The G-20 and International Economic
Cooperation: Background and Implications
for Congress
Rebecca M. Nelson
Analyst in International Trade and Finance
December 9, 2009
Congressional Research Service
7-5700
www.crs.gov
R40977
CRS Report for Congress
P
repared for Members and Committees of Congress
The G-20 and International Economic Cooperation
Summary
Governments discuss and coordinate economic policies using a mix of formal institutions, such as
the World Trade Organization (WTO) and International Monetary Fund (IMF), and more informal
economic forums, like the Group of Seven, or G-7, and the Group of 20, or G-20. This report
focuses on informal economic forums, and, specifically, the role of the G-20 in coordinating
governments’ responses to the current economic crisis. The members of the G-7 are Canada,
France, Germany, Italy, Japan, the United Kingdom, and the United States. The G-20 includes the
G-7 members plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi
Arabia, South Africa, South Korea, Turkey, and the European Union (EU).
Since the mid-1970s, leaders from the G-7, a small group of developed countries, have gathered
annually to discuss and coordinate financial and economic policies. Large emerging-market
economies such as China started to have more sway in financial markets in the 1990s, and the
Asian Financial Crisis in 1997-1998 showed that emerging markets were too important to exclude
from international economic discussions. The G-20 was formed in 1999 as an opportunity for
finance ministers and central bank governors from both developed and emerging-market
countries to discuss financial issues. The G-20 remained a less prominent forum than the G-7, as
it involved meetings among finance ministers while the G-7 sessions also involved summit
meetings among heads of governments or heads of state.
With the onset of the current financial crisis, the G-7 leaders decided to convene the G-20 leaders
for a meeting, or “summit,” to discuss and coordinate policy responses to the crisis. To date, the
G-20 leaders have held three summits to coordinate policy responses to the crisis: November
2008 in Washington, DC; April 2009 in London; and September 2009 in Pittsburgh. At the
Pittsburgh summit, the G-20 leaders announced that the G-20 would henceforth be the premier
forum for international economic coordination, supplanting the G-7’s role as such.
The G-20 leaders have made commitments on a variety of issue areas. Implementation of some of
these commitments by the United States would require legislation. Issues that are likely to
influence future policy debates and/or the legislative agenda include: financial regulatory reform,
a new international framework to monitor and coordinate economic policies, voting reform at the
IMF and World Bank, increased funding of multilateral development banks (MDBs), elimination
of fossil fuel subsidies, concluding a new international agreement to reduce greenhouse gas
emissions, concluding the WTO Doha multilateral trade negotiations, and meeting previous
commitments on foreign aid.
The shift from the G-7 to the G-20 as the premier forum for international economic coordination
may raise issues for international economic coordination in the future. Some suggest the shift will
foster cooperation, by increasing the legitimacy of the decisions reached and including countries
that are big players in the global economy. Others argue that the shift will hinder efforts at
cooperation, because such a large, heterogeneous group of countries will have trouble reaching
agreements on key issues. Some say the G-20 meetings should be even larger and more
comprehensive, to include poor and small nations in their deliberations. Others say that the
existing G-20 is already sufficiently diverse and increasing the size would make it too
cumbersome and less effective.
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Contents
Introduction ................................................................................................................................ 1
The Rise of the G-20 as the Premier Forum for International Economic Cooperation................... 3
Economic Coordination in Formal Institutions and Informal Forums ..................................... 3
1970s – 1990s: Developed Countries Dominate Financial Discussions .................................. 4
1990s – 2008: Emerging Markets Gain Greater Influence...................................................... 4
2008 – Present: Emerging Markets Get a Seat at the Table..................................................... 6
How the G-20 Operates............................................................................................................... 7
Frequency of Meetings.......................................................................................................... 7
U.S. Representation .............................................................................................................. 8
Location of Meetings and Attendees...................................................................................... 8
Agreements........................................................................................................................... 9
Overview of the G-20 Summits ................................................................................................. 10
Washington, DC, November 2008 ....................................................................................... 10
London, April 2009............................................................................................................. 10
Pittsburgh, September 2009................................................................................................. 11
Protests at G-20 Summits .................................................................................................... 11
Issues on the Horizon ................................................................................................................ 12
Regulatory Reform.............................................................................................................. 12
A New Framework to Coordinate and Monitor Economic Policies....................................... 13
Increasing the Representation of Emerging Markets in International Financial
Institutions (IFIs) ............................................................................................................. 14
Increased Funding of the Multilateral Development Banks (MDBs) .................................... 16
Official Development Assistance......................................................................................... 19
A Green Recovery............................................................................................................... 20
Conclude WTO Doha Round of Multilateral Trade Negotiations ......................................... 21
Implications of the Transition from the G-7 to the G-20............................................................. 22
Will the Transition to the G-20 Help or Hinder Economic Cooperation? .............................. 22
Is the G-20 the Right Group of Countries?........................................................................... 24
Beyond the Current Crisis: What Will the G-20’s Focus Be? ............................................... 26
Figures
Figure 1. Expansion of the G-7 to the G-20 ................................................................................. 2
Figure 2. Increasing Role of Emerging-Market Countries in the International Economy............... 5
Figure 3. Examples of Country Representation at the IMF......................................................... 15
Figure 4. Net Capital Inflows to Emerging Market Economies, by Region................................. 18
Figure 5. Selected Governance Indicators for the G-20 Developed and Emerging-Market
Countries ............................................................................................................................... 23
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Tables
Table 1. Chairs of the G-20, 1999-2011 ....................................................................................... 9
Table 2. World’s Largest Countries and Entities, by GDP .......................................................... 25
Contacts
Author Contact Information ...................................................................................................... 28
Acknowledgments .................................................................................................................... 28
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Introduction
The Group of Twenty, or G-20, is a forum for advancing international economic cooperation
among developed and emerging-market countries.1 Since the G-20 was established in 1999, the
G-20 finance ministers and central bank governors have met annually to discuss economic and
financial issues. In the wake of the current global financial crisis, the leaders of the developed
countries decided to convene the G-20 heads of government or heads of state for a meeting, or
“summit,” to discuss and coordinate policy responses to the crisis.2 The summit, held in
Washington, DC in November 2008, was the first time this particular group of leaders had
gathered to coordinate economic policies. For the past 30 years, economic discussions among
advanced economies at the leader level occurred among the Group of Seven (G-7) nations, a
much smaller group of developed countries as shown in Figure 1.3
The G-20 leaders convened for two additional summits, in London in April 2009 and in
Pittsburgh in September 2009, to continue discussions on policy responses to the crisis. In each of
the three G-20 summits, the G-20 leaders made several policy commitments, and the depth and
scope of these commitments have increased over time. In Washington, DC, the commitments
were focused on short- and medium-term responses to the crisis, including regulatory reform,
expansionary macroeconomic policies, and commitments to free trade. In London, the G-20
leaders reached more substantial agreements on crisis management, including increasing the
resources of the International Monetary Fund (IMF) and multilateral development banks (MDBs)
by $1.1 trillion. At the Pittsburgh summit, the G-20 pledged commitments on a diverse set of
issue areas, including changes in the relative voting power of member countries at the IMF and
World Bank, creating a new framework to correct global imbalances, taking new steps to address
food security issues, and eliminating fossil fuel subsidies.
Additionally, the G-20 leaders announced at the Pittsburgh summit that, henceforth, the G-20
would be the premier forum for international economic cooperation, displacing the G-7’s long-
standing status as the primary forum for coordinating international economic policies. G-20
discussions are not to cover international relations and foreign policy issues, though this may
change in future years. For these issues, the Group of Eight, or G-8 (the G-7 members plus
Russia) will likely continue to be the principal forum, though more consultation with other
countries is also likely. The transition from the G-7 to the G-20 for economic issues may have a
substantial impact on international economic coordination in the future. Some argue that the
transition will foster greater cooperation, while others contend these goals could be hindered.
1 The G-20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan,
Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, and the United States, as well as
the European Union (EU). Spain and the Netherlands have also been invited to participate as observers. The G-20’s
website is http://www.g20.org. The University of Toronto G-20 Research Group is also a good source of information;
their website is http://www.g20.utoronto.ca/. The G-20 discussed in this report should not be confused with the
coalition of developing countries in the World Trade Organization (WTO) formed in 2003, also referred to as the G-20.
2 For more on the current global financial crisis, see: CRS Report RL34742, The Global Financial Crisis: Analysis and
Policy Implications, coordinated by Dick K. Nanto.
3 The G-7 includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Russia has
joined the G-7 meetings at the leader level (summits) as a full participant since 1998, forming the Group of Eight (G-8).
With a smaller economy than the G-7 members, Russia does not usually participate in international economic
discussions, however, which continued primarily at the G-7 level. For example, Russia is not included in the G-7
meetings at the finance minister level.
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Figure 1. Expansion of the G-7 to the G-20
Source: G-20 website, http://www.g20.org
Notes: The European Union (EU) is a member of the G-20. Pink (for color copies) or medium gray (for black-
and-white copies) indicate members of the European Union (EU) that are not individually represented in the G-
20.
