign contractors would get from these construction projects. The G-20 is actively promoting the so-called public-private partnership (PPPs) in carrying out large infrastructure projects. It has appointed a panel of 17 individuals mainly from the private sector to review the infrastructure financing plans of the Multilateral Development Banks (MDBs) and make recommendations. Concerns have been raised that the panel members represent mainly the interests of the big private investment and insurance firms. There are concerns that deals might be structured in favor of the multinational firms at the expense of governments. The stress on the mobilization of domestic resources is fine as over-reliance on external aid often means being open to unwarranted external interference; but this sounds like an attempt of the developed countries to get away from their donor commitments in connection with the Millennium Development Goals. The developing countries of course at this point do not have sufficient resources to fuel any ambitious industrialization program that would be needed if they are to catch up.

The avowed commitment to ensure food security does not address the problem decisively because as many progressive economists point out in order to ensure long-term food security the developing countries must become self-reliant in food. The developed countries usual concept of food security is to produce enough supply of food products in the market. This can also mean the rich countries providing subsidies to their agro-industrial corporations and their food aid program that can destroy the agriculture in poor countries and keep them dependent on food imports. In this part of the paper, we shall present to the reader other fora and initiatives so that the reader will have a chance to make his judgment on which analyses and approaches best capture the complex problems faced by the worlds economy and offer the most appropriate solutions to solve those problems.

G-20 vis-a-vis the DEscoto initiative in the UN (Stiglitz commission)

The Commission of Experts on Reforms of the International Monetary and Financial System, also known as the Stiglitz Commission, was convened by the President of the United Nations General Assembly, Miguel d'Escoto Brockmann, "to review the workings of the global financial system, including major bodies such as the World Bank and the IMF, and to suggest steps to be taken by Member States to secure a more sustainable and just global economic order". This was in response to the outbreak of the financial crisis in 2008 that originated in the advanced developed countries, but spread quickly to become a world economic crisis that affected all countries, including the emerging economies and less developed countries. Appointed to chair the Commission of Experts was Professor Joseph Stiglitz, 2001 Nobel laureate Prize winner in Economics, and included prominent economists and policy makers from Japan, Western Europe, Africa, Latin America, South and East Asia. These experts were supposed to have been chosen based on their comprehensive understanding of the complex issues arising from the workings of the international financial system. The Commission submitted its report and recommendations on March 19, 2009. In this report, the Commission observed that the rapid spread of the financial crisis from a small number of developed countries and proceeded to engulf the global economy showed the urgent need for the international trade and financial system to be profoundly reformed to meet the needs and challenges posed by new conditions of the 21st century. The report pointed out that past economic crises have had a disproportionate adverse impact on the poor, who are least able to bear the costs and that can have consequences long after the crisis is over. The commission concluded that the welfare of developed and developing countries in an increasingly integrated world economy needed a truly inclusive response recognizing the importance of all countries in the reform process. This inclusive global response would require the participation of the entire international community; it must encompass more than the G-7 or G-8 or G-20, but the representatives of

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the entire planet, in other words all the members of the United Nations. It made the proposition that the reform of the international system must entail the pursuit of long term objectives such as sustainable and equitable growth, the creation of employment, the responsible use of natural resources and reduction of greenhouse gas emissions as well as the more immediate concerns such as the food and financial crisis. The Commission stressed that commitment to the achievement of the Millennium Development Goals and addressing the problem of climate change remain as overarching priorities. The Commission also concluded that the current crisis has shown the flawed belief in the selfcorrecting and efficient workings of the market. While this has brought benefits to some it has also enabled defects in one economic system to spread quickly around the world bringing recessions and impoverization to developing countries. Among the recommendations of the commission were the following: 1. A New Global Reserve System that may be viewed as a greatly expanded SDR that would contribute to global stability, economic strength, and global equity. The dangers of a single-country reserve system have long been recognized, as the accumulation of debt undermines confidence and stability. But a two (or three) country reserve system, to which the world seems to be moving, may be equally unstable. The new Global Reserve System that is being proposed is feasible, non-inflationary, and could be easily implemented. 2. The report cited the growing international consensus in support of reform of the governance, accountability, and transparency in the Bretton Woods Institutions. The in these institutions have impaired their ability to take adequate actions to prevent and respond to crises. Their policies have also disadvantaged developing countries and emerging market economies by imposition of pro-cyclical policies that worsened the effects of the recession and prevented recovery. Major reforms in the governance of these institutions, including those giving greater voice to developing countries and greater transparency are thus necessary. 3. The commission proposed the creation of a Global Economic Council to address areas of concern in the functioning of the global economic system in a comprehensive way. At a level equivalent with the General Assembly and the Security Council, such a Global Economic Council should meet annually at the Heads of State and Government level to assess developments and provide leadership in economic, social and ecological issues. It would promote development, secure consistency and coherence in the policy goals of the major international organizations and support consensus building among governments on efficient and effective solutions for issues of global economic governance. Such a Council could also promote accountability of all international economic organizations,

