As Prepared:
New Centres of Economic Power:
Towards a 21st Century Global Economic Architecture
A perspective from the Asia-Pacific
I expect by now in the Forum the ongoing economic and strategic shifts to emerging economies has been well canvassed. I will naturally approach the issues from the perspectives of Asia or the Asia-Pacific region in which we Australians are a part.
First I would like to acknowledge useful discussions in preparation with several, including a co-delegate Mark Thirlwell from the Lowy Institute. This is a relatively new think tank that is contributing greatly to Australian understanding of international issues.
On a purchasing power parity basis, the IMF estimates developing countries will generate 70% of global growth in 2010, up from 40% a decade ago. In our region China alone will generate more growth than the entire 67, and India will generate more growth than all the 27 countries in the EU.
Including the 10 ASEAN nations almost half of the world’s growth will take place in developing Asian countries.
A veteran of WTO Ministerials I have observed the rise in influence of emerging economies in that forum since the Uruguay Round.
At Cancun the so-called WTO G20, led particularly by Brazil and India, flexed their muscles and effectively controlled the outcome of the meeting. It now has a continuous presence with 30-40 members operating particularly on agriculture. But its challenges represent those typical of such emerging economy coalitions I explore later, including overlap with other groupings (in this case the Cairns Group), and complexities in aligning interests (in this case for example, between Brazil which is one of the largest agricultural exporters, and India, with its 700 million peasant farmers). As is much discussed, the future of current WTO processes is being challenged by the complexity of new issues, expanded membership and difficulties with the “single undertaking”. This is contributing to the new world of RTAs and FTAs in which emerging countries will play a major part.The IMF and World Bank have seen major tensions between traditional western and emerging powers. Leaving aside broader criticisms of the “Washington model” and “conditionality” these have been mainly about governance – “quota” and “voice”, including the special locked-in positions of Americans and Europeans in executive leadership.
After much resistance 2006 saw a modest start to reform by allowing increases for the most under-represented economies, mainly China, Korea, Turkey and Mexico. But critics are still pointing out that, for example, China has a smaller vote than the Benelux countries, and Belgium alone has a bigger quota than India.
It is important to note it was largely through the emerging economy voices in the G20 that a start on voice and quota reform was made and the G20 is now the vehicle through which a new round of governance reforms in the IMF and World Bank is being pursued to give a more balanced role for emerging powers.
The IMF and World Bank might be perceived to have had a “good crisis” over the past year, but again this could have only been facilitated and legitimised by the interventions of the G20, with its broader representation of the international community. I note in passing the G20 was also the circuit breaker in securing global agreement on limiting tax havens in 2005, breaking a deadlock in the OECD.
Recent events have already demonstrated the potential of significant and fresh approaches to global policy co-ordination, resource flows and overarching frameworks across new areas of economics and finance, as the G20 moves from its past preoccupation with crisis management to more longer-term proactive reforms. With its enhanced scope, scale and legitimacy its potential is great.
But a major question going to its role is how it should be related to by various coalitions of interest and regional fora.
Of highest profile for emerging economies is the so-called BRIC group of countries, Brazil, Russia, India and China. The BRIC coalition was seen as a temporary and somewhat artificial construct. The four countries have been stuck in serious strategic, and currently commercial rivalries and its staying power is questioned. However there have been two leaders meetings and forward leaders meetings scheduled. Foreign and finance ministers, central bankers and others are meeting regularly.
Of particular interest to this discussion has been the focus of BRIC Leaders Summits – last year and a month ago – on support for the G20, a greater voice for developing and emerging economies in international financial institutions and a high level agenda of other issues for consideration by a post crisis G20.
As the G20 supplanted the G7 East Asian representation at the top table by East Asia has gone from one in ten to six in twenty (including Australia). This region has benefited most from the smooth operation of global institutions in recent decades and has a deep interest in its continuance. There is also an acceptance that it has new responsibilities, commensurate with its growing scale.
The region is diverse in terms of levels of development, systems of government and some serious strategic tensions persist. There has been generalised support for freer trade since APEC’s Bogor’s Declaration (in 1994). This has been addressed in part by significant unilateral liberalisation, but also an extraordinary proliferation of bilateral and plurilateral FTAs.
But while it is acknowledged that the region must play a more active global role there is a major debate on its own, inadequate regional architecture. This has been characterised by an alphabet soup of acronyms, to cite the main ones, the Association of South East Asian Nations, or “ASEAN”. Then ASEAN+3 (add Japan, China and South Korea) and ASEAN+6 (add again Australia, New Zealand and India). Another, APEC, with its important leaders meeting and active and diverse work program has an unwieldy 26 economies, including Russia at one end, North America and a group of Pacific-bordering Latins, but not India.
There is an acknowledgement that existing regional architecture is not doing the job and a consequent debate around new structure proposals. Two similar proposals, for example by Prime Ministers Hatoyama and Rudd, are built on what exists but include strategic as well as economic issues.
However this evolves there are calls from influential quarters for an East Asian Caucus with a particular focus on the G20.
To quote Lowy Institute researchers (Grenville and Thirlwell), its function would be to “first identify G20-type issues which lend themselves to the formulation of a regional position, second to refine and distil a consensus argument, and third, present this to the rest of the G20 as something that has the backing of Caucus members”.
Apart from creating an enriching bridge between regional ideas, advocates note the new demand on scarce analytical and policy development resources in the region, and synergies as well as the opportunity for coalescence that could result from this collaboration.
Proponents argue that much that has been done collectively in the region – for example the “Chiang Mai Initiative” concerning currency swap agreements of the ASEAN+6 and Asian Bond Market initiative – could both provide the models and benefit from a global umbrella. Some note that it would be helpful through the G20 to put the issue of imbalances between the US and China in a more appropriate global context.
Good work has been going on in APEC on such issues as capacity building, transparency, energy and food security to name a few, that could be fed in through an East Asia Caucus.
Again membership is a challenge. Proponents suggest the Caucus be the six regional members of the G20, but see it drawing on the other regional institutions that would, through this process, empower other regional economies. This omits APEC through which a lot of relevant work is being done.
The significant overlapping membership in an East Asian Caucus, with China and India in the BRIC caucus is noted – for some a problem; others see that as an opportunity.
The EU of course has well-developed processes for collaboration, and we see the potential of other over-lapping blocs with G20 linkages such as in Latin America and note Russia has called together the governments of the Commonwealth and Independent States (CIS) to present the group’s interests in the G20.
But this gives rise to concerns that the G20 could become Balkanised with regional or other groups coming to proceedings to bargain their pre-set agendas under the gaze of their sectional constituencies – a recipe for lowest common denominator agendas.
Others argue that medium sized and relatively independent countries in the G20 have the capacity, by injecting lateral solutions, to unblock entrenched positions of the majors in pursuit of win-win consensus solutions.
However this evolves, the relation between the G20 members – coalitions of various kinds within it, and linkages to their broader and often complex and diverse constituencies – will be critical to the development of this new architecture.
The G20 as the world’s principal economic forum will erode the past dominance of the wealthy west of the world’s economy. Transition will be difficult and mindsets will have to change. For some it will be from power to shared leadership, for others it will mean stepping up to greater responsibilities. There is no question that only a more open minded and collaborative approach will enable us to tackle our future global challenges.