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Congressional interest in the G-20 is, at the least, two-fold. First, implementing many of the
commitments made by the Administration at the G-20 summits to date would require reform of
U.S. laws and regulations. As a consequence, the agreements reached by the G-20 leaders may
influence policy debates and the legislative agenda. Second, the transition from the G-7 to the
G-20 may impact U.S. coordination with other countries on international economic issues in the
future. To provide oversight of U.S. participation in international economic forums, it is important
to highlight the issues raised by the shift from the G-7 to the G-20.
This report addresses the following key issues:
• Context on the emergence of the G-20 as the premier forum for international
economic coordination;
• Background on how the G-20 operates, including where and when the G-20
meets and how the G-20 reaches decisions;
• An overview of the three G-20 summits and analysis of how they have evolved;
• Major G-20 commitments that are likely to shape the policy agenda moving
forward; and
• Broader issues raised by the shift from the G-7 to the G-20.
The Rise of the G-20 as the Premier Forum for
International Economic Cooperation
Economic Coordination in Formal Institutions and Informal
Forums
Since World War II, governments have created and used formal international institutions and
more informal forums to discuss economic policies. As economic integration has increased over
the past 30 years, however, international economic policy coordination has become even more
active and significant. Globalization may bring economic benefits, but it also means that a
country’s economy is increasingly affected by the economic policy decisions of other
governments. These effects are not always positive. For example, a country’s exports may decline
should another country devalue its currency or restrict imports to attempt to reverse a trade deficit
or protect domestic industries. Instead of countries unilaterally implementing these “beggar-thy-
neighbor” policies, some say they may be better off coordinating to refrain from such negative
outcomes. Another reason countries may want to coordinate policies is that some economic
policies, like fiscal stimulus, are more effective in open economies when countries implement
them together.
Governments use a mix of formal international institutions and international economic forums to
coordinate economic policies. Formal institutions, such as the International Monetary Fund
(IMF), the Organization for Economic Co-operation and Development (OECD), the World Bank,
and the World Trade Organization (WTO), are typically formed by an official international
agreement and have a permanent office with staff performing ongoing tasks. Governments have
also relied on more informal forums for economic discussions, such as the G-7 and the Paris
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Club.4 These economic forums do not have formal rules or a permanent staff. This report focuses
on informal forums, particularly the G-20.5
1970s – 1990s: Developed Countries Dominate Financial
Discussions
Prior to the current global financial crisis, international economic discussions at the top leadership
level primarily took place among a small group of developed industrialized countries. Beginning
in the mid-1970s, leaders from a group of five developed countries—France, Germany, Japan, the
United Kingdom, and the United States—began to meet annually to discuss international
economic challenges, including the oil shocks and the collapse of the Bretton Woods system of
fixed exchange rates. This group, called the Group of Five, or G-5, was broadened to include
Canada and Italy, and the Group of Seven, or G-7, formally superseded the G-5 in the mid-1980s.
In 1998, Russia also joined, creating the G-8.6 Russia does not usually participate in discussions
on international economic policy, which continued to occur mainly at the G-7 level. Meetings
among finance ministers and central bank governors typically precede the summit meetings.
Macroeconomic policies discussed in the G-7 context include exchange rates, balance of
payments, globalization, trade, and economic relations with developing countries. One of the
most significant agreements reached by the G-7 was at the first summit in Rambouillet, France, in
1975. The G-7 leaders agreed to a new monetary system to replace the system of fixed exchange
rates that unraveled in the early 1970s and set the stage for amending the IMF Articles of
Agreement to allow floating exchange rates.7 Examples of other significant agreements reached
by the G-7 are the Plaza Agreement in 1985 and the Louvre Accord in 1987. The Plaza
Agreement aimed to depreciate the U.S. dollar in relation to German Deutsche mark and the
Japanese yen, and the Louvre Accord aimed to halt the continued decline of the U.S. dollar. Over
time, the G-7’s and, subsequently the G-8’s, focus on macroeconomic policy coordination
expanded to include a variety of other global and transnational issues, such as the environment,
crime, drugs, AIDS, and terrorism.
1990s – 2008: Emerging Markets Gain Greater Influence
Expanding the G-7 to the G-20 is a significant shift in how international economic coordination
has been organized for the past three decades. At the same time, the impetus for this shift has
been building as emerging-market countries have become more active in the international
economy.
4 The Paris Club is an informal group of developed countries. The group provides financial services such as debt
restructuring and debt relief to indebted developing countries.
5 For more information about formal international institutions, see, for example: CRS Report R40578, The Global
Financial Crisis: Increasing IMF Resources and the Role of Congress, by Jonathan E. Sanford and Martin A. Weiss
and CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda, by Ian F.
Fergusson.
6 While the EU is not an official member of the G-7 or G-8, the EU has participated in meetings since 1977. The EU is
represented by the president of the European Commission and the president of the European Council. The EU does not
hold leadership positions within the G-8 or host summits.
7 Nicholas Bayne, "Reforming the International Financial Architecture: The G7 Summit’s Successes and
Shortcomings," July 2001, http://www.g8.utoronto.ca/conferences/2001/rome/bayneRev.pdf.
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Figure 2. Increasing Role of Emerging-Market Countries in the International
Economy
Source: World Bank World Development Indicators. Capital includes portfolio investment and foreign direct
investment.
Consider Figure 2, which examines the proportion of world capital flows (net), foreign exchange
reserves, GDP, and trade held by high-, middle-, and low-income countries. In the early 1990s,
middle income countries (roughly equivalent to emerging-market countries) started receiving a
much larger proportion of the world’s capital flows, including portfolio investment and foreign
direct investment. Their share dropped during the Asian financial crisis in the late 1990s, but has
slowly been rising since 2000. Likewise, middle-income countries’ share of world foreign
exchange reserves has been steadily on the rise since the 1990s. In recent years, the reserve
holdings of middle-income countries has become larger than the reserve holdings of high-income
countries. Middle-income countries’ share of world GDP and world trade was largely stagnant in
the 1990s but has started to increase over the past decade.
Although middle-income countries, or emerging-market countries, have become more active in
the international economy, particularly in financial markets starting in 1990, this was not reflected
in the international financial architecture until the Asian financial crisis in 1997-1998. The Asian
financial crisis in 1997-1998 demonstrated that problems in the financial markets of emerging-
market countries can have serious spillover effects on financial markets in developed countries,
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making emerging markets too important to exclude from discussions on economic and financial
issues. The Group of 22, or G-22, was established as a temporary forum for finance ministers and
central bank governors from both advanced industrialized and emerging-market countries to
discuss the Asian Financial Crisis.8 The G-22 met twice in 1998, and was superseded by the
Group of 33, or G-33, to discuss international financial stability and the international financial
stability forum.9 The G-33 was also a temporary forum that met twice in 1999.
Including emerging-market countries in economic discussions proved to be fruitful, and the G-20
was established in late 1999 as a permanent international economic forum for developed and
emerging-market countries. However, the G-20 was a secondary forum to the G-7 and G-8; the
G-20 convened finance ministers and central bank governors, while the G-8 also convened
leaders in addition to finance ministers.
Emerging markets were also granted more sway in international economic discussions when the
G-8 partly opened its door to them in 2005.10 The United Kingdom’s Prime Minister Tony Blair
invited five emerging economies–China, Brazil, India, Mexico, and South Africa–to participate in
its discussions but not as full participants (the “G-8 +5”). The presence of emerging-market
countries gave them some input in the meetings but they were clearly not treated as full G-8
members. Brazil’s finance minister is reported to have complained that developing nations were
invited to G-8 meetings “only to take part in the coffee breaks.”11
2008 – Present: Emerging Markets Get a Seat at the Table
It is only with the outbreak of the current financial crisis in fall 2008 that emerging markets have
been invited as full participants to international economic discussions at the highest level. There
are different explanations for why the shift from the G-7 to the G-20 occurred. Some emphasize a
recognition by the leaders of developed countries that emerging markets have become sizable
players in the international economy and are simply “too important to bar from the room.”12
Others suggest that the transition from the G-7 to the G-20 was driven by the negotiating
strategies of European and U.S. leaders. It is reported that that France’s president, Nicolas
Sarkozy, and Britain’s prime minister, Gordon Brown, pushed for a G-20 summit, rather than a G-
8 summit, to discuss the economic crisis in order to dilute perceived U.S. dominance over the
forum, as well as to “show up America and strut their stuff on the international stage.” 13
Likewise, it is reported that President George W. Bush also preferred a G-20 summit in order to
8 The members of the G-22 are the G-8 members plus Argentina, Australia, Brazil, China, Hong Kong, India,
Indonesia, Malaysia, Mexico, Poland, Singapore, South Africa, South Korea, and Thailand.