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identify gaps that need to be filled to ensure the efficient operation of the global economic and financial system, and help set the agenda for global economic and financial reforms. Representation would be based on the constituency system, and designed to ensure that all continents and all major economies are represented. At the same time, its size should be guided by the fact that the council must remain small enough for effective discussion and decision-making. All important global institutions, such as the World Bank, IMF, WTO, ILO and members of the UN Secretariat dealing with economic and social issues would provide supporting information and participate in the Council. This Council can provide a more democratically representative alternative to the G-20.

The G-20 vis-a-vis the G-77

The Group of 77 at the United Nations is a coalition of developing nations created to promote its members' collective economic interests, create an enhanced joint negotiating capacity in the United Nations, and promote South-South cooperation. There were 77 founding members, but the organization has since expanded to 131 member countries making it the biggest intergovernmental organization of developing countries. It has retained the name G77 because of its historical significance. The group was launched on June 15, 1964 with the "Joint Declaration of the Seventy-Seven Countries" issued at the United Nations Conference on Trade and Development (UNCTAD). In its founding declaration, the group hailed UNCTAD as the first step in creating a new international economic order. The creation of UNCTAD was based on concerns of developing countries over the workings of the international market, multi-national corporations, and the great disparity between developed nations and developing nations. UNCTAD came to be closely associated in the 1970s and 1980s with the idea of a New International Economic Order (NIEO). The New International Economic Order (NIEO) was a comprehensive package of multilateral policy options that aimed to improve the position of developing countries in the world economy relative to the richest states. The concept was put together at the Non-Aligned Movement (NAM) Conference held in Algiers in September 1973. The leaders of the NAM subsequently requested a Special Session of the UN General Assembly to address issues associated with international trade in raw materials. It was at this Session in April 1974 that the G-77 presented and secured the adoption of the Declaration and Programme of Action for a NIEO despite lack of support from the United States and a small group of developed countries. In this declaration, the UN members proclaimed their united determination to work urgently for the Establishment of a New International Economic Order based on equity, sovereign equality, interdependence, common interest and cooperation among all States, irrespective of their economic and social systems which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the

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developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations. The declaration cited the independence from colonial and alien domination of a large number of peoples and nations as the greatest and most significant achievement during the last decades. Technological progress has also made it possible to solve the problem of poverty and for improving the well-being of all peoples and yet the majority of countries remain mired in poverty and underdevelopment. It observed, however, that vestiges of alien and colonial domination, foreign occupation, racial discrimination, apartheid and neo-colonialism remain and serve as the greatest obstacles to the full emancipation and progress of the developing countries. The Declaration stressed that the political, economic and social well-being of present and future generations would depend more than ever on co-operation between all the members of the international community on the basis of sovereign equality and the removal of the great disparities that exist between them. Some of the important principles on which the new international economic order was to be founded were stated as follows: 1. The sovereign equality of States, self-determination of all peoples, inadmissibility of the acquisition of territories by force, territorial integrity and non-interference in the internal affairs of other States. 2. Full and effective participation on the basis of equality of all countries in the solving of world economic problems in the common interest of all countries, bearing in mind the necessity to ensure the accelerated development of all the developing countries. 3. The right of every country to adopt the economic and social system that it deems the most appropriate for its own development. 4. Full permanent sovereignty of every State over its natural resources and all economic activities. Each State is entitled to exercise effective control over them and their exploitation with means suitable to its own situation, including the right to nationalization or transfer of ownership to its nationals. No State may be subjected to economic, political or any other type of coercion to prevent the free and full exercise of this inalienable right. 5. Regulation and supervision of the activities of transnational corporations by taking measures in the interest of the national economies of the countries where such transnational corporations operate. 6. Preferential and non-reciprocal treatment for developing countries, wherever feasible, in all fields of international economic co-operation whenever possible.

