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G20 Summit
Leaders Agree to Cut Deficits by 2013

By: Ram Kumar Pandey

The fourth G20 summit in less than two years has ended at
Toronto on 26-27 June, 2010. The summit ended with glo-
bal leaders evolving a consensus of sorts on several issues of
economic importance. India, which was represented in
strength at the summit, says it is happy with the outcome.
The leaders of the world's most powerful economies pledged
to slash back spiraling debts on Sunday as they sought to
rebalance a global economy knocked off its axis by a finan-
cial crisis.

The heads of the G20, which groups established world powers and the most dynamic emerging players,
vowed to nurture the still shaky recovery with coordinated
measures to spur growth and ensure financial stability.
"I understood that
But observers quickly noted the agreements were not bind- fiscal consolidation
ing and the summit statement was filled with caveats and
obviously needed
exemptions, pushing many of the tougher decisions on to
the next G20 summit in Seoul in November. high priority in
those advanced nations that
The leaders' joint statement, released at the end of two days were experiencing exceptional
of talks in Toronto, warned that "failure to implement con- fiscal stress and in those where
solidation where necessary would undermine confidence and sovereign debt was shaky."
hamper growth."

"Reflecting this balance, advanced economies have committed to fiscal plans that will at least halve deficits
by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016," it promised.

Nevertheless, the group exempted Japan and its huge public deficit from the pledge and noted that mea-
sures should be "tailored to national circumstances."

The statement called for "greater exchange rate flexibility in some emerging markets" but shied away from
specifically fingering China, which is under pressure to allow the yuan to strengthen to ease trade imbal-
ances.

Amid US fears that global growth may once again become overdependent on American consumers, the
G20 called for "efforts to rebalance global demand to help ensure global growth continues on a sustainable
path."
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European leaders- Germany's Chancellor Angela PM asks rich nations to resist protectionism
Merkel, French President Nicolas Sarkozy and Making it clear that each country needed to de-
Britain's Prime Minister David Cameron -- came vise its own strategy to weather the deepest global
to the talks calling for fiscal restraint and a new financial crisis in decades, Indian Prime Minister
levy on bank profits. Manmohan Singh on Sunday asked rich nations to
resist protectionism.
They made some headway on the former, but will
be forced to go it alone on the banking tax, as coun- Stating that the India was better placed in han-
tries like Australia, Canada and India that have dling the situation with an average growth of 7
experienced no banking failures rejected the pro- per cent in the past two fiscals, the prime minister
posal out of hand. said emerging economies must also rely less on
exports and push domestic demand.
The G8 statement said "We agreed the financial
sector should make a fair and substantial contri- As the leaders of the Group of 20 advanced and
bution towards paying for any burdens associated emerging economies listened in attention, the
with government interventions." "We recognized Oxford-educated economist-prime minister said
that there are a range of policy approaches to this India on its part will go for medium-term fiscal
end. Some countries are pursuing a financial levy. consolidation and halve its fiscal deficit by 2013-
Other countries are pursuing different approaches." 14.

Observers said the degree of divergence in the Manmohan Singh said he understood that fiscal
countries' policies for dealing with the recovery consolidation obviously needed high priority in
showed that, now that the initial shock of reces- those advanced nations that were experiencing
sion has passed, national agendas are once more exceptional fiscal stress and in those where sover-
crowding out G20 cooperation. eign debt was shaky.

Outcome For India "But other advanced countries should opt for a
much more caliberated exit from the stimulus. We
The first point was the civilian nuclear pact with should adopt a carefully differentiated approach,
Canada. Canada is an important supplier of Ura- reflecting the circumstances of individual coun-
nium and nuclear technologies. The pact is actu- tries," the prime minister added.
ally going to help take India’s plans on that front
forward. In fact the bilateral that the India prime China sets strongest yuan rate in years after G20
minster had with the Canadian prime minster ac- pressure:
tually seems to signal a new beginning in the rela- China set the strongest yuan exchange rate
tionship. Stephen Harper said that the 70s are over in years after Beijing came under renewed pres-
and in fact this is the first visit by an Indian prime sure at the Group of 20 summit to let the currency
minister after 1973. appreciate.