9 The members of the G-33 are the G-8 members plus Argentina, Australia, Belgium, Brazil, Chile, China, Côte
d'Ivoire, Egypt, Hong Kong, India, Indonesia, South Korea, Malaysia, Mexico, Morocco, the Netherlands, Poland,
Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, and Turkey.
10 Emerging markets had been sporadically invited to a few G-8 summit dinners and events as early as 1989, but their
participation was very minor compared to 2005 onwards. See Peter I. Hajnal, The G8 System and the G20 (Ashgate,
2007), pp. 47-49.
11 Jonathan Wheatley, "G20 Calls for Expanded Role to Combat Economic Turmoil," Financial Times, November 10,
2009.
12 "After the Fall," The Economist, November 15, 2009.
13 "Not a Bad Weekend’s Work," The Economist, November 16, 2008.
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balance the strong European presence in the G-8 meetings.14 Some attribute the G-20’s staying
power to the political difficulties of reverting back to the G-7 after having convened the G-20.
How the G-20 Operates
Frequency of Meetings
The G-8 and G-20 heads-of-state meetings, or summits, are the focal points of the G-8 and G-20
discussions and where the forums’ key decisions are announced. However, various lower-level
officials meet frequently before the summits to begin negotiations and after the summits to
discuss the logistical and technical details of implementing the agreements announced at the
summits.
Prior to the current global financial crisis, the G-20 finance ministers and central bank governors
have met once a year since the G-20 was established in 1999. The annual meeting of G-20
finance ministers and central bank governors has been preceded by extensive preparation to
provide them with up-to-date analysis and insights and to better inform their consideration of
policy challenges and options. This includes two deputies meetings each year as well as extensive
technical work, including an array of workshops, reports, and case studies on specific subjects.
As economic discussions at the leader level transition from the G-7 to the G-20, it is expected that
the G-20 schedule will mimic the G-7’s schedule in the past. The G-7 leaders, and Russia, have
met annually, and the G-7 finance ministers and central bank governors have met at least semi-
annually, and as frequently as four times a year, to monitor developments in the world economy
and assess economic policies. The G-20 leaders are scheduled to meet twice in 2010, June 2010
in Canada and November 2010 in South Korea. Starting in 2011, the G-20 expects to hold
summits on an annual basis.
At various points in time, usually at the request of the G-8 leaders, the G-7 or G-8 ministers of
development, education, employment and labor, energy, ministers, global information and society,
health, justice, science, and trade have also occasionally convened to discuss pertinent issues. The
G-20 has already, for example, called on the G-20 employment and labor ministers to meet in
2010 to discuss the problem of unemployment.
In addition to the summits and various ministerial meetings, there are also meetings among the
leaders’ personal representatives, known as “sherpas.”15 Sherpas meet several times a year to
prepare for the forthcoming summit, attend the formal summit meetings with the leaders, and
hold several follow-up meetings. The sherpa team for each country typically includes a lead
sherpa and two “sous-sherpas”: a finance sous-sherpa and a foreign affairs sous-sherpa.16 The
14 Ibid.
15 The term “sherpa” is a play on words. Typically, sherpas refer to local people, typically men, in Nepal who are
employed as guides for mountaineering expeditions in the Himalayas. Recall that meetings held among leaders are
called “summits,” which also refers to the highest point of a mountain.
16 The term “sous-sherpa” is also a play on words, referencing the French term “sous-chef” for under-chef or an
assistant to a master chef.
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foreign affairs sous-sherpa covers issues outside the purview of finance, such as trade and the
environment.
Finally, a variety of task forces, working groups, and expert groups have been established by the
G-8 leaders or G-7 finance ministers over the years as well to support the work of the G-8 and the
G-7. Examples include the Financial Action Task Force (FATF), the Financial Stability Forum
(FSF), the Counter-Terrorism Action Group, and the Global Fund to Fight AIDS, Tuberculosis,
and Malaria, and the G-8 Renewable Energy Task Force.
U.S. Representation
Because the G-20 began as a forum for finance ministers and central bank governors, the
Treasury Department and the Federal Reserve have traditionally been the primary U.S. agencies
involved in the G-20 meetings. As the G-20 has replaced the G-7 on finance issues, the Treasury
Department has taken the lead on the G-20 meetings. However, the Treasury Department works
closely with other agencies throughout the G-20 process. In addition to the Federal Reserve, the
Treasury Department also coordinates with the State Department, the U.S. Agency for
International Development, and, increasingly, the Department of Energy to coordinate G-20
issues. The White House, particularly through the National Security Council and the U.S. Trade
Representative, is also heavily involved in the G-20 planning process.
The U.S. sherpa for the G-20 is the Deputy National Security Advisor for International Economic
Affairs, a position currently held by Mike Froman. The U.S. sous-sherpa for finance issues is the
Under Secretary of International Affairs at the Treasury Department, who also represents the U.S.
at G-20 meetings at the level of deputy finance minister. Lael Brainard has been designated for
this position subject to confirmation by the Senate. The Senate Finance Committee held her
confirmation hearing in November 2009 and while a vote on her confirmation has not yet been
scheduled, it is anticipated that it will occur soon. Finally, the U.S. sous-sherpa for foreign affairs
issues is the Under Secretary for Economic, Energy, and Agricultural Affairs at the State
Department. Robert D. Hormats currently holds this position.
Location of Meetings and Attendees
Unlike formal international institutions, such as the United Nations and the World Bank, the G-20
does not have a permanent headquarters or staff. Instead, each year, a G-20 member country
serves as the chair of the G-20. The chair hosts the highest level meetings, which before the crisis
was among finance ministers but moving forward will be the leaders’ summit meetings. The chair
also establishes a temporary office that is responsible for the group’s secretarial, clerical, and
administrative affairs, known as the temporary “secretariat.” The secretariat also coordinates the
G-20’s various meetings for the duration of its term as chair and typically posts details of the G-
20's meetings and work program on the G-20’s website.17
The chair rotates among members and is selected from a different region each year. Table 1 lists
the previous and current chairs of the G-20, as well as the member country slotted to chair in
2010 (South Korea) and 2011 (France). The United States has never officially chaired the G-20,
although the United States has hosted two of the three G-20 summits held to date.
17 http://www.g20.org
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Table 1. Chairs of the G-20, 1999-2011
Year
Country
1999-2001
Canada
2002
India
2003
Mexico
2004
Germany
2005
China
2006
Australia
2007
South Africa
2008
Brazil
2009
United Kingdom
2010
South Korea
2011
France
Source: G-20 website, http://www.g20.org.
In addition to the G-20 members, Spain and the Netherlands have also attended, as observers, the
three G-20 summits to date. Several regional organizations and international organizations have
also attended the G-20 summits. For example, official participants at the London summit included
the leaders of the G-20 member countries as well as representatives from the following
organizations:
• the European Commission
• the European Council
• the Association of Southeast Asian Nations (ASEAN)
• the Financial Stability Board (FSB, formerly the Financial Stability Forum, FSF)
• the International Monetary Fund (IMF)
• the New Partnership for Africa’s Development (NEPAD)
• the United Nations
• the World Bank
• the World Trade Organization18
Agreements
All agreements, comments, recommendations, and policy reforms reached by the G-20 finance
ministers and central bankers, as well as by G-20 leaders, are done so by consensus. There is no
formal voting system as in some formal international economic institutions, like the IMF.
Participation in the G-20 meetings is restricted to members and not open to the public. After each
18 Jenilee Guebert, Plans for the Third G20 Summit: Pittsburgh 2009, G20 Research Group, University of Toronto,
August 18, 2009, pp. 44-45, http://www.g20.utoronto.ca/g20plans/g20leaders090818.pdf.
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meeting, however, the G-20 publishes online the agreements reached among members, typically
as communiqués or declarations.19 The G-20 does not have a way to enforce implementation of
the agreements reached by the G-20 at the national level; the G-20 has no formal enforcement
mechanism and the commitments are non-binding. This contrasts with, for example, the World
Trade Organization (WTO), which does have formal enforcement mechanisms in place.20
However, according to the participants, each G-20 meeting reviews the agreements and
commitments reached at prior meetings.
Overview of the G-20 Summits
The G-20 has been at the forefront of coordinating responses to the economic crisis. As
mentioned previously, the G-20 has held three summits since the onset of the financial crisis:
Washington, DC in November 2008, London in April 2009, and Pittsburgh in September 2009.
These summits are generally preceded by meetings of finance ministers and other chief economic
officials. The G-20 has two summits scheduled for 2010: Canada in June 2010 and South Korea
in November 2010. Starting in 2011, the G-20 leaders are expected to convene on an annual basis,
though meetings at a financial minister level are likely to occur more often.
After each summit, the G-20 leaders issue a declaration or communiqué detailing the agreements
reached among the members.21 The types of agreements reached at the G-20 summits have
evolved as the crisis has transitioned from economic free-fall to signs of recovery and as the G-20
has solidified as a forum for international economic cooperation at the leader level. With each
subsequent summit, the G-20’s commitments have become more specific, extended over longer
time horizons, covered more issue areas, and emphasized greater participation of emerging-
market countries in the international financial architecture.