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7. The strengthening, through individual and collective actions, of mutual economic, trade, financial and technical co-operation among the developing countries. (Declaration on the Establishment of a New International Economic Order, 1974) These principles enunciated more than thirty years ago remain valid more than ever in todays world. Japan, South Korea and Taiwan would achieve late-industrialization by applying most of these principles in their development strategy. But the US together with other developed countries tried everything to discredit these principles and block the implementation of policies designed to address the disparities between the developed and developing countries. These efforts culminated in US President Ronald Reagans unilateral declaration of the death of the NIEO at the 1981 Cancun Summit on International Development Issues. The developed countries led by the US subsequently succeeded in ramming through the neoliberal paradigm called the Washington Consensus as the framework for global economic governance. It would not be an exaggeration to say that this same Washington Consensus is what has brought the world to the mess we find ourselves in today.

G-77 and China on the Current Global Crisis

Various analyses and opinions have been put forward on the current global economic crisis and how to overcome it. The analysis and position of the G-77 and China on this question basically embodies the viewpoint and standpoint of developing countries. On June 9, 2010, the G-77 and China came out with its position on the outcome document of the UN Conference on the World Financial and Economic Crisis and its impact on Development held on June 24-26, 2009. That meeting was held in a period when the world was facing the most serious economic recession since the Great Depression. The crisis in the financial sector spread to the real economy, causing declines in GNP, a fall in world trade and a rapid rise in unemployment. According to the G-77 and China, many developing countries, which had little to do with the causes of the crisis, suffered from the worst effects of the recession. Developing countries saw their export earnings and GNP drop sharply resulting in a large foreign-exchange liquidity gap and a drastic reduction in their foreign reserves, and they faced the threat of a new debt crisis. The G-77 and China further pointed to the fact that several systemic issues confronting the global economy that were brought to light by the crisis have still not been resolved. Among them: 1. There are still great global imbalances among countries with trade and current account surpluses and deficits. 2. Despite new evidence about the adverse effects of speculative and manipulative financial instruments, no new measures have been adopted to check speculative excesses.
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3. Despite the worsened debt problems of the developing countries as a result of the crisis, there is still no international mechanism or institution for debt restructuring and orderly debt work-out. The G-77 and China pointed to the continuing problems experienced in particular by the developing countries due to the persistence of the global financial and economic crisis. These include: 1. Continued weakness in export earnings in goods, due to lower demand and to the prices of export commodities which are still below the pre-crisis levels. 2. Continued weakness in earnings from tourism, other services and remittances from overseas workers and other services. 3. Reduced flow of foreign credit and foreign direct investments to many developing countries. Continued low level of foreign reserves in many countries, placing them at risk of entering a new debt crisis. 4. Reduced flow in ODA due to the new fiscal austerity measures being undertaken in many developed countries. 5. Increases in the incidence of poverty and unemployment. According to their analysis, the global financial and economic crisis was far from over and might even take a turn for the worse. The systemic problems facing the global economy have yet to be decisively addressed and resolved. The G-77 and China made the following proposals to address these important issues: 1. On the Question of Debt. They called for a temporary moratorium or standstill on debt servicing for developing countries that are in a serious financial predicament. They cited the UN Secretary General Report which recognized the devastating effects of the financial crisis on the debt situation of developing countries. The UNCTAD Secretariat had also previously proposed a temporary debt moratorium or standstill on servicing of official debt for low-income countries. To buttress their argument, the G-77 and China pointed to the publication by the World Bank under the title "Global Development Finance, External Debt of Developing Countries 2010", showing that at the end of 2008, the dollar value of the total external debt of developing countries had surpassed US$ 3.7 trillion. The G-77 and China also stressed that debt sustainability should not be viewed as simply the capacity to continue servicing debt obligations, but also, as a recognition that debt servicing costs necessarily means fewer funds available to fight poverty and meeting the Millennium Development Goals (MDGs). 2. On Mobilizing Additional Resources for Development: As a result of declining foreign

