SINGAPORE — Finance ministers and central bank governors from the Group of 20 advanced and emerging economies have been meeting regularly for nearly a decade. But the decision to convene a summit of the G20 heads of government in Washington the weekend of Nov. 15 marked an important turning point in the way global economic problems are handled. The summit agreed on a plan for tackling the financial crisis and the deepening slump.
This is an opportunity for Asia to increase its influence in managing the world economy, provided leading players — China, India, Japan and South Korea — can put aside long-standing geopolitical rivalry and intensify coordination.
As a forum for consultation and cooperation, the G20 seems set to become a prominent feature of the global economic landscape. Its leaders will meet again by the end of April to review their ambitious action plan, which ranges from reform of banking, accounting and credit-rating standards to stimulating economic recovery, sustaining world trade and investment flows, and ensuring that the International Monetary Fund and the World Bank have enough resources to cope with future challenges.
The scope of the problems confronting many economies, both developed and developing, have propelled the G20 from obscurity to the front line. These problems can no longer be tackled by North American and European powers alone or in a dominant position, even though they retain hefty economic and financial clout.
The G20 members, although still a relatively small and cohesive group, stand a better chance of success. Collectively, they account for two-thirds of the world’s population, 80 percent of its trade, 85 percent of the banking system, and 90 percent of global economic activity.
Japanese Prime Minister Taro Aso noted that governments taking part in the summit had to work together to limit the depth of the downturn. “It does no good to panic in a crisis, and that is proven by the Great Depression of 1929,” he said. “Today, things are entirely different. We have a framework for cooperation.”
The interests of advanced and emerging economies are reasonably balanced in the G20. Members from the former include the United States, European Union, Britain, Canada, France, Germany, Italy, Japan, Russia, South Korea and Australia, while the developing world is represented by China, India, Indonesia, Brazil, South Africa, Mexico, Argentina, Saudi Arabia and Turkey.
The role of Asia — broadly defined to include East Asia Summit membership (the 10-member Association of Southeast Asian Nations plus China, Japan, South Korea, India, Australia and New Zealand) — in the G20 is unique for two reasons: First, it cuts across the North-South divide, linking Japan, South Korea and Australia with China, India and Indonesia.
Second, Asia’s potential clout is huge. Measured by purchasing power, Asia accounts for more than 35 percent of world GDP, compared with the U.S. and the EU at 20 percent each.
Moreover, Asia has been contributing to around half of world growth in recent years. Although hurt by the current crisis, major Asian economies have not slowed as much as Western counterparts. Asian resilience and the fact that the region holds about one-third of the world’s central bank reserves could play a key role in cushioning the recession and aiding recovery. Whether it does so will depend on the extent to which major Asian players are prepared to put aside rivalry and align and coordinate their economic and financial interests.
A start has been made in this direction through the proposed expansion of the network of currency swaps in Asia and plans for a regional bond market and an Asian currency unit. This kind of cooperation needs to be intensified if Asia’s punch is to reflect its true weight.
It would help, too, if China were to follow Japan, which announced it would lend up to $100 billion to the IMF to help provide financial lifelines to crisis-hit emerging countries.
The current structure of the G20 leaves plenty of room for Asian influence. The G20 operates without a permanent secretariat or staff. The chairmanship of the group rotates each year among members and is selected from a different regional grouping of countries each time. Continuity and direction are given by a revolving three-member management body of past, present and future country chairs, referred to as the Troika.
Brazil, Britain and South Korea form the current Troika. If Asia wants to reshape the global economy and financial system, there is no better opportunity to do so than now.
Michael Richardson is a security specialist at the Institute of South East Asian Studies in Singapore. (E-mail: firstname.lastname@example.org)