Washington, DC, November 2008
The Washington, DC summit focused on immediate crisis management. The G-20 pledged to
pursue extensive regulatory reforms, including the creation of new international regulatory
standards and national level reforms. The G-20 also pledged to use expansionary macroeconomic
policies, both fiscal and monetary, to stimulate aggregate demand and encourage economic
growth, or at least keep things from getting worse. Finally, the G-20 committed to refrain from
protectionist trade policies.
London, April 2009
The London summit occurred several months after the Washington, DC summit, but the G-20
leaders were still in crisis management mode. The G-20 leaders reiterated many of the
commitments from the Washington, DC summit and also reached agreement on more specific and
far-reaching policy responses to the crisis. One of the biggest commitments from the London
summit was the pledge to increase funding for the IMF and the MDBs by $1.1 trillion, including
19 http://www.g20.org
20 E.g., see: CRS Report RS20088, Dispute Settlement in the World Trade Organization (WTO): An Overview, by
Jeanne J. Grimmett.
21 The G-20 communiqués are posted online at http://www.g20.org/pub_communiques.aspx.
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a tripling of the IMF’s lending capacity.22 The G-20 leaders also pledged $5 trillion in fiscal
stimulus spending over the next two years and to create the Financial Stability Board (FSB) as the
successor to the Financial Stability Forum (FSF) to coordinate and monitor progress on
regulatory reforms. The G-20 also emphasized their commitment to concluding the World Trade
Organization (WTO) Doha Round of multilateral trade negotiations, which have stalled since
2001, and honoring their foreign aid commitments. Reforming the international financial
institutions (IFIs) to increase the representation of emerging-market countries was discussed, but
no real specific commitments were put forth.
Pittsburgh, September 2009
The Pittsburgh summit occurred as the global recession was bottoming out, although
unemployment was generally still rising in developed countries. The tone of the Pittsburgh
communiqué reflects a sense of accomplishment with the G-20’s response to address the crisis,
while recognizing more work was needed. The G-20 leaders announced the creation of a new
framework to coordinate and monitor national economic policies in order to correct the current
global imbalances and prevent such imbalances from occurring in the future. The G-20 also
announced more specific plans to increase the representation of emerging-market countries at the
IMF and World Bank, as well as specific commitments on a host of new policy areas, including
economic development and the environment.
Protests at G-20 Summits
Each of the three G-20 summits have attracted protesters. The protesters tend to come from a mix
of broad movements, including environmentalists, trade unions, socialist organizations, faith-
based groups, anti-war camps, and anarchists.23 At the Pittsburgh summit, for example, thousands
of protestors gathered in the streets, holding signs with slogans such as “We Say No To Corporate
Greed” and “G20=Death By Capitalism.”24 The protests have primarily been peaceful, although
at times tensions between the police and protesters have escalated. In Pittsburgh, protestors began
throwing rocks,25 police used pepper gas against a group of students,26 and several protestors were
arrested.27
22 For more on the $1.1 trillion package to increase IFI and MDB resources, and the requisite congressional
authorizations, see: CRS Report R40578, The Global Financial Crisis: Increasing IMF Resources and the Role of
Congress, by Jonathan E. Sanford and Martin A. Weiss.
23 Carl Prine, "An Overview of Protests Expected in Pittsburgh for G-20," Pittsburgh Tribune-Review, September 20,
2009.
24 Michelle Nichols, "Protesters, Police Clash After G20 in Pittsburgh," Reuters, September 25, 2009.
25 Daniel Lovering and Michael Rubinkam, "G-20 March Turns Chaotic as Police, Protesters Clash on Streets of
Pittsburgh," AP Newswire (Government Feed), September 24, 2009.
26 Michelle Nichols, "Protesters, Police Clash After G20 in Pittsburgh," Reuters, September 25, 2009.
27 Dennis B. Roddy and Michael A. Fuoco, "Protests Lead to 19 Arrests Across City," Pittsburgh Post-Gazette,
September 25, 2009.
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Issues on the Horizon
The major G-20 commitments that are likely to influence the policy agenda in the near future are
described and analyzed in greater detail below.
Regulatory Reform
Some argue that a major cause of the current global financial crisis was the failure of
policymakers to adequately regulate financial markets both domestically and globally.
Consequently, proposals for regulatory reform have been central components of each of the three
G-20 summits to date. The proposals have generally emphasized the need for new international
regulatory standards and the implementation of regulatory reforms at the national level. Examples
of the reforms proposed include:
• Creating new global accounting standards,
• Expanding the transparency of complex financial instruments,
• Strengthening and harmonizing capital standards,
• Reassessing banker compensation,
• Regulating all systemically important financial institutions,
• Regulating credit rating agencies, and
• Fighting illicit financial activity.
At the G-20 summit held in Pittsburgh, the G-20 leaders announced several deadlines for some
key regulatory reforms. These include:
• Developing new standards for bank capital by end-2010,
• Implementing new capital standards by end-2012,
• Strengthened regulation of over-the-counter derivatives markets by end-2012,
• Addressing cross-border resolutions and systemically important financial
institutions by end-2010,
• Converging on new global accounting standards by June 2011,
• Implementing countermeasures against tax havens from March 2010, and
• Initiating a peer review process of non-cooperative jurisdictions (NCJs) by
February 2010.
As noted earlier, the G-20 leaders also announced the creation of the FSB as a successor to the
FSF. The FSF was founded in 1999, the wake of the Asian financial crisis, to promote
international financial stability. The new FSB has a larger membership, including the major
emerging-market countries, and a stronger mandate to coordinate and monitor progress in
strengthening financial regulation. Secretary of Treasury Tim Geithner considers that, in effect,
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the FSB will be the fourth pillar in the architecture of international cooperation along with the
IMF, the World Bank, and the WTO.28
The FSB is currently undertaking a project to compare national implementation of regulatory
reforms and identify cross-country differences and any need for policy actions to address them.
As the FSB itself acknowledges, the FSB can develop coherent policy proposals and monitor
progress on implementation, but “only national authorities can assure implementation that is
effective and consistent across borders.”29 In the FSB’s analysis to date, the FSB finds that while
regulatory reforms are well underway, they are far from complete.30 Given the G-20’s
commitments on regulatory reform in the Pittsburgh summit and the FSB’s project to assess the
status of national implementation of regulatory reforms, regulatory reform is likely to be a key
issue moving ahead and major legislation has been introduced by key committees.
A New Framework to Coordinate and Monitor Economic Policies
Some believe that the United States’ external deficit and China’s external surplus contributed to
an unstable imbalance in the world financial system. In order to correct this imbalance, and
promote compatible national economic policies in the future, the G-20 announced a new
“Framework for Strong, Sustainable and Balanced Growth.”31 The Framework would operate in
three stages. First, the G-20 members would agree on shared policy objectives, updated as
economic conditions evolve. Second, each G-20 member would agree to establish national,
medium-term policy frameworks, and the G-20 members would work in conjunction with the
IMF to assess the collective implications of national policy frameworks for global growth and
financial stability. Third, the G-20 members would, based on the results of the peer review
process, consider and agree to actions that are necessary to meet the common objectives.
If the peer review process, or “cooperative process of mutual assessment,” reveals policies that
are not consistent with the G-20’s shared policy objectives, the only mechanism currently
available for inducing policy change is the threat of “naming and shaming.” This has worked to
some extent for the G-7 economic process, but it has worked less well in international
organizations. Some question, then, whether the new G-20 Framework will be different than IMF
surveillance.32 The IMF has the responsibility to monitor the international monetary system and
the economic and financial policies of individual IMF member countries. In recent years, it has
also monitored broader global and regional trends. Under its surveillance programs, the IMF can
point to weaknesses in an economy but does not have authority to enforce policy changes to
address those weaknesses. Countries that do not need to borrow from the IMF have often
shrugged off its advice. It is not clear under the current framework for the G-20 how the mutual
assessments will translate into policy actions by participating countries on particular key issues
such as correcting global imbalances that may require increasing savings in the United States or
increasing spending in China.
28 Treasury Department, "Press Briefing by Treasury Secretary Tim Geithner on the G20 Meeting Pittsburgh
Convention Center," press release, September 24, 2009, http://www.treas.gov/press/releases/tg405.htm.
29 Ibid., pp. 13.
30 Financial Stability Board. Improving Financial Regulation: Report of the Financial Stability Board to the G20
Leaders. September 25, 2009.
31 http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf.
32 E.g., see Chris Giles, "Three-Stage Plan for Growth," Financial Times, September 26, 2009 and Chris Giles, "Spot
the Difference," Financial Times, September 23, 2009.
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That said, even if the G-20 Framework is in practice similar to IMF surveillance, the G-20
Framework would raise the profile of monitoring economic policies to the leader level and would
emphasize the importance of multilateral surveillance. It is also worth noting that “naming and
shaming” has at times been an effective strategy for inducing reform. For example, the Financial
Action Task Force on Money Laundering (FAFT)’s blacklist of non-cooperative countries and
entities was effective in bringing about reforms on anti-money-laundering efforts.
