December 12, 2013, Sydney, Australia
Presented by Mike Callaghan[1]
The Think20 meeting was held on 11 December 2013. Participants provided a short paper in advance identifying a key policy issue in four areas that should be pursued at the Brisbane Summit — economic/finance policy, infrastructure, trade, and development. Those papers have been published and copies should have been distributed to sherpas. We are collectively seeking to strengthen the Think20 network and the contribution it can make to the G20 process through providing ideas and communicating the importance of enhanced international economic cooperation.
Following is a summary of the issues discussed. It is my assessment, not an agreed statement by Think20 members, and just touches on the range of issues covered.
First an overarching comment. The world needs leadership and leaders need vision. G20 leaders should be preparing for the challenges of tomorrow as well as meeting the demands of today.
Leaders should look to the future and assess how technological advancements, the digital economy and the nature of global business practices are not only challenging tax laws and how to deal with globally operating financial firms, but also trade policy and many aspects of economic and social policies. Technological change will not stop and it will lead to greater interconnectedness and the need for closer cooperation between countries. The assessment of young, high-tech individuals should be sought to gain an insight into likely future developments.
G20 economic/finance process
The challenge is clear — to achieve what leaders said was the G20 objective in Pittsburgh — strong, sustainable and balanced global growth. The uncertainties and vulnerabilities, particularly associated with the policy mix and the exit from quantitative easing, are significant.
The Brisbane Summit should address the main issues confronting the global economy and concentrate on issues requiring international cooperation. The policy options can be divided into three, interconnected categories:
Lifting growth and creating jobs
Dealing with risks and vulnerabilities
Strengthening the process of the MAP
Options towards lifting growth and creating jobs include the following:
Develop comprehensive growth strategies for release at the Brisbane Summit, in keeping with the request by leaders at St Petersburg, with an emphasis on cooperation. The G20 has struggled to have a coherent economic narrative.
G20 Growth Strategies should include plans to: increase infrastructure spending where appropriate; ensuring macro stability, keeping markets open, liberalising trade; and promoting efficient labour and product markets. They should incorporate the importance of empowering small- and medium-sized actors, recognising their role in creating jobs. Reducing inequity should be a core component of achieving 'balanced' and sustainable growth. A 'coordinated G20 growth strategy' should recognise the role of development in boosting global growth and recognise, and deal with, spillovers, both positive and negative.
As part of ensuring the G20 has a coherent agenda, the Framework should incorporate analysis of financial imbalances. An effective and stable financial system is vital to achieving growth, and the G20 should improve its oversight of financial regulation — looking at the 'big picture' and assessing overall progress in achieving stable and efficient financial systems, including tensions. To date the focus has been on bank regulation, with less emphasis on market regulation, particularly in terms of peer review.
Combating tax evasion and avoidance should be a key aspect of each country's growth strategy, particularly in promoting domestic resource mobilisation, which is an important factor in facilitating development. The position of developing countries has to be recognised. Transparency is a key weapon in combating tax avoidance and should be a focus of the G20 in 2014.
As to recognising and responding to risks confronting the global economy, the options proposed cover a number of aspects.
One proposal was for a G20 'early alert' system to detect and monitor potential threats. The MAP only addresses real economy imbalances; the IMF and the FSB already evaluate global financial risk and provide an early warning system for signalling vulnerabilities. Rather than the G20 attempting to implement an early alert system, there is a need to improve the interaction between IMF surveillance and the G20. The G20 has to be more supportive and responsive to all aspects of IMF and FSB surveillance, particularly the identification of vulnerabilities and systemic risks. The MAP needs to be better integrated with the surveillance undertaken by international and regional institutions.
The G20 should adopt a work program for the coming year based on the highest priority issues raised in the latest IMF WEO — e.g. in the October 2013 WEO, these were the speed of fiscal consolidation, completing the process of repairing financial institutions' balance sheets, and managing the volatility of capital flows.
In preparing for, and responding to, capital volatility that could be sparked by the withdrawal from QE, the adequacy of financial safety nets needs to be examined, including the relationship between the IMF with regional safety nets, and the role of bilateral central bank swap lines, possibly endorsing a set of principles for such swaps.
The third area involves more specific proposals to boost the MAP process, such as making it more strategic and obtaining more relevant and timely commitments, with a focus on addressing spillovers, expanding the 'explain and justify' approach, introducing clear timetables and monitoring processes, streamlining the publication of final results into a coherent document, and sanctioning publication of reports in advance so they can be externally reviewed before leaders discuss them.
Infrastructure
Increased infrastructure investment is a potential source of demand growth and a key component of development. Before proposing any solutions to boost infrastructure, however, it is important that the problems to be addressed are clearly identified. While many countries may have similar objectives, the problems they confront will differ, as will their solutions. Moreover, the action necessary to lift infrastructure will depend on national policies and circumstances, not international agreements.
The 'quality' of infrastructure investment is essential. There are many examples of 'poor' infrastructure investment. Look at the experience of southern Europe, where many countries have 'white elephants', which represent a misallocation of resources. Project selection must be based on rigorous analysis. And increased infrastructure spending is not an excuse for fiscal laxity.
Increased infrastructure spending is confronted by concerns over public debt. Increased private investment in infrastructure is welcome, but care is needed. Some infrastructure is a public good and should appropriately be funded by the public sector. Moreover PPPs are highly complex instruments and require advanced capacity within the public sector. Regulatory risk is a major concern confronting private sector involvement in infrastructure. The challenge is to promote more public and private financing of infrastructure. The path chosen should always be based on value for money and the circumstances facing each country. There is no 'one size fits all' solution.
