G20 members hold 85 per cent of world GdP, 80 per cent of international trade, and represent two-thirds of the world’s population. However, unlike the G7, where all of the members are from developed countries, half of the G20 members are developing countries. This is major shift in global economic governance. There was a strong sense of realism at Pittsburgh. Advanced economies accepted that to prevent the global crisis from deepening, major efforts to rectify the global economic governance were required, and that these efforts would not be effective without the support of emerging economies. This signalled the importance of emerging economies as well as the pressure on them to share the burden and responsibility for solving the world’s most urgent problems.
The G20 is undertaking a landmark overhaul of the Bretton Woods institutions, the International Monetary Fund and the World bank. The most important change will be to balance the voting rights between the over-represented advanced and under-represented developing nations in these organisations. Not only has the G20 itself created an unprecedented new level of global governance, but it is accepting a new level of responsibility in reforming the governance of other international organisations.
G20 members have presumed the right to determine the group’s direction, agenda and priority issues. At the Toronto Summit, development issues were set as a priority in its future agenda. Developing-country members of the G20 have successfully made this a priority as ‘representatives’ of all developing nations, not only from concern about their own problems. The ability to set the agenda creates an opportunity to extend the reform of global governance beyond the international financial and economic agenda.
The G20 has developed significantly since the second half of 2008, when the global economic crisis prompted the Washington summit to be convened. Formerly a forum of finance ministers and central bank governors, the G20 group has been elevated to summit level just one decade after it was established. With 20 members from around the world, including ten emerging economies, the G20 has the right balance when it comes to levels of income and international representativeness. The group’s credibility is underpinned by its political and economic leverage, since it has the power and authority to make effective and practical decisions.
Reforming global economic governance is one thing; commitment to secure global policy coordination recovery is another. This new challenge is well captured by the Seoul Summit theme, ‘Shared Growth Beyond Crisis’, but it remains to be seen how the G20 can deliver on commitments across a range of strategic global issues within the context of the existing platform of global cooperation. The fact that six G20 states—Australia, China, India, Indonesia, Japan and Korea—are members of the East Asia community highlights the region’s strategic importance in global governance. The region is also one of the world’s most dynamic and includes two of the world’s largest economies in terms both of nominal GDP and purchasing power parity. With rapid economic growth over the years and trade surpluses with the rest of the world, Asia’s foreign exchange reserves are estimated at $4 trillion, or more than half the world’s total. Asia had been the most resilient region during the global financial crisis. These factors position the region as the most important engine of the global recovery.
The region’s role as an engine for global recovery and growth, and its long history of regional engagement, encourages the notions of an informal and moving regional integration to the next level. But there are many challenges that have to be dealt with first. Countries in the region have to showcase their abilities in sustaining high economic growth, maintaining political stability and working towards closer regional integration. An approach that relies on a politicised and formal structure will not suit the dynamics in a region which is economic growth-oriented and market-driven.
The East Asia region has assumed a more important role in the G20 era. Whether or not particular countries in the region are members of G20, there is a now a need for East Asia as a whole to focus on that bigger role, accepting more responsibility on global issues beyond its ‘regional comfort zone’.
Mahendra Siregar is the Vice Minister of Trade for the Republic of Indonesia and G20 Sherpa for the President of the Republic of Indonesia, Susilo Bambang Yudhoyono.
Tuti W. Irman is Deputy Director, International Economy and Finance, in the Directorate of Economic Development and Environmental Affairs for the Republic of Indonesia, and Sous-Sherpa for Indonesia’s Ministry of Foreign Affairs.
This is an article from the most recent edition of the East Asia Forum Quarterly: ‘Asia and the G20′.