Developing countries are publicly supportive of the Framework, but The Economist reports that
they are uneasy about formalizing a realignment of global imbalances.33 The Economist
speculates that developing countries’ public support for the Framework is driven by suspicions
that the policy reforms suggested by the mutual assessments will be difficult to enforce.34
Moreover, some worry that efforts to address the problem of international financial imbalances
without simultaneous efforts to address the conditions which caused the imbalances to occur
might have unsatisfactory results.
Increasing the Representation of Emerging Markets in
International Financial Institutions (IFIs)
There has been frustration among emerging-market countries that the IMF and the World Bank
have not been reformed to reflect their increased weight in the world economy. The G-20 pledged
a shift of at least 5% of the IMF quota share (which impacts voting power) from over-represented
countries to under-represented countries by January 2011.35 The G-20 leaders also committed to
increase at least 3% of the voting power for developing and transition countries at the World
Bank. Although the G-20 leaders agreed to this voting reform in the abstract, it has yet to be
decided exactly which countries would lose or gain voting rights. Taking voting power away from
countries is politically sensitive, and negotiations over the specifics of voting reform are expected
to be difficult, particularly with European countries who are likely to lose voting shares in the
reforms.36 The United States, by contrast, is unlikely to lose voting power in the negotiations, as
the United States is actually an under-represented country at the IMF. The United States chose to
allow its proportional share to decline in recent decades, partly to make room for new members
and partly to lower its financial obligation.
To date, voting reform at the IMF has garnered more attention than the World Bank. Which
countries, more specifically, are over- and under-represented at the IMF? There is general
agreement that each IMF member’s quota should broadly reflect its relative size in the world
economy.37 One way to gauge which countries are over- and under-represented at the IMF is to
compare a country’s share of world GDP with its IMF quota share.38 By this metric, countries
33 "Regaining their Balance," The Economist, September 26, 2009.
34 Ibid.
35 IMF quotas determine a country’s maximum financial commitment to the IMF and its voting power, and has bearing
on its access to IMF financing.
36 "Money, Votes and Politics," The Economist, October 7, 2009.
37 E.g., see “IMF Quotas,” International Monetary Fund, October 31, 2009. Available at
http://www.imf.org/external/np/exr/facts/quotas.htm. Also see “Quota Reform at the G-20,” Reserve Bank of Australia,
February 2006. Available at
http://www.treasury.gov.au/documents/1102/HTML/docshell.asp?URL=G20_Quota_Reform.htm.
38 GDP used in this section is adjusted for purchasing power parity (PPP). GDP adjusted for PPP means that GDP is
adjusted to account for differences in prices across countries. Others argue that market-based GDP, unadjusted for PPP,
(continued...)
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with quota shares that are larger than their share of world GDP may be considered to be over-
represented at the IMF. For example, because Saudi Arabia’s quota share in the IMF is 2.93% but
its share of world GDP is only 0.71%, Saudi Arabia may be considered to be over-represented.
Another example is Belgium, whose quota share is 1.93% even though its share of world GDP is
only 0.59%.
By contrast, countries may be considered to be under-represented at the IMF when their quota
share is smaller than their share of world GDP. The United States is generally considered to be
under-represented at the IMF, with a quota share of 17.67% but 21.82% of world GDP. Figure 3
shows examples of countries that are over- and under-represented at the IMF.39
Figure 3. Examples of Country Representation at the IMF
Source: Data used in calculations from “Updated IMF Quota Day – September 2009,” International Monetary
Fund, September 23, 2009. Available at http://www.imf.org/external/np/fin/quotas/2009/091509.htm.
Notes: 25 IMF members with the smallest and largest differences between IMF quota share and share of world
GDP. GDP is adjusted for purchasing power parity (PPP).
(...continued)
should be used. In the current IMF quota formula, GDP is a weighted average of market-based and PPP GDP, at 60%
and 40% respectively. Using market-based GDP does produce slightly different rankings; Figures 3 and 4 are intended
as examples and should not be taken as definitive rank orders of under- and over-represented countries.
39 These are examples; see fn. 55.
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The G-20 leaders also pledged that the heads and senior leadership of the international financial
institutions should be appointed through an “open, transparent, and merit-based selection
process.” This may affect the 60-year-old unwritten convention that the Managing Director of the
IMF is selected by Western European countries and the President of the World Bank is selected
by the United States. However, the wording in the G-20 statement is vague and to date there is no
consensus within the U.S. government or internationally on how this would be implemented in
practice.
Increased Funding of the Multilateral Development Banks (MDBs)
As the current financial crisis spread internationally during 2008 and 2009, more and more
countries turned to the IMF and the World Bank for loans. IMF lending almost doubled from
$17.1 billion to $32.54 billion between October and December 2008. Expecting a greater demand
for IMF loans in the future, the G-20 leaders agreed at the London summit to triple the Fund's
lending capacity to $750 billion as part of a larger $1.1 trillion package to increase IFI funding.40
Specifically, the leaders agreed to increase the resources of the New Arrangements to Borrow
(NAB), a supplemental fund that bolsters IMF resources, by up to $500 billion. To fulfill this
commitment, Congress approved the extension of a $100 billion loan to the NAB in May 2009,
included in the FY2009 Spring Supplemental Appropriations for Overseas Contingency
Operations (P.L. 111-32). In the end, total new commitments to the NAB are greater than $500
billion, more than originally expected.41
At the G-20 summit in Pittsburgh, the G-20 turned their attention to the lending capacity of the
multilateral development banks (MDBs). Proposals have been made in all the MDBs in the past
year suggesting that substantial increases in their capital stock are needed. There are two general
reasons why the MDBs are requesting general capital increases. First, demand for loans is high.
The current crisis and the resulting shrinkage in private capital flows is creating a large gap in the
external financing needs for developing countries. The World Bank estimates this gap is between
$350 billion and $635 billion for 2009 alone, and is expected to continue in 2010 and beyond.42
Second, it has been noted that the Inter-American Development Bank (IDB)’s request for a
general capital increase comes on the heels of a loss of nearly $1.9 billion in 2008.43
An overview of these MDB proposals for capital increases are provided below:
• International Bank for Reconstruction and Development (IBRD), a facility
of the World Bank: 44 According to a report prepared by the bank’s staff, the
40 For more information, see: CRS Report R40578, The Global Financial Crisis: Increasing IMF Resources and the
Role of Congress, by Jonathan E. Sanford and Martin A. Weiss.
41 International Monetary Fund, Bolstering the IMF's Lending Capacity, November 5, 2009,
http://www.imf.org/external/np/exr/faq/contribution.htm.
42 World Bank, Review of IBRD and IFC Financial Capacities: Working with Partners to Support Global
Development, October 5, 2009.
43 Daniel Bases and Javier Mozzo, "IADB Should Increase Capital by $150-$180 Billion," Reuters, March 29, 2009.
44 The International Bank for Reconstruction and Development (IBRD) is one of two World Bank facilities that lend
directly to governments to finance projects and programs. The other facility is the International Development
Association (IDA). The IBRD provides middle-income developing countries with loans at near-market rates using
funds raised by the World Bank on the international capital markets. While many of these countries can borrow on the
international capital markets, and are increasingly doing so, some seek loans from the World Bank to gain access to
World Bank technical assistance and advisory services, as well as the prestige and legitimacy that come with World
(continued...)
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IBRD needs a capital increase in the range of $2.8 billion and $8.7 billion.45 The
IBRD’s current capital base is $190 billion.46
• International Finance Corporation (IFC), a facility of the World Bank:47
According to a staff report, the IFC needs a capital increase of $1.8 billion to
$2.4 billion.48 The IFC’s current capital base is $16 billion.49
• African Development Bank (AfDB): In June 2009, the Board of Governors of
the AfDB began consideration of a proposal to triple the institution’s capital base
to $100 billion.50
• Asian Development Bank (AsDB): On May 12, 2009, the Board of Governors
of the AsDB agreed to triple the Bank’s capital base, from $55 billion to $165
billion.51 Under the terms of the plan, each country will be eligible to subscribe
shares totaling 200% of its current subscription by the end of 2010.
• European Bank for Reconstruction and Development (EBRD): The President
of the EBRD has recommended to member countries that the institution’s capital
base be increased by 50% from €20 million to €30 million.52 In dollars, this is
approximately an increase from $30 million to $45 million.
• Inter-American Development Bank (IDB): In March 2009, a commission
appointed by President Luis Alberto Moreno of the IDB proposed that the
financial base of the institution should be tripled through a new capital increase
of up to $180 billion.53
The proposals are in the preliminary stages, and the Treasury Department is currently analyzing
the capital needs of the different MDBs to see if any capital increase is warranted, and if so, how
(...continued)
Bank-backed projects. IDA was established in 1960, 16 years after the creation of the IBRD, due to concerns that low-
income countries could not afford to borrow at the near-market rate terms offered by the IBRD. Consequently, IDA
provides concessional loans and grants to poor countries funded by contributions from donors and transfers from the
IBRD.