There were several other agreements for mining The People's Bank of China said it set the
and other MoUs signed. Another key bilateral was central parity rate -- the centre point of the
the India US bilateral, Manmohan Singh meeting currency's allowed trading band -- at 6.7890 to the
Barack Obama. Much of it was political; no War- dollar.
ren Anderson extradition demand was raised there.
The key thing was that India told the US to take It was the strongest level policymakers have
disclosures by Headley; the 26/11 accused more set since China unpegged the currency in July 2005
seriously and wanted the United States to get Pa- and moved to a tightly managed floating exchange
kistan to act more on terror. rate.

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China had effectively pegged the yuan at about


6.8 to the dollar for the past two years to prop up Mandate
exporters during the global financial crisis. Critics
say the policy gives Chinese producers an unfair The G-20 is the premier forum for our interna-
advantage. tional economic development that promotes open
and constructive discussion between industrial and
Manmohan meets Obama at G20 summit: emerging-market countries on key issues related
Prime Minister Manmohan Singh and US Presi- to global economic stability. By contributing to the
dent Barack Obama held their second substantive strengthening of the international financial archi-
dialogue in two months, during which they are tecture and providing opportunities for dialogue
understood to have discussed terrorism, global on national policies, international co-operation, and
economy and other issues of mutual concern. international financial institutions, the G-20 helps
to support growth and development across the
Singh and Obama met on the sidelines of the G20 globe.
Summit and are believed to have discussed the situ-
ation in the region.
Origins
This was the the first meeting between the two
leaders after they met and reviewed bilateral ties The G-20 was created as a response both to the
on the sidelines of the Nuclear Security Summit in financial crises of the late 1990s and to a growing
Washington in April. recognition that key emerging-market countries
were not adequately included in the core of global
During the meeting, the two leaders are also un- economic discussion and governance. Prior to the
derstood to have discussed about the global eco- G-20 creation, similar groupings to promote dia-
nomic recovery and the G20 Summit. At the Sum- logue and analysis had been established at the ini-
mit, India and the US had cautioned against wind- tiative of the G-7.
ing up of the government funding.
The G-22 met at Washington D.C. in April and
Obama said the two countries would continue to October 1998. Its aim was to involve non-G-7
see how businesses of both countries can get to countries in the resolution of global aspects of the
work together and then generating recommenda- financial crisis then affecting emerging-market
tions to "each of us in terms of how we can im- countries.
prove ties between the United States and India."
Two subsequent meetings comprising a larger
group of participants (G-33) held in March and
What is the G-20 April 1999 discussed reforms of the global economy
and the international financial system.
The Group of Twenty (G-20) Finance Ministers and
Central Bank Governors was established in 1999 The proposals made by the G-22 and the G-33 to
to bring together systemically important industri- reduce the world economy's susceptibility to cri-
alized and developing economies to discuss key is- ses showed the potential benefits of a regular in-
sues in the global economy. The inaugural meet- ternational consultative forum embracing the
ing of the G-20 took place in Berlin, on December emerging-market countries. Such a regular dia-
15-16, 1999, hosted by German and Canadian fi- logue with a constant set of partners was institu-
nance ministers. tionalized by the creation of the G-20 in 1999.

