Thursday, November 13, 2014

As G20 Meets for Summit - The Guardian Questions its Relevance

Without much fanfare another G20 Summit is getting underway in Brisbane, Australia. The G20 is touted as more influential these days than than the G8. But this Guardian article questions both its relevance and effectiveness. Below some quotes from the article with key points underlined. Readers should read the entire article for full context.

"Tony Abbott wants this weekend’s G20 meeting to be seen to achieve something tangible, not just to be a pointless talkfest attracting protests and disrupting Brisbane’s traffic. The same goal is critical for the future of the six-year old institution as it struggles to retain relevance.
But do the “announceables” that will be touted at close of play really amount to much? What will the meeting actually do?

Understanding what it can achieve requires a brief reprise of its history. The G20 was set up after the Asian financial crisis as an annual gathering of finance ministers and central bank governors from developed and developing countries."

. . . . . .

"Six years later, Mike Callaghan, director of the Lowy Institute’s G20 studies centre, argues that while the first three G20s leaders’ summits in Washington, London and Pittsburgh helped avert an even more severe economic crisis, the organisation now risks losing relevance."

"With no secretariat, no treaty or legal instrument to back up its decisions and no power to force member nations to do anything, the G20’s aim is to influence countries’ domestic policies, and to cooperate, in ways that boost economic growth and strengthen the institutions that oversee the global economy."
"But as former first deputy managing director of the IMF John Lipsky argued in a speech earlier this year, its recent successes have been limited."
It is hard to say with certainty that any G20 member has altered its policy plans in the interest of achieving greater policy coherence – and therefore effectiveness – with its G20 partners.”

. . . . .

"Also undermining the organisation’s credibility is the fact that it has been unable to deliver on previous headline commitments.
In 2010, for example, the G20 agreed to what were widely called “historic” reforms to the governance of the International Monetary Fund to recognise the growing power of emerging markets."

"They are supported by the US administration, but remain blocked in the US congress. In the meantime the so-called Brics nations – Brazil, Russia, India, China and South Africa – became so frustrated they moved to set up a development bank of their own."

 . . . .

"A key Australian “announceable” in Brisbane will be the establishment of a global infrastructure hub, to be based in Sydney.
It would match investors with infrastructure projects and help establish uniform rules for risk assessments and other practices.
But Australia has been unable to convince other countries to make major financial contributions, and many were concerned it would duplicate work already being done by the World Bank and resisted the idea of the G20 spawning a new permanent institution."

 . . . . .

International tax avoidance

"Global companies have been legally outwitting national tax agencies for years. Google, for example, paid only $7m tax in Australia in 2013, a tenfold increase on the previous year, but still only a tiny fraction of the profits it reaps here. Apple, Starbucks and other multinationals are equally good at exploiting legal loopholes to minimise tax"

In Brisbane leaders will be asked to agree to these measures:
  • A pledge to force multinationals to report their accounts country by country to avoid tax avoidance through complicated deals and profit shifting. But the multinationals’ country by country reports will only be available to tax authorities, not publicly. And some countries, including Australia, have delayed the scheme’s implementation for a year. Claire Spoors, the G20 coordinator for Oxfam, said the recent leaked tax documents showing how thousands of major companies were legally minimising tax through tax deals involving Luxembourg proved that public reporting of country by country profits would be much a more effective deterrent.
  • A pledge to force companies and other legal entities to agree to principles about disclosing the beneficial ownership of companies. Transparency International claims China has been blocking agreement on this.
 . . . . . .

"With the IMF revising down its global growth forecasts, the World Trade Organisation revising down estimated growth in global trade volumes and multilateral trade talks stalled, the G20’s “core business” is important. But it remains unclear whether the deliberations will make any real progress."
Bottom Line:

When you read through this article you find a lot of typical lofty goals and headline announcements, but also many questions as to how effective they will end up being. Nothing at this latest G20 Summit looks like it would lead to major monetary system changes any time soon.

Added note: What does China want from this G20 Summit? You can read that here.
Note that while China again states they expect the G20 to push for approval of the 2010 IMF reforms, there is no mention at all that year end 2014 is still a "deadline" for such approval. And that China does not foresee leaving the IMF in the future. So, the reality is that the "end of 2014 deadline" for passage of the IMF reforms is basically meaningless.

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