The inception for a new world order is here. Covid19 crisis the trigger, G20 the medium, and a dominant face of political leaderships the players, this inception is a step in the right direction. This could be a major disruptive change that puts global governance that had been hijacked by bureaucrats of multilateral institutions back in the hands of collective governments. At worst, these global institutions will reform and become more accountable to their principals; at best, a new world order will be born. Above all, it gives G20 that had been imploding from within and had degenerated into a networking junket for heads of governments, Finance Ministers, Governors of Central Banks and a retinue of quaint designations such as Sherpas, a new lease of life, credibility and legitimacy.
On the surface, in the first meeting of G20 finance ministers and Central Bank governors that has occurred without the paraphernalia of officials jet-setting around the world on taxpayers’ monies, the 14-page communique released virtually is as banal, as mundane, and as predictable as any other. The language too is similar to the December 2008 communique, when G20 took charge as the Board of Directors for the global economy. You see reflections of the same words, same expressions – keep trade going, provide help to poor nations, protect jobs – that have been discarded before the next meeting. Within G20 too the focus has been shifting to embrace virtue-signalling as a proxy for economic failures.
From fixing the economy in the Washington Summit in December 2008 summit, the G20 almost immediately began to lose its way. The London Summit in April 2009 started talking about “green and sustainable recovery”. The Pittsburgh Summit in September 2009 brought in climate change. The Seoul Summit in November 2009 introduced “global marine environment protection”. The November 2015 Antalya Summit embedded terrorism even as China continued to support Pakistan’s terror against India at the United Nations. All rhetoric, no action: that had become the G20 construct – a good place to meet leaders of the world’s top 19 economics and EU informally, throw in a few bilateral meetings but little else.
G20 had been captured by the unelected, unaccountable noise-makers. It needed a crisis. And Covid-19 that according to the IMF could be the worst since the Great Depression has provided it. And it is heartening to see governments grab this crisis with both hands and turn it into an opportunity to reform. Reading between the lines, here’s what the communique really says.
Effectively, the G20 has turned the now discredited World Health Organisation (WHO) into a report-writing organisation. It has sought evidence-based information from this China-captured institution to report to the principals behind it. In other words, it has snatched WHO from the hands of China and by the way things are moving, G20 may drag this failed and controversial organisation back on track, as the two paras below show.
By bringing in small tweaks, the G20 has eased the increasingly harsh norms imposed by the Bank for International Settlements (BIS) on global commercial banks. This it has done through the mechanism of Financial Stability Board (FSB) and the tool of ‘flexibility’. The two paras below embed flexibility into the first of three pillars of BIS – minimal capital requirements, risk coverage and containing leverage. Which means the pressure on banks to maintain capital adequacy has been eased to tide over the Covid-19 crisis. This flexibility should reduce operational burdens on banks. G20 has also asked FSB to “support our response”. Effectively, the G20 has eased credit flows into economies. This will impact the way credit rating agencies work – they will have to rework their numbers, revisit their ratings and rethink their outlooks.
Again, this strikes at the heart of the China-WHO nexus. By demanding standardised and transparent cross-country data on Covid-19 that can be shared with all G20 members and other nations, the communique has not hesitated to venture into harsh territory. China has hidden data on the start and the spread of the Wuhan-based Covid-19 virus; a China-captured WHO has looked away. Even today, China is under watch for not giving clear data on the number and the type of victims – nobody is trusting the data it spews out. The three clauses below should end this manipulation.
As the informal Board of Directors for the global economy, the G20 has taken power back from the World Bank Group and IMF. In one para, the G20 has turned the reporting hierarchy on its head. By asking international organisations to work together and “report back regularly to us”, the reporting lines have shifted. While little would change within the internal hierarchies of these multilateral institutions, their heads will have less flexibility and be forced to deliver greater accountability; this will trickle down. As they should have in the first place, as they must. This played out a day earlier, with a joint statement by the World Bank Group (WBG) and IMF: “The WBG and IMF will move quickly to respond to the G20 request for us to support this action
Finally, in a footnote, the G20 has pushed back on a proposal by China. Among other things, China had proposed a $500 billion in the form of Special Drawing Rights (SDRs) to which all IMF member countries would contribute such that the money goes to the poorest countries. These countries are all part of China’s BRI (Belt and Road Initiative) trail. Which means, all countries would contribute to the poor countries repaying China’s debt. For countries such as the US, China, Europe, or Japan it would be in their currencies. But for countries such as India, it would have to come through hard-earned dollars. In other words, the rest of the world be paying China’s debt. Not acceptable, said the members.
But let’s not get too excited. This is only the first step, an inception. How the crisis moves from here will determine the future course of action. China may not relent. Being cash-rich it may deepen its capture further. Multilateral institutions, finding a gap, may not reform. The crisis over, the world may revert to business as usual. And the seeds of a new way of looking at the world order that this communique outlines may fizzle out. True, all that may happen. But the sharpness and unambiguousness with which these changes have been introduced give us hope that the Covid-19 crisis has given the world an opportunity to reset itself and the G20 has taken the first steps. How this inception turns into reality will be a work in progress. The world must stay alert.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...Read More +