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Membership Achievements
The G-20 is made up of the finance ministers The G-20 has progressed a range of issues since
and central bank governors of 19 countries: 1999, including agreement about policies for
growth, reducing abuse of the financial system,
» Argentina » Japan dealing with financial crises and combating ter-
rorist financing. The G-20 also aims to foster the
» Australia » Mexico adoption of internationally recognized standards
through the example set by its members in areas
» Brazil » Russia such as the transparency of fiscal policy and com-
» Canada » Saudi Arabia bating money laundering and the financing of ter-
rorism. In 2004, G-20 countries committed to new
» China » South Africa higher standards of transparency and exchange of
information on tax matters. This aims to combat
» France » Republic of Korea abuses of the financial system and illicit activities
including tax evasion. The G-20 has also aimed to
» Germany » Turkey develop a common view among members on is-
sues related to further development of the global
» India » United Kingdom economic and financial system.
» Indonesia » United States of America To tackle the financial and economic crisis that
» Italy spread across the globe in 2008, the G-20 mem-
bers were called upon to further strengthen inter-
The European Union, who is represented by the national cooperation. Since then, the concerted and
rotating Council presidency and the European Cen- decisive actions of the G-20 helped the world deal
tral Bank, is the 20th member of the G-20. To en- effectively with the current financial and economic
sure global economic fora and institutions work crisis. The G-20 has already delivered a number of
together, the Managing Director of the Interna- significant and concrete outcomes. For examples,
tional Monetary Fund (IMF) and the President of it committed to implement the unprecedented and
the World Bank, plus the chairs of the Interna- most coordinated expansionary macroeconomic
tional Monetary and Financial Committee and policies, including the fiscal expansion of US$5 tril-
Development Committee of the IMF and World lion and the unconventional monetary policy in-
Bank, also participate in G-20 meetings on an ex- struments; significantly enhance the financial regu-
officio basis. lations, notably by the establishment of the Finan-
cial Stability Board(FSB); and substantially
The G-20 thus brings together important indus- strengthen the International Financial
trial and emerging-market countries from all re- Institutions(IFIs), including the expansion of re-
gions of the world. Together, member countries sources and the improvement of precautionary
represent around 90 per cent of global gross na- lending facilities of the IFIs.
tional product, 80 per cent of world trade (includ-
ing EU intra-trade) as well as two-thirds of the Reflecting on these achievements and recognizing
world's population. The G-20's economic weight that more needs to be done to ensure a strong, sus-
and broad membership gives it a high degree of tained and balanced global recovery, the G-20
legitimacy and influence over the management of Leaders at Pittsburgh Summit designated the G-
the global economy and financial system. 20 as the premier forum for international economic
cooperation.

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cess is well integrated with the activities of the


Chair Bretton Woods Institutions. The G-20 also works
with, and encourages, other international groups
Unlike international institutions such as the Or- and organizations, such as the Financial Stability
ganization for Economic Co-operation and Devel- Board and the Basel Committee on Banking Su-
opment (OECD), IMF or World Bank, the G-20 pervision, in progressing international and domes-
(like the G-7) has no permanent staff of its own. tic economic policy reforms. In addition, experts
The G-20 chair rotates between members, and is from private-sector institutions and non-govern-
selected from a different regional grouping of coun- ment organisations are invited to G-20 meetings
tries each year. In 2010 the G-20 chair is the Re- on an ad hoc basis in order to exploit synergies in
public of Korea, and in 2011 it will be France. The analyzing selected topics and avoid overlap.
chair is part of a revolving three-member man-
agement Troika of past, present and future chairs. External Communication
The incumbent chair establishes a temporary sec-
retariat for the duration of its term, which coordi- The country currently chairing the G-20 posts de-
nates the group's work and organizes its meetings. tails of the group's meetings and work program on
The role of the Troika is to ensure continuity in a dedicated website. Although participation in the
the G-20's work and management across host years. meetings is reserved for members, the public is
informed about what was discussed and agreed
Meetings and activities immediately after the meeting of ministers and
governors has ended. After each meeting of min-
It is normal practice for the G-20 finance minis- isters and governors, the G-20 publishes a
ters and central bank governors to meet once a year. communiqué which records the agreements
The last meeting of ministers and governors was reached and measures outlined. Material on the
held in St. Andrews, UK on 6-7 November 2009. forward work program is also made public.
The ministers' and governors' meeting is usually
preceded by two deputies' meetings and extensive
technical work. This technical work takes the form
of workshops, reports and case studies on specific
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better inform their consideration of policy chal- Online Book Store:
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