The St. Petersburg Summit, September 5 and 6, came up with some good results in a number of areas on its economic agenda. However, it was the Syrian issue and President Obama’s effort to build support for his proposal for a military strike on Syria that has dominated media attention.
Prime Minister Harper and the Canadian business community should be relatively happy with the most of the economic outcomes from St. Petersburg, particularly the attention given to reducing debt-to-GDP ratios (although Canada would have preferred agreement on firm targets as versus the submission of medium term plans), the boost to the trade agenda, and the firm language on carrying forward the financial regulatory agenda.
Syria Captures the Headlines
This is the first time a major international political crisis has coincided with a G20. With its agenda focused by design on economic matters (and with members not yet ready to expand its work officially into political issues), the Syrian issue was handled largely on the margins, in side meetings and by some foreign ministers who were invited at the last minute to handle the matter for leaders outside the formal summit.
Given that his chances of success were so slim, there is some question as to why the President persisted in driving the Syria issue so hard. His failure to get support for military action in response to the Assad regime’s unconscionable chemical weapons attack on his own people, and the lack of any agreement on alternative ways forward in Syria, are shaping a public perception that this G20 fell well short of expectations.
On the outside looking in, it is hard to gauge to what extent Syria distracted leaders’ attentions from dealing more effectively with pressing economic issues. For example, BRIC countries cannot have been happy to have this matter take precedence over their primary concerns about links between U.S. monetary policy and their struggles with declining growth rates, capital fight and falling currency values.
While the formal agenda went ahead as planned, some of the private conversations and pull-asides that would normally be given to sorting out differences over economic matters were certainly impacted. Part of the leaders-only dinner on the Thursday evening - traditionally an important informal event focusing on key global economic issues of the moment - was apparently devoted to the Syrian issue.
But Some Good Economic Results Just the Same
It does appear that despite the time and attention leaders had to give to the Syrian crisis, they still had adequate time to focus productively on the main agenda. St. Petersburg produced some solid economic outcomes.
Some of this was also the result of progress since the 2012 Los Cabos Summit on the extensive G20 work program, which leaders have mandated over several summits. Finance ministers also play an important role in driving much of the G20’s intercessional work.
In addition leaders’ Personal Representatives or ”Sherpas” and senior Finance Deputies do most of the final negotiations on outstanding issues in the two days before leaders arrive and the Summit begins.
A final factor ensuring progress is the increasing emphasis being placed on G20 “accountability”. This has been pushed by Canada and others since the 2010 Toronto Summit as a way to drive implementation of past commitments, and to build G20 credibility. The G20’s record of meeting expectations and deadlines has not been perfect, but it means that summits will always have some good results to report.
All these factors gave St. Petersburg some resiliency in facing the unexpected demands of a political crisis on the margins of the Summit.
The lengthy St. Petersburg Declaration and its various Action Plans and other documents set out a number of significant initiatives, including some of special relevance to the private sector.
The Global Economy - Steady as She Goes
Amid a very cautious outlook (“recovery is too weak and risks remain tilted to the downside”), a few specific results stand out:
Advanced countries (and some others) agreed to develop and make public medium term strategies for bringing their fiscal deficits under control, building on the Toronto agreement to “at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP rations by 2016”
- This was a compromise solution between President Obama and other leaders, on one hand, seeking flexibility in order to spend if necessary to promote growth, and on the other, leaders such as Prime Minister Harper and Chancellor Merkel who argued for hard targets
- Canada provided a precise debt reduction target of 25% of GDP by 2021, a step too far for most
It was agreed that as economic growth recovered in individual countries, their monetary policy changes should be gradual and communicated in advance to limit “spillover” effects
- This was a concession to the emerging economies’ concerns raised in the days before of the Summit by the Indian PM and by Indonesian and Brazilian finance ministers among others that the lack of clarity from the U.S. Federal Reserve concerning the speed and timing of its exit from quantitative easing policies was leading to market uncertainty, capital flight and dropping currency values
- In return, advanced countries got agreement on language that relevant G20 countries (read China) should move "more rapidly toward more market-determined exchange systems and exchange rate flexibility… and avoid persistent exchange rate misalignments”
Finally, the Russian President was able to claim some success on his “jobs and employment” theme
- Leaders committed to improve labour markets, to promote youth employment and to develop and exchange country-specific plans
- Canada was able to get some wiggle room on this last undertaking recognizing that constitutional authority is shared with the provinces in this area
International Trade Talks Get A Boost
This was a very contentious area, which was not sorted out until the summit in St. Petersburg. In the end, leaders agreed
- That a “successful” outcome at the next WTO Ministerial in December should include progress on trade facilitation (Canada and advanced countries want to see a specific negotiation launched in this area)and on some elements on agriculture and development (the latter two probably inserted as a quid pro quo by emerging economies led by Brazil and Argentina.)
- To renew for a further three years the Toronto Summit’s 2010 commitment not to introduce any new protectionist trade measures
Tax Avoidance, Transparency and Anti-Corruption
Both the G8 and the G20 have been driving this group of issues. The Canadian government has been a strong supporter. Leaders agreed to:
- Press ahead with greater cross-boarder transparency on tax data
- Implement a proposal developed by the Organization for Economic Cooperation and Development (OECD) under which G20 countries will cooperate to ensure that corporations doing business in more than one country do not avoid paying taxes in those jurisdictions where “economic activities deriving the profits are performed”
- Carry forward further the G20’s robust Anti-Corruption Action Plan in order to combat bribery, corruption and “promote public integrity and transparency”
Driving Financial Regulatory Reform
This has been a core G20 activity since 2009, and one on which Canada has played an important leadership role. It has focused on strengthening domestic regulatory systems measured against better and tougher international standards (e.g. Basel III) to as to prevent future financial crises.
In St Petersburg, leaders predictably weighed in strongly to support and encourage continued progress in:
- Creating “more resilient” banks and insurance companies in the “too big to fail” category, and starting similar work on non-bank an non-insurance companies
- Putting in place effective resolution regimes in the event of crises with these systemically important financial institutions, including cross-border arrangements, frameworks and legal systems
- Continuing work on OTC derivatives trading and on shadow banking institutions
While leaders recognized that progress has been slow, that some deadlines have been missed, and that much work remains (something underlined by Mark Carney, the head of the Financial Stability Board, in the days before the Summit), they expressed the determination to pursue this work “until the job is done”.
- Russia’s effort to emphasis the theme of energy and green growth did not amount to much in the end; emphasis was placed on effective and transparent markets (extended to include all commodities), with language on sustainable energy development.
- Leaders showed some collective frustration with the inability of their own governments (led by US and European resistance to giving up power) to implement the IMF governance reforms agreed in 2010, namely to strengthen the voice of emerging economies in its decision-making. With the next Quota Review deadline looming in January 2014, this has now become extremely urgent.
- As regards another Russian priority, leaders agreed to launch a work plan to better understand the factors behind shortfalls in the availability of long term financing for investment particularly in developing countries and in such areas as infrastructure
Overall, the St. Petersburg G20 met and probably surpassed the modest expectations of the more optimistic observers. The summit has shown that the G20 can function, if less spectacularly, in a non-crisis economic environment. Others will be dissatisfied with the results and see them as evidence that the G20 has lost its early momentum and is not engineering the major rebalancing of the global economy that was part of its plan three years ago.
But in the public eye, the Russian G20 is more likely to be remembered for its apparent failure to find a way forward on the Syrian issue.