45 World Bank, Review of IBRD and IFC Financial Capacities: Working with Partners to Support Global
Development, September 29, 2009.
46 Japan Credit Rating Agency, Ltd., Affirms AAA Ratings on International Bank for Reconstruction and
Development; Outlook Stable, April 25, 2008,
http://www.jcr.co.jp/english/top_cont/rat_info04.php?no=08i007&PHPSESSID=f809554a5fc99e428fcfd7a0cf5ec7dd.
47 The IFC was established in 1956 and promotes sustainable private sector development by financing private sector
projects and companies in the developing world, helping private companies in the developing world mobilize financing
international financial markets, and providing advice and technical assistance to businesses and governments.
48 World Bank, Review of IBRD and IFC Financial Capacities: Working with Partners to Support Global
Development, September 29, 2009.
49 IFC, IFC 2009 Financials, Projects, and Portfolio, 2009, p. 4,
http://www.ifc.org/ifcext/annualreport.nsf/AttachmentsByTitle/AR2009_Volume2/$FILE/AR2009_Volume2.pdf.
50 “African Development Bank Seeks Additional Capital-Treasurer,” Reuters Africa, September 23, 2009.
51 The formal proposal may be found at Asian Development Bank. Information on Subscription for the Fifth General
Capital Increase. May 2009. See http://www.adb.org/Documents/Brochures/Fifth-General-Capital-Increase/general-
capital-increase.pdf.
52 "EBRD Seeks 50% Increase in Capital," Financial Times, September 28, 2009.
53 Joshua Goodman and Helen Murphy, " IDB Seeking Up to $180 Bln in Capital to Boost Loans (Update2),"
Bloomberg, March 29, 2009.
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much it should be. The G-20 leaders have called on their finance ministers to consider how
mechanisms such as temporary callable and contingent capital could be used to increase MDB
lending in times of crisis. The current hope is to conclude negotiations on commitments for any
general capital increases by Spring 2010. If the United States agrees to participate in a capital
increase for any of the MDBs, it is anticipated that this would be included in the FY2012 budget.
There is also strong indication that donors would require that a capital increase of any of the
MDBs would be accompanied by reforms of the MDBs.
In the view of many, the need and size of any MDB capital increases would depend on the
availability of private funds. Prior to the current global financial crisis, in 2007, net capital
inflows to emerging markets were at a historic peak of $1,252 billion in 2007.54 Capital flows
began slowing in 2008 and fell to $349 billion in 2009. Capital flows to emerging markets are
forecasted to rebound to $672 billion in 2010. There are some important differences among
regions, as shown in Figure 4. Capital has returned to emerging markets in Latin America and
Asia more quickly than to emerging markets in Eastern Europe, Africa, and the Middle East.
Figure 4. Net Capital Inflows to Emerging Market Economies, by Region
Source: “Capital Flows to Emerging Market Economies,” Institute for International Finance, October 3, 2009.
Notes: Data for 2009 and 2010 are forecasts. Emerging Europe includes Bulgaria, Czech Republic, Hungary,
Poland, Romania, Russia, Turkey, and Ukraine. Latin America emerging markets include Argentina, Brazil, Chile,
Poland, Ecuador, Mexico, Peru, and Venezuela. Emerging Asia includes China, India, Indonesia, Malaysia,
Philippines, South Korea, and Thailand. Africa/Middle East emerging markets include Egypt, Lebanon, Morocco,
Nigeria, Saudi Arabia, South Africa, and UAE.
The new lending capacity generated by new increases in the capital base of the MDBs would not
be available to support expanded lending until at least 2012. It cannot be determined at this time
whether private flows will have returned to the 2007 levels by that time and whether new loans or
guarantees by the MDBs would be needed to attract or enhance such private flows. Also, it is not
clear whether the high level of inflows seen before the crisis were sustainable or whether their
size actually contributed to the severity of the crisis in some instances when the flow
54 Data for this section is from “Capital Flows To Emerging Market Economies,” Institute for International Finance,
October 3, 2009.
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precipitously declined. Overall, however, the resurgence of capital flows to emerging markets
raises questions about the need for permanent capital increases, and, if reform fatigue sets in, it is
unclear how much momentum this issue will have going forward.
Official Development Assistance
Concern about the toll of the current global financial crisis on low-income countries has been a
central feature at the G-20 summits. The G-20 leaders have reaffirmed their resolve to meet the
Millennium Development Goals (MDGs) and the foreign aid commitments to Africa put forth at
the 2005 G-8 summit in Gleneagles, Scotland.55 The G-20 also pledged to take new steps to
increase access to food, fuel, and finance among the world’s poorest. Specifically, the G-20
leaders called on the World Bank to develop the new trust fund to support the new Food Security
Initiative for low-income countries that was announced in the summer of 2009. The G-20 also
pledged, on a voluntary basis, to increase funding for programs to bring clean and affordable
energy to the poorest, such as by providing funding for the Scaling Up Renewable Energy
Program and the Energy for the Poor Initiative. The G-20 agreed to support the safe and sound
spread of new modes of financial service delivery capable of reaching the poor, building on the
example of micro finance. The G-20 also pledged to launch a “G-20 SME [small and medium-
sized enterprise] Finance Challenge,” which is a call to the private sector to put forward its best
proposals for how public finance can maximize the deployment of private finance on a
sustainable basis.
There is general concern that pledges to meet existing aid commitments may fall short. The MDG
Gap Task Force, created by the Secretary-General of the United Nations to monitor progress on
reaching the MDGs, has expressed concern that foreign aid may fall due to the crisis at a time
when aid needs to increase in order to reach the MDGs.56 Additionally, the MDG Gap Task Force
is concerned that the distribution of aid is skewed to a just a couple of countries, specifically Iraq
and Afghanistan.
Whether the G-8 will meet the targets for aid to Africa, as promised in Gleneagles, is also in
question. According to the organization ONE, which monitors aid commitments and
disbursements to Africa, this is primarily caused by shortfalls from a few G-8 members,
particularly Italy and France. 57 Other G-8 members, including Canada, Japan, and the United
States, are on track to meet their G-8 Gleneagles commitments to Africa.58
Given the difficulty in meeting existing aid commitments, it is unclear as to what extent the G-20
members will take the steps necessary to implement the new programs aimed at increasing access
55 The Millennium Development Goals are a series of eight development goals, ranging from halving extreme poverty
to halting the spread of HIV/AIDS, to be reached by 2015. The Millennium Development Goals were agreed to by
world leaders at the United Nations Headquarters in New York in 2000. In order to help reach the Millennium
Development Goals, leaders at the G-8 summit in Gleneagles, Scotland in 2005, committed to doubling aid to Africa by
2010. This is agreement is often referred to as the “Gleneagles commitments.” Russia did not commit to raising aid to
Africa, leading some to refer to the Gleneagles commitments as made by the G-7. For more on U.S. foreign aid see:
CRS Report R40213, Foreign Aid: An Introduction to U.S. Programs and Policy, by Curt Tarnoff and Marian
Leonardo Lawson.
56 Millennium Development Goal (MDG) Gap Task Force, Strengthening the Global Partnership for Development in a
Time of Crisis, 2009.
57 ONE, The Data Report 2009: Monitoring the G8 Promise to Africa, May 19, 2009.
58 Ibid.
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to food, fuel, and finance in low-income countries. Some have pointed out that details of the new
plans are sparse, contributing to questions about their implementation.59
A Green Recovery
As the current financial crisis has begun to seemingly bottom out, the G-20 leaders have turned to
other issues, including the environment. The G-20 leaders have committed to eliminating fossil
fuel subsidies over the medium-term and reach an agreement on reducing greenhouse gas
emissions at the U.N. Climate Change conference in Copenhagen in December 2009.60
Support for the ban on fossil fuel subsidies comes from the Obama Administration, who pushed
for the G-20 commitment in Pittsburgh.61 It is estimated that the removal of fossil fuel subsidies
by 2020 would reduce greenhouse gas emissions by 10% in 2050, and it is reported that the
President views the elimination of fossil fuel subsidies as a “down payment” on the international
goal of reducing greenhouse gas emissions by 50% from 1990 levels by 2050.62
In addition to the environmental benefits, eliminating fossil fuel subsidies may also even out the
large price swings that have characterized the oil markets in recent years.63 With fossil fuel
subsidies, increases in the price of oil are not necessarily passed on to consumers. This means that
demand for oil can continue to rise even as oil prices increase and in fact further contribute to the
price increase, leading to large upswings in the price of oil. Stabilizing oil prices may prove
important as the current financial crisis has led to what some see as under-investment in the
energy sector, such as energy companies drilling fewer oil and gas wells. Under-investment in the
energy sector may lead to higher energy prices, particularly for oil and electricity, in a few
years.64 Additionally, elimination of fossil fuel subsidies may ease the budget deficit problems of
many countries.