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investment, trade flows, revenues from tourism and remittances, developing countries faced an external financing gap of approximately US$ 350 billion in 2009. The G-77 and China stressed that in order to adequately respond to the crisis and address its long-term effects both short-term liquidity, long-term development finance and grants would need to be made available to developing countries. 3. On Official Development Assistance. According to the G-77 and China, Official Development Assistance (ODA) should remain as an essential source of financing in concert with other sources for financing development and facilitating the achievement of national development objectives, including the MDGs. The global crisis cannot be used as an excuse for the developed countries to avoid their aid commitments. Developed countries must meet and increase their existing bilateral and multilateral official development assistance commitments and targets made in the United Nations Millennium Declaration. The developed countries are still far from achieving the longstanding goal of mobilizing 0.7% of GNP in ODA. Debt relief should also not be considered as part of but additional to ODA contribution. 4. On Use of SDRs for Development Purposes. The G-77 and China welcomed the renewed use of SDRs as an important source for financing development in developing countries. They proposed an expansion of SDR allocations as an effective and low-cost measure to quickly boost global liquidity to meet external financing gap and implement counter-cyclical policies to lessen the impact of the crisis on their economies. In contrast to IMF loan financing, there are no conditionalities tied to SDRs. 5. On Reform of the Bretton Woods Institutions. The G77 and China pointed out that there was a vital need for major reform of the Bretton Woods Institutions, particularly their governance structures, based on full and fair representation of developing countries. As an initial step, they proposed that the developing countries as a group should at least have parity in voting power in the decision making process within the Bretton Woods Institutions. 6. The Reform of the International Monetary Fund. The G-77 and China stressed the need for two critical actions that must be pursued. First, there was an urgent need for fundamental reforms in the IMF governance structure. Second, the IMF must provide more comprehensive, evenhanded and flexible financial responses to the needs of member countries but should refrain from imposing pro-cyclical conditionalities, respecting their need for policy space and helping them overcome the crisis. The G77 and China expressed their grave concern over the fact that the International Monetary Fund continues to prescribe pro-cyclical policies in developing countries which can unnecessarily exacerbate economic downturns. They pointed out that such policies are in violation of the international consensus to undertake a concerted effort to stimulate global demand.

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If the Washington Consensus is dead, what should replace it?

The Declaration of the New International Economic Order is one place that must be revisited because the principles and policies put forward in that declaration remain valid today. The most important problem that must be addressed today as before is how to reduce the ever widening gap between the developed and developing countries. More pointedly, how can the countries that are decades behind in development catch up. If this problem is not solved all talk about addressing the problem of global poverty will remain just that mere talk. A very instructive paper entitled From Washington Consensus to BeST Consensus for World Development by Keun Lee of Seoul National University - School of Economics and John A. Mathews of Macquarie Graduate School of Management offers an alternative development strategy for developing countries drawing from the successful experiences of Japan, Korea, Taiwan and China in playing catch-up with the developed countries in the business of industrialization. They have taken up the cases of Japan, Korea, Taiwan and China because these countries are late industrializers and they can serve as models for developing countries who must do catch up. The authors point out that it is very instructive that these countries that succeeded in their catch up industrialization did not follow the prescriptions of the Washington Consensus. This is what they say: For the past decade and a half, the policies promoted by the Washington establishment have focused almost exclusively on maintaining a conservative macroeconomic agenda combined with liberalization, privatization and deregulation or allowing market forces to exercise more and more influence in the economy. The thinking behind this set of policy prescriptions was captured neatly in 1990 by John Williamson in the phrase the Washington Consensus (WC). Meanwhile the countries of northeast Asia followed their own star. While they all maintained relatively conservative macroeconomic settings, which helped them to avoid stop-go macroeconomic cycles they did many things that are frowned upon by the WC such as sequential opening or liberalization or Taiwans and Koreas selective opening to inward Foreign Direct Investment (FDI). More to the point, they did many things that are not part of the WC such as focusing their development efforts on capturing and diffusing technological capabilities in key industries that were targeted for catch-up. In fact it is now widely recognized that the countries that succeeded in northeast Asia followed a quite different set of prescriptions from those of Washington, where there was extensive targeting of industries and of technologies, based on prospects for catch-up with the industrial leaders; where development was conceived in terms of acquiring and disseminating technological capabilities as quickly as possible, and where industrial development was viewed as a process that would take decades and would involve strong commitments to invest in sectors and enterprises where returns

