The G20's Full Plate

Panel moderator John Authers, Financial Times Editor of Lex, noted that the G20 accounts for 85 percent of the world's population and 80 percent of is GDP. But he questioned whether the interests of smaller, middle- and low-income countries are underrepresented.

US Undersecretary of State for Economic Energy and Agricultural Affairs Robert Hormats said the new grouping merely reflected new realities in a globalized world that requires a broader group of countries to address international economic issues. Canadian Finance Minister James M. Flaherty pointed out that no magic number to satisfy everyone and every situation exists, but the G20's initial success is reflected in its continuously growing influence.

The view from those outside the G20, however, injected some concern into the discussion. Bahraini Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa, whose country is outside the G20, acknowledged the group's initial success and future potential, but warned that a major hurdle lay ahead. "After the crisis, the challenge will be development. and the task of developing poorer nations needs to be more inclusive."

Hormats noted that the G20 has a role to play in that issue, but warned against usurping the responsibilities of other organizations, such as the World Trade Organization, whose mission is closely aligned with development.

Dutch Economics Minister Maria J. A. van der Hoeven agreed, saying the G20 has the legitimacy to accomplish the tasks assigned to it without supplanting other international institutions.

With the next G20 summit approaching, the ministers debated agenda priorities for that gathering. Flaherty, whose country will host the meeting in Toronto in June, recognized a priority for "collective strategies to promote strong and sustainable economic growth" that include exit strategies for recent spending binges and assessments of financial systems. Additional priorities include financial-sector reform and trade liberalization. Bahrain's Al Khalifa emphasized the need for trade development, but van der Hoeven urged that the role of private capital flows also be examined. She called for steps that would ensure taxpayers' monies would not be needed in the next financial crisis. Hormats emphasized the need for regulatory reform and the need to demonstrate that efforts are underway to avoid a repeat of the crisis.

Panelists turned their attention to a proposal to implement a financial activities tax, or FAT, as means to prevent another crisis. Flaherty rejected the idea: "To the extent that financial institutions contribute to a financial crisis, they should bear the cost of the financial crisis, and not taxpayers.. we need to have caps on leverage. Canada did not [have failed banks], so we are not going to punish our institutions for being successful by applying a tax." Instead, he called for excess capital requirements that would convert to equity in times of crisis.

Van der Hoeven also rejected a FAT, noting the absence of an appropriate legal framework and clear goals for implementing the tax. Al Khalifa also frowned upon the levy, citing worries about its effect on Bahrain's economy, one-fourth of which comprises financial services. 
A similar consensus existed on any expansion of the G20's role; all expressed doubt about the wisdom of such a development.
Flaherty said the group is dealing with enough issues, particularly given the fragility of the economic recovery." Hormats acknowledged obstacles to any political role given emerging countries' opposition to such an expanded role. But the US undersecretary envisioned future work on trade and development issues. van der Hoeven cautioned against any new role that was not widely accepted.