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The G20

The G20 is an informal group of 19 countries and the European Union, with representatives of the International Monetary Fund and the World Bank. The finance ministers and central bank governors began meeting in 1999, at the suggestion of the G7 finance ministers in response to the global financial crisis of 1997-99. Since then, there has been a finance ministerial meeting every fall.

On November 14-15, 2008, U.S. President George W. Bush invited the leaders of the G20 countries — creating the first ever G20 summit — to Washington DC to coordinate the global response to the aftermath of the financial crisis that had in the United States. At that meeting, the leaders agreed to meet again. Thus British prime minister Gordon Brown hosted the second G20 summit in London on April 1-2, 2009. This was followed by the third G20 summit hosted by U.S. president Barack Obama in Pittsburgh on September 24-25, 2009, with a fourth summit to be co-chaired by Canadian prime minister Stephen Harper and Korean president Lee Myung-bak in Toronto on June 26-27, 2010. In January 2010, at a meeting of the G20 leaders' personal representatives (sherpas) in Mexico, it was decided that after the sixth summit — scheduled for November 11-12, 2010, and hosted by Korea -- the G20 leaders would begin meeting once annually, in the fall, beginning in France in 2011. Mexico will chair the G20 in 2012.

To help prepare these summits, the G20 finance ministers and central bank governors continue to meet on their own, on the occasion of the spring and sometimes also the fall meetings of the International Monetary Fund and the World Bank, and again in the final weeks before the summit.

What Is the G20?

John Kirton
Director, G20 Research Group
November 30, 1999

The new Group of Twenty (G20) forum of finance ministers and central bank governors was formally created at the September 25, 1999, meeting of the G7 Finance Ministers. It was created "as a new mechanism for informal dialogue in the framework of the Bretton Woods institutional system, to broaden the dialogue on key economic and financial policy issues among systemically significant economies and to promote cooperation to achieve stable and sustainable world growth that benefits all" (G7 1999). To launch the G20 at its first ministerial meeting in Berlin in December 1999, the G7 finance ministers were to invite "counterparts from a number of systemically important countries from regions around the world," as well as representative of the EU, IMF and World Bank.

The formal birth of the G20 can be traced to the leaders' G7 Statement at their Cologne Summit on June 18, 1999. There they declared, following passages welcoming the creation of the Financial Stability Forum and the IMF's International Financial and Monetary Committee (IFMC), "the commitment to work together to establish an informal mechanism for dialogue among systemically important countries, within the framework of the Bretton Woods institutional system."

The G20, from this initial formulation as the "GX" to its September 1999 birth, was the product of different approaches among G7 members. These will determine in part how the new body evolves. The French, supported by the Italians, were opposed to the very creation of the G20, for fear that it would undermine the authority of the IMF, which their compatriot Michel Camdessus headed, and the new International and Monetary Financial Committee (IMFC) which they preferred. The USA and Japan were very much in favour of the new body. Britain, while supportive, was somewhat reserved, for fear that the G20 might undercut in practice the prominence of the new IFMC, which Britain's finance minister Gordon Brown was chosen to initially chair. Their early emphasis was on restricting the discussions to be held within the new body. Canada was supportive, in part because it wished to see a broader consultative structure that was more formalized, linked to other institutions, and less controlled by the USA and its preferences than it perceived the earlier G22, created at President Clinton's initiative at the November 1997 APEC leaders' meeting, to have been.

The G20 is chaired for its first two years by Canadian Finance Minister Paul Martin. As outlined by Martin, the G20 "fulfills the commitment by G7 leaders at the June 1999 Summit at Koln "to establish an informal mechanism for dialogue among systemically important countries within the framework of the Bretton Woods institutional system" (Canada 1999). Its mandate is to "promote discussion and study and review policy issues among industrialized countries and emerging markets with a view to promoting international financial stability." Its initial 18 country members consisted, in addition to the G7, of Argentina, Australia, Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa, Korea, and Turkey. Canada would host the second meeting in 2000. The chair would rotate among participants with two year terms, and with the initial chairs being chosen from among the G7 countries.