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would be negative at first but where they could be expected to turn positive eventually, and where prices would be set to reflect development needs rather than comparative static efficiency (getting prices wrong). According to the authors, the Washington Consensus concept of development was essentially giving free rein to market forces in a stable macroeconomic environment. The first five points advocate a secure and stable macroeconomic regime and the next five the marketization of the economy (privatization, liberalization and deregulation). And the successful experience of the Northeast Asian countries was due to the fact that they did not follow most of the prescriptions of the Washington Consensus. While the Washington Consensus advocated less government control and regulation, the successful industrializers maintained a strong state that took the reins of the whole development process setting up the state agencies that oversaw and guided the entire process of industrialization. In Japan MITI oversaw the entire process of creating new industries and nurturing each to the point where it could be launched into international competition. In Korea, the Economic Planning Board was set up to draw up economic plans; the Ministry of Trade and Industry to support industrial policy and export; and the Ministry of Finance to finance the economic plans. In Taiwan, the institutions that were established included the Central Economic Planning Board and the Industrial Development Bureau and the Industrial Technology Research Institute (ITRI), the agency set up to capture and diffuse technology. In China, the principal state agency guiding the process of industrialization is the National Development and Reform Commission (NDRC), that coordinates national investment plans and the development of new industries. Instead of hasty liberalization of foreign trade, these countries nurtured select industries protecting them from stiff foreign competition at an early stage of their development and gradually releasing them to the competition of the international market when they were deemed strong enough. They instituted strict controls on the inflow and outflow of capital selecting in which sectors to allow FDI and where the state maintains a monopoly such sectors as the energy, communications, finance and media. These are only some of the ways in which these Asian countries broke away from the neoliberal precepts promoted nay imposed by the Washington institutions on developing countries as conditionalities for loans and grants.

The G-20: Boon or Bane? Our verdict

The G-20 was formed at the initiative of G-7 countries at a time when serious questions were being raised against the policies of the Bretton Woods institutions which were very much under the control of the G-7 countries and their allies. Neoliberal policies based on the Washington Consensus were being imposed on developing countries as conditionalities for

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access to loans and grants. These policies have resulted in the economic ruin of many third world countries and the impoverishment of millions. As a consequence, G-7 and G-8 meetings were being routinely hounded by protests from peoples organizations and social movements decrying the ruinous policies being imposed by the Bretton Woods institutions under G-7 control. Sharp criticisms were also being leveled at the G-7 for being elitist and undemocratic. Many were questioning its self-appointed mandate to formulate policies behind closed doors and implement those policies that could decide the fate of the whole of humanity. To fend off such criticisms challenging its legitimacy, the G-7 countries set up the G-20 which was an institution firmly under its control but having some legitimacy as it included in its fold emerging-market countries like China, Brazil, Russia, India and South Africa that had some credibility among developing countries because of their growing economic power and their record of advocacy for the rights and welfare of developing countries. The formation of the G-20 can actually be seen as an attempt of the G-7 countries to coopt the above-mentioned emerging-market countries and employ the tactic of divide and rule against the G-77 and China so that the same free market principles that have proven so disastrous to the world economy especially to the poor countries can continue to prevail. Much hype has been generated in the western media about G-20 summit declarations on supposed reforms on the international finance architecture, on the policy directions and governance of the Bretton Woods institutions and so forth. None of these promises of reforms have come to pass. The G-20 is not a governing body that implements policies. As the G-20 initiators themselves have said it is a forum of heads of state of 20 economies that discusses some important economic issues. Its decisions are not binding on members. The institutions that have real economic enforcement capability are the IMF, World Bank and WTO. And these are firmly under the control of the G-7 countries. The IMF and World Bank continue to impose neoliberal conditionalities and pro-cyclical policies that exacerbate the effects of the crisis on the developing countries. The WTO rules are still stacked against the poor countries and in favor of the rich countries like the TRIPS that cater to the interests of corporate patent holders such as the huge pharmaceutical companies. The G-20 is therefore a convenient vehicle for the G-7 countries to gain legitimacy for their positions while at the same time having the flexibility that if they can not get the imprimatur of this informal forum, they are confident to have their way anyway because they control the levers of power in the economic institutions that really count -- the IMF, World Bank and WTO. We agree with the view of the Stiglitz Commission that in order to ensure the welfare of both the developed and developing countries in an increasingly integrated world an inclusive approach is necessary that would require the participation of all countries in the reform process transcending such groupings as the G-7, G-8 and the G-20.