Policy options
To enhance public financing, a sovereign government's budgetary position should be divided into two distinct parts, an operations account and a capital (investment) account. The issuance of infrastructure bonds (a liability in the capital account) could finance individual infrastructure projects (an asset in the capital account). This would provide more disciplined market pressure through the pricing of each issue.
But capital markets need to be developed in some countries. To support emerging markets and developing countries, the G20 should ensure the IFIs pay more attention to these countries' needs in the quest to develop their capital markets.
Draw on the experiences of the ASEAN Infrastructure Fund, support regional bond market initiatives such as the ASEAN+3 Asian Bond Market, and promote good practices such as the Asian Bond Fund 2.
Support the development of regional development funds and cross-border PPP frameworks.
To support greater private financing, translate the G20/OECD High-level Principles on Long-term Investment Financing by Institutional Investors into action through promoting the exchange of experiences, best practices, and lessons that countries can tailor to suit their circumstances.
Information asymmetries appear to be a problem. To respond, establish an international infrastructure forum to bring together policy-makers, financiers (particularly pension funds and fund managers), and implementers (project sponsors) to discuss respective needs and requirements with long-term infrastructure financing.
Rather than simply tasking the MDBs for reports, initiate processes to identify whether the MDBs are efficiently and effectively supporting infrastructure development. MDB support for infrastructure has been declining over recent years.
Trade
Aspects covered in the discussions included combating protectionism, the implications of regional trade arrangements, and multilateral trade liberalisation through the WTO. The papers that have been published were completed prior to the WTO Bali trade agreement reached on 7 December 2013.
As regards the standstill on protectionist measures:
The standstill and its monitoring process should be extended to cover non-tariff measures, or what is called 'murky protectionism'.
The inter-agency work program evaluating protectionist measures by G20 members should be continued and widely publicised.
In order to provide additional incentives for countries to abide by commitments, a peer review process within the G20 to monitor adherence to the standstill commitment should be established.
Take steps, to be verified in the inter-agency reporting process, to give effect to the commitment to roll back existing protectionist measures.
On regional trade agreements:
Make a serious effort at ensuring that regional trading arrangements are congruent with building multilateralism. The WTO's review process is important. Mega-regional trade agreements should include agriculture.
The G20 should encourage members to share information regarding regional trade agreement negotiations that they are participating in with other G20 countries. It should also support the development of a 'regional trade agreement exchange'; a clearinghouse for all RTAs.
On the multilateral trading system, the WTO Bali agreement was very welcome. It shows that the multilateral approach to liberalisation is possible. And multilateral liberalisation should be the main concern of a global body like the G20, because it is the only way all countries benefit.
The momentum from Bali should be maintained and the Doha Round concluded with another discrete set of deliverables. Bali demonstrated the many problems in trying to conclude package deals under current WTO arrangements. Changes are necessary. If there is a major global issue that G20 leaders must confront in 2014, it should be providing strategic direction to the future of the multilateral trading system and the WTO.
This direction should be anchored around global value chains and their implications for international trade negotiations.
The WTO needs to include investment in a more explicit way. This could involve establishing an independent standard body, linked to the WTO, to develop model clauses, treaties, and practices for trade and investment agreements.
Support developing countries in gaining the required expertise to deal with and utilise the WTO Dispute Settlement Mechanism.
Support plurilateral negotiations as a key mechanism to sustain the WTO's position at the apex of the global trading system.
Development
There have been many criticisms of the G20 development agenda and the structure and operation of the Development Working Group. The Group should be restructured and its focus should be on financing for development.
Policy options
Return development to the Framework to help inform a new growth strategy and narrative. The Framework's accountability process should include development. This will mainstream development into the G20s work program.
Prepare a narrative of the post-2015 agenda — combining vision and principles, together with two or three options of a limited number of concrete and time-bound commitments.
Embrace the World Bank's assessment that extreme poverty could be eliminated by 2030.
Assist in shaping content across the UN-development, UN-environment, and UNFCC climate change processes. Climate change cannot be ignored by the G20 in 2014. The G20 is not the negotiating forum, but strategic discussions can build momentum, including on how to finance climate change mitigation and adaptation.
Outline an agenda for G20 action on vehicle efficiency and emissions.
Get leaders directly involved on development issues. Commission a handful of leaders to prepare reports on specific topics for discussion at the Brisbane Summit, such as on food security, financial inclusion, infrastructure, and domestic resource mobilisation.
On infrastructure, focus on strengthening the financial and technical role of the multilateral development banks, and also their efficiency. MDBs are important since they can raise capital more cheaply and negotiate more effectively. This could be achieved by tasking two leaders to jointly review the role of the MDBs in the post-2015 environment or asking the heads of the MDBs to report to leaders on their role.
Build on previous commitments to boost agricultural growth with attention to smallholders, especially women and young farmers.
Give priority to assisting developing countries in capacity building in the area of tax administration so as to benefit from automatic exchange of information and work on BEPS. This is one sure way to boost domestic resource mobilisation.
Produce an 'Accountability Assessment for Impacts on Development and Growth'. This would identify all development commitments, rank them for likely development impact, and monitor implementation starting with the highest-ranking commitments. Monitoring would be undertaken by independent experts.
On the phase-out of fossil fuel subsidies, direct implementation efforts should be made through an IEA consultative process that includes IEA members and non-members. The G20 should also encourage more robust support for the phase-down of HFCs, as agreed to at the St Petersburg Summit.
[1] Director, G20 Studies Centre, Lowy Institute for International Policy.↩