The G20 includes of the G7 countries, and eleven other countries (including G8 member Russia), with broad regional balance, for example, with China, Australia, India, and Korea from the Asian region. One of two unfilled country positions was reserved for Indonesia, which would be awarded it once and if its stable democratic transition were completed and current G7 concerns about its political and human rights abuses ended. While other Asian countries, notably Malaysia, were claiming a place, some among the G7 felt that Asian countries such as Thailand would, on the grounds of size and the absence of currency controls, be better suited.

In the diplomacy designing the new institution, China had pride of place. During this process there was never any serious consideration of excluding China from the group. It was seen to rank above Argentina, Mexico, Korea, Turkey, and as a country that might some day overtake Canada and Italy. While there was much discussion about membership, no one's list excluded China. In contrast, some lists excluded Australia, Korea, Turkey and Saudi Arabia (although the latter's provision of ample funding proved decisive in the end).

The G20 was created as a deliberative rather than decisional body, but one designed to encourage 'the formation of consensus" on international issues" (Canada 1999). However it was one with a policy focus, a mandate to promote international financial stability. Chair Paul Martin suggested it "will focus on translating the benefits of globalization into higher incomes and better opportunities everywhere," including working people around the world (Beattle 1999). Although concentrating on longer term rather than immediate policy issues, Martin declared: "There is virtually no major aspect of the global economy or international financial system that will be outside of the group's purview" (Beauchesne 1999).

Its relationship with other bodies also suggested a robust role for its members. It would operate within the framework of the Bretton Woods institutions, involve their representatives (including the Chair of the Interim and Development Committees) and the EU fully in its substantive discussions, in order to ensure that its work was "well integrated." It would "help co-ordinate the activities of other international groups and organizations, such as the Financial Stability Forum," "facilitate deliberations in the new International and Monetary Financial Committee, and potentially develop "common positions on complex issues ... to expedite decisionmaking in other fora."

Its potential importance was further suggested by its institutional characteristics. These included the firm control of the chair by the G7, the two year rotational cycle, the linkage of its meetings to those of the G7 meetings at the start of each year, the presence of a deputies process to prepare for and support the meetings, its ability to call on the resources of the IMF, World Bank and outside experts, and its ability to "form working parties to examine and make recommendations on issues related to its mandate."

The early emphases by the Canadian chair suggested an effort to turn the new institution into an influential forum. The Canadians initially considered the possibility of holding the second ministerial meeting in June 2000, a mere six months after the first. They further contemplated holding it in Toronto, despite fears that this could detract from the lead-up to the G7 finance ministers meeting and G7/G8 Summit in Japan in July. The Canadian hoped that the timing and location would better enable the new Group, whose conclusions could be recorded in a Chair's Statement, to influence the G7/G8 meeting itself.

Substantively, the central Canadian objective was to avoid having the body generate the traditional north-south divide. Canada thus wanted to keep the Group focused on sharing experiences, and open discussion, rather than the statement of hard positions. Their emphasis was heightened by the views of some, such as another newly included finance minister, who saw the new Group as an excellent opportunity for the "South" to press its issues against the "North."

There are thus concerns about whether this fledgling Group constitutes a sufficient degree and form of institutionalized association with the G7. One doubt arises from the view of some who see the G20 as part of the "G7-ization" of the world. In this view, the G20 was born to legitimate G7 initiatives to the wider world, by securing a broader consensus for G7-generated ideas. The G20's eleven non-G7 members are thus destined to affect issues merely on the margin, to be informed of G7 initiatives, and to be given some semblance of participation. The G20 underscores the fact that the G7 does not want to leave the reform of the international financial system to the IMF or World Bank, where developing countries have an institutionalized role.

Adapted from "The G7, China and the International Financial System, " Paper presented at an International Think Tank Forum on "China in the Twenty-First Century," China Development Institute, November 10-12, 1999.

References

Beauchesne, Eric (1999), "Martin warns against complacency," Montreal Gazette, September 26, p. A9.

Canada (1999), New G20 Forum: Backgrounder, Canada, Department of Finance.

G7 (1999), Statement of G7 Finance Ministers and Central Bank Governors, September 25, 1999, Washington DC

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