Eliminating fossil fuel subsidies may prove difficult. Governments in low-and middle-income
countries, who spend $310 billion a year on fossil fuel subsidies compared to the $20-30 billion
spent annually by developed countries, may be reluctant for political reasons to eliminate these
subsidies.65 In 2008, cuts in subsidies in Egypt, India, and Indonesia resulted in street protests and
political upheaval.66 Eliminating fossil fuel subsidies in rich countries may also face obstacles.
The Environmental Law Institute, a think-tank, estimates that the United States spent $72 billion
on fossil-fuel subsidies between 2002 and 2008. 67 Elimination of fossil fuel subsidies would
59 See e.g., "G20 asks World Bank to set up agriculture fund," Reuters, September 25, 2009.
60 For more information, see: CRS Report R40910, Status of the Copenhagen Climate Change Negotiations, by Jane A.
Leggett and Richard K. Lattanzio.
61 Ben Geman, "White House Wants Fuel Subsidy Cuts on G-20 Agenda," Washington Post, September 16, 2009.
62 "Fossilised Policy," The Economist, October 1, 2009.
63 "No Free Lunch: The G-20’s Case Against Fossil-Fuel Subsidies," Wall Street Journal, September 25, 2009.
64 International Energy Agency, World Energy Outlook 2009, November 10, 2009.
65 "Fossilised Policy," The Economist, October 1, 2009.
66 Ibid.
67 Environmental Law Institute, Estimating U.S. Government Subsidies to Energy Sources: 2002-2008, September
2009.
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require Congressional approval, and it is expected that the oil industry would strongly oppose
such legislation.68
Reaching an agreement on reducing greenhouse gas emissions, as a successor to the Kyoto
Protocol, at the United Nations Framework Convention on Climate Change (UNFCCC) in
Copenhagen in December 2009 may also face difficulties.69 Some economists estimate that a new
international agreement to reduce greenhouse gas emissions would cost $100 billion a year by
2020, and it is not clear who would foot the bill.70 Developing countries susceptible to adverse
effects of climate change have also expressed concerns that the size of the cuts in greenhouse gas
emissions being discussed are not big enough. Developed countries want more concrete promises
from developing countries, and even among developed countries there are disagreements about
how much emissions should be cut by.
Preparatory talks held in Bangkok in October 2009 have resulted in leaders downplaying
expectations, suggesting that the December 2009 summit will merely lay the groundwork for
negotiations in 2010.71 In mid-November, President Barack Obama conceded at the Asia Pacific
Economic Co-operation (APEC) summit in Singapore that it was unlikely that a new agreement
on greenhouse gas emissions would be reached at the December summit in Copenhagen.72
However, it is reported that President Obama intends to tell delegates at the conference that the
United States is committed to reducing its greenhouse gas emissions in the range of 17% below
2005 levels by 2020 and 83% by 2050.73 The 17% reduction is consistent with the legislation
passed by the House in June 2009 (H.R. 2454). The Senate has not passed legislation on
greenhouse gas emissions; equivalent legislation is pending in the Senate.
Conclude WTO Doha Round of Multilateral Trade Negotiations
The G-20 leaders have also pledged to conclude the WTO Doha Round of multilateral trade
negotiations in 2010. Doha negotiations have been stalled since 2001 due to differences among
the United States, the European Union, and developing countries on major issues including
agriculture, industrial tariffs, non-tariff barriers, and services.74
To date, there appears to be a disconnect between the pledges of the G-20 leaders and the lack of
specific negotiations on the ground to meet this goal. It is not evident that WTO members have
made progress in resolving the stalemate over the Doha negotiations, and the G-20 pledge to get
the Doha Round back on track by next year is viewed by many as unlikely to be met.75
Confidence might be enhanced if the G-20 discussed the basic controversies deadlocking the
Doha negotiations rather than just announcing their intent to reach agreement.
68 "Fossilised Policy," The Economist, October 1, 2009.
69 The Koyoto Protocol is a 1997 climate change agreement that set greenhouse gas emissions targets for industrialized
countries. It was never ratified by the United States.
70 “United Nations Framework Convention on Climate Change,” New York Times, accessed October 21, 2009.
71 "Bangkok Blues," The Economist, October 15, 2009.
72 Edward Luce, Kevin Brown, and Fiona Harvey, et al., "Obama Damps Climate Hopes," Financial Times, November
16, 2009.
73 John M. Broder, "Obama to Go to Copenhagen with Emissions Target ," New York Times, November 25, 2009.
74 For more on the Doha negotiations, see: CRS Report RL32060, World Trade Organization Negotiations: The Doha
Development Agenda, by Ian F. Fergusson.
75 E.g., see "Regaining Their Balance," The Economist, 26 September 2009.
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This skepticism surrounding Doha is underscored by the fact that G-20 members by and large
have not refrained from protectionist trade policies in the face of the current global financial
crisis. Data from Global Trade Alert (GTA), an independent and privately funded organization,
indicate that G-20 members have implemented a total of 139 policies that almost certainly
discriminate against foreign commercial interests between November 2008 and October 2009.76
The scope of these measures are also fairly substantial, affecting on average 12 sectors and 77
trading partners. Furthermore, there are an additional 194 policies that the G-20 countries have
implemented or announced that are likely or almost certainly discriminatory against foreign
commercial interests. A report by the World Bank reports similar movements toward protectionist
trade policies, but notes that these measures are believed to have had only marginal effects on
trade.77 Overall, the protectionist backlash appears to have been much lower than during the Great
Depression in the 1930s.
Implications of the Transition from the G-7 to the G-
20
Will the Transition to the G-20 Help or Hinder Economic
Cooperation?
Fundamental questions for U.S. foreign economic policy are whether the shift from the G-7 to the
G-20 will help or hinder efforts at international economic cooperation, and how it might affect
US interests. Some argue that the shift will foster international economic cooperation. Including a
broader membership, it is argued, will give greater legitimacy to the agreements reached by the
G-20, since they are not just decided by the “rich club” of countries. Likewise, emerging-market
countries, especially China and India, are big players in international financial markets, and it is
argued that they should be included in international financial discussions. Additionally, expanding
the G-7 to the G-20 may help the G-7 gain favor with large emerging-market countries, which
could facilitate cooperation in non-economic areas such as climate change.
Others argue expanding the G-7 to the G-20 will weaken or undermine efforts at international
economic cooperation. The G-20 countries are a heterogeneous group of countries with different
political and economic philosophies. Including such a large, heterogeneous group of countries in
the same forum, some argue, will limit the scope of the agreements reached, or the ability to reach
agreements at all. In the same vein, some argue that record of implementation of the agreements
reached by the G-20 will be worse than the implementation record of the G-7. G-20 emerging-
market countries look a lot different than G-20 developed countries on a number of factors that
could impact implementation, including rule of law, government effectiveness, and control of
corruption, as shown in Figure 5. Of course, agreement among a homogeneous group of
76 http://www.globaltradealert.org/ Accessed October 20, 2009. GTA is coordinated by the Centre for Economic Policy
Research (CEPR) and has been cited extensively in the media, including The Economist, Forbes, The Financial Times,
and The Wall Street Journal.
77 Elisa Gamberoni and Richard Newfarmer, Trade Protection: Incipient but Worrisome Trends, International Trade
Department, World Bank, Trade Note #37, March 2, 2009.
http://siteresources.worldbank.org/NEWS/Resources/Trade_Note_37.pdf.
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advanced industrial democracies may not much help resolve world problems if other countries do
not participate.
Figure 5. Selected Governance Indicators for the G-20 Developed and Emerging-
Market Countries
Source: Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi, "Governance Matters VIII: Governance Indicators
for 1996-2008," World Bank Policy Research, June 2009.
Notes: Data on a five point scale (re-scaled from 0 to 5), where higher scores correspond to better outcomes.
G-20 developed countries include Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, and the
United States. G-20 emerging-market countries include Argentina, Brazil, China, India, Indonesia, Mexico, Russia,
Saudi Arabia, South Africa, South Korea, and Turkey. Governance indicators are calculated by Kaufman, Kraay,
and Masturzzi using a large number of individual data sources, including surveys of firms and individuals as well as
the assessments of commercial risk rating agencies, non-governmental organizations, and a number of
multilateral aid agencies and other public sector organizations. “Rule of law” captures perceptions of the extent
to which agents have confidence in and abide by the rules of society, and in particular the quality of contract
enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
“Government effectiveness” captures perceptions of the quality of public services, the quality of the civil service
and the degree of its independence from political pressures, the quality of policy formulation and
implementation, and the credibility of the government's commitment to such policies. “Control of corruption”
captures perceptions of the extent to which public power is exercised for private gain, including both petty and
grand forms of corruption, as well as capture of the state by elites and private interests.