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The proper forum to tackle both the short-term issues such as taking up the appropriate response to crises, and long-term issues such as those related to economic development strategies must be situated within the United Nations System provided deep-going reforms (not the cosmetic reforms proposed by the G-7 countries) are also instituted to rectify the democratic deficiencies in the governing organs of this world body. The G-77 and China is currently the international grouping that serves as the voice and muscle in negotiations within the United Nations system involving the immediate and long-term interests of the developing countries.

Conclusion
The G-20 Summit in Cannes will be held with a lot of dark clouds hanging over the world economy. After a slight rebound, the world economy has once again entered a period of great storm. Economic growth in the US and the Euro Zone has stalled with even bleaker forecasts in the coming period. All signs point to a general slowdown in the G-7 countries with the latest forecast of GDP growth of only 0.5% for 2011. Compounding the problem is the great constraints on the ability of governments to undertake pump-priming measures to stimulate expansion because of sovereign debt problems both in the US and the Euro Zone. The prospects of a double-digit recession, continued high unemployment and stagnant growth in the developed countries pose bigger problems for the developing countries worse than what they experienced in 2008. The slowdown in the developed countries will surely have a severe impact on the developing countries whose economies rely heavily on exports to the developed countries markets and will surely adversely affect their ability to sustain their economic growth. Thus, China has taken steps to turn its attention more and more to developing its domestic market. At the coming summit in Cannes, it can be expected that the G-7 countries would be very much preoccupied with the continued economic slowdown and the sovereign debt crisis in the US and Europe. In other words, they would most probably tend to be on crisis-mode instead of being in the mood to tackle the long-term issues of sustainable and equitable development. But that may very well be a blessing in disguise. The peoples of the third world cannot pin their hopes anyway on such groupings as the G-20 that are heavily dominated by the G-7 countries. They must assert their sovereignty in charting their own course in industrial development, in crafting their own investment and trade policies and in regulating capital flows according to their needs and objectives. The only really meaningful reforms of the global financial system are those that support the industrial development of backward economies, that cancel the iniquitous and burdensome debts and that promote fair trade to help the industrial development of third world countries. The economies of all countries must serve the needs of the people and not be geared merely
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towards generating corporate profits. In the capitalist countries, jobs must be created, incomes increased and consumption revived rather than pouring bailouts to the big banks and industrial corporations. Production must be restored for the purpose of expanding the peoples incomes and capacity to consume and on sustaining this by keeping them productive in a well-balanced economy. In underdeveloped countries, the most urgent task remains the development of national economies that takes into account the dialectical relation and balanced development of both industry and agriculture. At the same time, the basic demand for social and economic justice must be met. Land reform is necessary to address the problem of the most numerous class in the majority of the developing countries for better living standards. Decent and fair wages must be given to workers. Self-reliance in food must be achieved. The provision of health, education and other social services must be given top priority. Any development agenda worth its name must take into account these fundamental issues. Otherwise, humanity will forever be subjected to never-ending crises, the persistence of global poverty afflicting the vast majority of the worlds peoples not to mention the destruction of the planet due to environmental degradation resulting from the unbridled exploitation of the earths resources in the pursuit of corporate profits. #

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