On the 13th of October, the last of the four official meetings among Finance Ministers and Central Bank Governors took place within the framework of the Italian G20 Presidency. This was also the last of the numerous ministerial encounters that have filled this year’s busy schedule. The outcome will be conveyed at the final Summit in Rome, scheduled for the 30th and 31st of October, which, however, will first be preceded by a joint meeting between Finance and Health Ministers. This is a session that shows the relevance, gained throughout this pandemic-era G20, of the awareness that a stronger cooperation between health and finance is required globally. The hope is that, already in the Leaders’ Summit, such an awareness might lead to the adequate institutional innovations that can then turn it into action.
What is the G20 Finance Track?
The so-called Finance Track (FT) is an extremely important component of the G20’s activities and the only one already existing prior to the 2008 financial crisis, when the Group’s agenda was extended to several governance issues, the main Ministries, and all the heads of state and governments, who meet at the Leaders’ Summits. This year, the FT shows an increasing tendency to go beyond the limits of the so-called “international financial architecture” (that is, the maintenance of the institutions that are traditionally tasked with regulating international liquidity, global capital flows, monetary policies, and financial supervision) in order to flexibly deal with the economic implications of the entire spectrum of the G20’s main cooperation agenda. Thus, the Group of Twenty can enhance the coherence of its declarations and the viability of its decisions. In accordance with this idea, theTask Force 9 (TF9) of the Think 20 (T20), bringing think tanks from the 20 countries together (chaired by ISPI this year), which has produced policy briefs containing remarks and proposals on financial issues for the G20, has changed its name from International Financial Architecture to a broader International Finance. A greater integration between health and finance (including prevention, diagnostics, and treatment) exemplifies this more coordinated approach, wherein the FT pays special attention to its link with the G20’s other agenda outlines.
The Finance Track’s contribution to Italy’s “3Ps”
In this perspective, the Finance Ministers’ contributions are cross-cutting, touching all the three pillars upon which the Italian Presidency has organised the G20: the three Ps which stand for People, Planet, and Prosperity. The emphasis on financing health projects, including the urgent vaccination of countries who are in dire need of immunizations, is clearly linked to the first P, though this year’s works have stressed how people’s health is one with ecology and both are crucial to the sustainability of global economic health.
The second P, which stands for Planet, is directly connected to the FT’s works in their attempt to innovatively shape cooperation to finance the energy transition, which is becoming essential in the face of dramatic climate trends. This transition is increasingly emerging as an extremely expensive effort with long-term objectives, and the G20 should provide the framework to strengthen its fiscal toolbox, its normative system, and the market schemes to pursue it. The FT has created a dedicated working group for so-called “sustainable finance”, which has produced an extensive, multiannual roadmap. This could be counted among the most relevant results of this year’s G20 and allows global cooperation on the subject to continue systematically. Of the utmost importance is the evaluation and regulation of financial risks related to climate developments, to which the TF9 of the T20 has dedicated three policy briefs containing recommendations, as well as a brief proposing standardization patterns for the sustainability indexes used in finance.
The third P, which stands for Prosperity,represents the core of two working branches already launched last year, both dealing with the problems afflicting less developed and most indebted countries. From this point of view, it clearly emerges how the Group, consisting of large, mostly developed countries, who are primarily creditors, represents the framework for a cooperation that goes beyond its members, addressing global issues. Those two branches have been set for the direct debt relief of the world’s poorest countries and the creation of additional Special Drawing Rights (SDR) to alleviate the balance of payments constraints for the most affected countries. Relevant decisions have already been made addressing both issues, and this year’s conclusions should provide a fulfilment, as well as setting the guidelines for future developments. To reduce debts, a so-called Common Framework has been established, going beyond the debt payment suspension already approved last year - and renewed in 2021. The TF9 of the T20 dedicated 6 of its 15 policy briefs to this, presenting several proposals to the G20, including the creation of new global funds and innovative tools to allow for debt restructuring and channel public and private capital towards countries in need.
As for SDR, a new amount of considerable proportions (USD 650 billion) has been created, in support of all countries proportionally to their position within the IMF. Additionally (directly quoting the TF conclusions of 13th October) “the progress towards providing actionable options for members with strong external positions to voluntarily channel a share of their allocated SDRs to help vulnerable countries” is being promoted. To stimulate the voluntary redistribution of Special Drawing Rights towards countries most in need, several different channels are being proposed and set up by the IMF.
This year, the G20 framework already made it possible to deliver two remarkable achievements concerning the international taxation of corporations. In July, thanks to the decisive OECD contribution – which has broadened coordination far beyond the main twenty countries, an agreement has been reached around regulations to reallocate multinationals’ profits to the countries where they earn them and establish a minimum global tax rate. The latter helps avoiding the erosion of fiscal revenues created by a fiscal competition among countries that often ignores their common interest in financing national and international public goods. Works are in progress to structure and implement those critical agreements, which will be included in the Leaders’ Summit conclusion at the end of the month.
A forward-looking approach: from infrastructure to digital currencies
Among other FT economic matters, infrastructure - in a broad sense and with an innovative interpretation – has been the subject of a dedicated working group preparing relevant conclusions. The digital transition and inclusive connectivity are also part of this issue, as well as the matter of quality, level playing field, and transparency of infrastructure investments. Connecting the world is a collective interest indeed, but it requires private investments to finance such an effort. The evolution of digital currencies, so far a disorderly one, has received special attention by the TF9 of the T20, with two briefs presenting proposals and overall assessments. The G20 welcomes and boosts the works coordinated by the Financial Stability Board that are promoting a homogeneous regulation and adequate supervision to ensure functionality and safety of global payments systems. The matter is highly technical, yet the acceleration of the efforts and the coordination of provisions are essential to avoid tolerating opaque, illegal, and dangerous monetary channels, divisive segregations, and monetary nationalism.
Strengthening financial resilience
As usual for the G20’s FT, issues regarding the cooperative network between central banks that guarantee emergency liquidity supply to countries in urgent need have also been discussed. Additionally, prudential regulations of banks and non-bank intermediaries, as well as the transparency and the level playing field of international capital movements have been examined. This theme is strictly linked to the T20 TF9’s proposal for a definition and regulation of state-owned multinational enterprises, which are growing in importance within international finance.
The FT, ça va sans dire, has also paid the required attention to global macroeconomic trends, in both finance and the real economy, dedicating special care to the effects of the pandemic and the management of the recovery that follows it. FT conclusions on this issue, which will probably be reflected by the Leaders’ Summit remarks at the end of the month, ensure that monetary and budgetary policies are willing to continue “to sustain the recovery, avoiding any premature withdrawal of support measures”. Therefore, the concern around guaranteeing the necessary stimulus to avoid an abrupt stop of the recovery prevails over considerations about “normalizing” a set of policies that was extraordinarily expansive even before the pandemic. According to some, in fact, those policies might represent an artificial support and a threat to financial stability. All coordinated efforts leading to this necessary normalisation, recommended also by the TF9 of the T20, appear destined to be postponed. However, on this issue, correctly interpreting the tone of the G20’s conclusions at end of the Leaders’ Summit on the 30th and 31st of October remains of the utmost importance.
Franco Bruni is Vice-President at ISPI and Lead Co-Chair of T20 TF9 on International Finance.