Still others argue that international economic coordination will be no different under the G-20
than it was under the G-7. One rationale is that emerging-market countries have been de facto
participants in the G-7 for several years and their views had already been incorporated in the G-7.
An alternative rationale is that, in practice, the G-7 will dominate the G-20 negotiations and
emerging-markets will have less influence over the discussions.
It is worth nothing that some of these views are not necessarily mutually exclusive. It is possible
to imagine, for example, a situation where the G-20 makes fewer commitments than the G-7, but
the commitments that the G-20 does reach are seen as more legitimate than those reached by the
G-7.
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The G-20 and International Economic Cooperation
Is the G-20 the Right Group of Countries?
When the developed countries decided to include emerging markets in discussions on policy
responses to the crisis, the G-20 was an expedient choice because it was a well established group
that encompassed the G-7 and several large emerging-market countries. The G-20 members were
selected by the G-7 when the G-20 was formed in 1999, and the decision on which countries to
include reflected a need for broad geographic representation and systemic economic
importance.78 The membership of the G-20 has not changed since its establishment.
Some argue that the G-20 was the right choice for expanding the G-7, because the G-20
represents two-thirds of the world’s population, 90% of world GDP, and 80% of world trade.79 A
mix of policymakers and academics have long advocated replacing the G-7 by the G-20, or at
least making the G-20 a more prominent economic forum.80
Others have reservations with respect to whether the G-20 is the right group of developed and
emerging-market countries. With the developed countries, there are concerns that European
interests are still over-represented in the G-20, with Europeans taking up five of the 20 slots
(Germany, France, Italy, the United Kingdom, and the European Union). This problem is
exacerbated by Spain and the Netherlands, who have gained attendance to all three G-20 summits
even though they are not official members. That said, some maintain that, based on economic
weight, Spain is a more justified member of the G-20 than Italy.
There are also questions about the selection of large emerging-market countries. Some argue that
several emerging markets are not included in the forum, but should be based on their economic
and political importance. Poland, Thailand, Egypt, and Pakistan are typically cited as examples.81
Table 2 shows that there are 13 countries that are not members of the G-20 but whose economies
are as large as other G-20 members. It is unlikely that any current members of the G-20 would
resign or could be pushed out in order to allow new countries to join. One issue that may confront
the G-20 in the future is how to balance, on one hand, fair representation in the forum and, on the
other hand, keeping the size of the forum manageable.
78 Brookings, The G-20 (Group of 20),
http://www.brookings.edu/reports/2009/~/media/Files/Programs/Global/backgrounders/G20_backgrounder.ashx.
79 Arvind Panagariya, The G-20 Summit and Global Trade: Restore Credit and Resist Protectionism, Brookings, March
14, 2009. Trade data includes intra-EU trade.
80 For an overview of these proposals, see Peter I. Hajnal, The G8 System and the G20 (Ashgate, 2007), ch. 12.
81 "G20 Gains Stature But is Overambitious," Oxford Analytica, September 28, 2009.
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The G-20 and International Economic Cooperation
Table 2. World’s Largest Countries and Entities, by GDP
2008 data, billions of U.S. dollars
Rank
G-20 Members
Non G-20 Members
GDP
1. European
Union
$18,493
2. United
States
14,195
3. Japan
4,867
4. China
3,942
5. Germany
3,653
6. France
2,843
7. United
Kingdom
2,833
8. Italy
2,330
9. Russia
1,699
10.
Spain
1,623
11. Brazil
1,621
12. Canada
1,571
13. India
1,233
14. Australia
1,047
15. South
Korea
999
16. Mexico
950
17.
Netherlands
863
18. Turkey
748
19.
Belgium
507
20.
Sweden
503
21. Indonesia
488
22.
Switzerland
473
23. Saudi
Arabia
464
24.
Norway
459
25.
Poland
451
26.
Austria 419
27.
Taiwan
409
28.
Iran
364
29.
Greece
362
30.
Denmark
349
31.
Venezuela
335
32. Argentina
324
33. South
Africa
296
Source: IMF World Economic Outlook.
Notes: The European Union (EU) includes 27 countries.
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The G-20 and International Economic Cooperation
Beyond the Current Crisis: What Will the G-20’s Focus Be?
As the G-20 summits have progressed, the scope of discussions has broadened to include a
diverse set of issues, ranging from IFI reform to food security to climate change. Some have
suggested that the G-20’s agenda has become too ambitious.82 When the crisis does wind down, it
is not yet clear whether the G-20’s focus will return to more traditional economic policy
coordination (such as exchange rates and trade) or if the new policy items on the G-20’s
Pittsburgh agenda will become the primary focus of the forum.
In addition, it is still to be seen how the G-20 will fit in with existing international institutions.
Much of the London and Pittsburgh G-20 communiqués is devoted to reiterating commitments
made in other venues, such as the WTO (for trade) and the United Nations (for climate change,
for example). On one hand, the G-20’s focus at the leader level on trade and climate change may
provide the jolt necessary to make progress on international negotiations that have stalled for
years. Likewise, the G-20 may facilitate trade-offs among major concerns that would not be
possible in issue-specific forums. On the other hand, the G-20 may find it difficult to make
progress on policy areas that have proven so difficult to get traction on in the past. The G-7 often
made decisions which were then taken to the IFIs for implementation, and it is not clear whether
the G-20 will have the same leadership capacity.
Finally, it is worth noting that it has been only in the most recent summit that global imbalances
have been explicitly addressed in the G-20 communiqués. This is partly due to the fact that
correcting imbalances was not an immediate way to “stop the bleeding,” but it is also partly due
to the fact that global imbalances are politically sensitive. For the reasons discussed above, there
is some skepticism that the G-20’s proposal to correct global imbalances will carry much
weight.83 China is hinting it will be strengthening its currency, the renminbi, which would help
correct global imbalances,84 although these signals have been mixed. To the extent that further
action would be needed, policymakers may need to find other forums, institutions, or bilateral
discussions to address these issues. The issue of imbalances has, for example, been acknowledged
in bilateral discussions between the United States and China in the “U.S.-China Strategic and
Economic Dialogue” (or “S&ED”), although this has not translated into concrete steps or plans of
action on this issue. Other countries might be seriously affected by the consequence of bilateral
deals, however, and this might complicate settlement of related issues affecting more countries in
other contexts.
82 Ibid.
83 E.g., see Nouriel Roubini, "A Balanced Global Diet," New York Times, October 28, 2009.
84 Geoff Dyer, "Chinese Hint at Stronger Renminbi," Financial Times, November 12, 2009.
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The G-20 and International Economic Cooperation
Looking for more information?
Global Financial Crisis
CRS Report RL34742, The Global Financial Crisis: Analysis and Policy Implications, coordinated by Dick K. Nanto
U.S. Regulatory Reform
CRS Report R40249, Who Regulates Whom? An Overview of U.S. Financial Supervision, by Mark Jickling and Edward
V. Murphy
CRS Report 94-511, Hedge Funds: Should They Be Regulated?, by Mark Jickling
CRS Report R40613, Credit Rating Agencies and Their Regulation, by Gary Shorter and Michael V. Seitzinger
CRS Report R40646, Derivatives Regulation in the 111th Congress, by Mark Jickling and Rena S. Miller
Global Imbalances
CRS Report RL31032, The U.S. Trade Deficit: Causes, Consequences, and Cures, by Craig K. Elwel
International Monetary Fund (IMF)
CRS Report R40578, The Global Financial Crisis: Increasing IMF Resources and the Role of Congress, by Jonathan E.
Sanford and Martin A. Weiss
World Bank
CRS Report RL33969, The World Bank’s International Development Association (IDA), by Martin A. Weiss
CRS Report RS20088, Dispute Settlement in the World Trade Organization (WTO): An Overview, by Jeanne J.
Grimmett
Multilateral Development Banks (MDBs)
CRS Report RS20792, Multilateral Development Banks: U.S. Contributions FY1998-2009, by Jonathan E. Sanford
CRS Report RS22690, The African Development Bank Group, by Martin A. Weiss
CRS Report RS21437, The Asian Development Bank, by Martin A. Weiss
Foreign Aid
CRS Report R40213, Foreign Aid: An Introduction to U.S. Programs and Policy, by Curt Tarnoff and Marian Leonardo
Lawson
World Trade Organization (WTO)
CRS Report RL32060, World Trade Organization Negotiations: The Doha Development Agenda, by Ian F. Fergusson
Climate Change
CRS Report RL34513, Climate Change: Current Issues and Policy Tools, by Jane A. Leggett.
CRS Report R40910, Status of the Copenhagen Climate Change Negotiations, by Jane A. Leggett and Richard K.
Lattanzio,
Congressional Research Service
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The G-20 and International Economic Cooperation
Author Contact Information
Rebecca M. Nelson
Analyst in International Trade and Finance
rnelson@crs.loc.gov, 7-6819
Acknowledgments
Susan Chesser assisted with research on G-20 protests; Pat McClaughry helped create the maps; and Amber
Wilhelm assisted with preparation of the graphs.
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