The Think 20 Journals


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The Think 20 Journals

  1. 1. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 1 THE ROLE OF MEXICO IN THE G20 Lourdes Aranda Bezaury * sre MATÍAS ROMERO INSTITUTe
  2. 2. G20_OKK inglés:Layout 1 2/8/12 6:01 PM Page 2 seCreTAry oF ForeIGn AFFAIrs Patricia espinosa Cantellano HeAd oF THe MATíAs roMero InsTITuTe Lourdes Aranda Bezaury dIreCTor GenerAL oF THe MATíAs roMero InsTITuTe Pablo Macedo riba dIreCTor oF PuBLICATIons And InTernATIonAL ProGrAMs Cuauhtémoc Villamar Calderón Constanza García Colomé, AreA dIreCTor * didya Fong olmos, dePuTy dIreCTor * María Cristina Tovar Gómora, dePArTMenT HeAd The Role of Mexico in the G20 * Lourdes Aranda Bezaury | sre First edition, 2012 Copyright © 2012 by secretaría de relaciones exteriores Plaza Juárez 20, Col. Centro, del. Cuauhtémoc, C.P. 06010, Mexico City The opinions expressed in this book are those of the authors and do not necessarily reflect the position of the secretary of Foreign Affairs. Printed in Mexico sre 337.1 Ar662 Aranda Bezaury, Lourdes. The role of Mexico in the G20 / Translation of Participación mexicana en el G20 / Lourdes Aranda Bezaury. – Mexico: secretary of Foreign Affairs, Matías romero Institute, 2012. 36 p. –(G20 Journals; 1). Contents: v. 1. Mexico. 1. Mexico – Foreign economic relations. 2. Group of Twenty. 3. International economic relations. 4. International economic integration. I. Mexico. secretary of Foreign Affairs. Matías romero Institute. II. Title III. series.
  3. 3. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 3 THe roLe oF MexICo In THe G20 Lourdes Aranda Bezaury * ConTenTs InTroduCTIon ....... ............. ............. .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 eVoLuTIon oF InForMAL ConsuLTATIons And THe orIGIns oF THe G20 . . . . . . 7 eVoLuTIon oF THe G20 AT THe LeAders LeVeL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 THe G20: sTruCTure And FunCTIon ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 THe MexICAn PresIdenCy oF THe G20...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ConCLusIons ....... ............. ............. ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 * undersecretary of Foreign Affairs and G20 sherpa: The author thanks david dávila estefan and Catalina López Portillo for their contributions to this project, and Berenice díaz-Ceballos, Am- bassador Gustavo Albín and Mauricio Guerrero for their comments on the drafts.
  4. 4. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 5 InTroduCTIon Implicit in the institutionalization of the G20 at the leaders’ level is the fact that the axis of international economic power has shifted, becoming more multipolar as the political weight and influence of the emerging powers increase in the global economy.1 At the same time, the G20, as an informal forum for discussing and seeking solutions to global issues, reflects the need for innovative means of cooperation in a world in which the problems that transcend national borders, especially the economic and financial ones, have become increasingly complex and indispensable, a coordinated response from both developed and developing countries. The purpose of this essay is to critically review how the G20, since it began to meet at the leaders’ level, has evolved into a key forum for inter national economic consultations that can offer an alternative to address our global challenges. Principally, the essay evaluates the main achieve- ments of the G20 and the progress that its collective action has brought about to global economic stability, as well as its most significant challen- ges. It also examines Mexico’s role in this informal forum for international dialogue, including its plans for the immediate future. With the June 2012 Leaders’ summit in Los Cabos, Mexico will have hosted two large-scale meetings on global governance in the last decade: The International Con- ference on Financing for development in Monterrey (2002) and the G20 summit in Los Cabos (2012). This confirms Mexico’s commitment to mul- tilateralism and to building a balanced, representative and effective in- ternational architecture. 1 Lourdes ArAndA BezAury and BerenICe díAz CeBALLos PArAdA, “México y los cambios en la arquitectura económica internacional,” in Blanca Torres and Gustavo Vega (eds.), Relaciones Internacionales, Mexico, el Colegio de México (Los Grandes Problemas de México, vol. xII), 2010, pp. 651-673, at *5*
  5. 5. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 7 eVoLuTIon oF InForMAL ConsuLTATIons And THe orIGIns oF THe G20 Historically, international economic crises have led to the creation of ad hoc groups that coordinate collective economic policy responses. The first half of the 1970s saw the collapse of the Bretton Woods international mone- tary system with the end of the international gold-dollar standard, followed by a global economic recession triggered by higher international oil prices. These events had profound consequences on the organization of the global economy and gave rise to alternative ways of discussing issues between the largest capitalist powers that were direct, efficient and “between equals”, something that was not always possible in the traditional multilateral organizations during the Cold War. In this way, the Group of seven (G7) emerged in 1975, becoming the G8 in 1998 with the inclusion of the rus- sian Federation. However, the G8 has gradually become more and more limited in its ability to deal with the global financial and economic challenges that re- quire the participation of the emerging and developing countries. Given the increasing globalization and the emergence of new economic poles, the participation of emerging countries such as Brazil, China, India and Mexico has become vital in the search of solutions to the complex problems that have arisen. Although the G8 tried to broaden its contacts with other coun- tries, mainly through the “expanded dialogue” with emerging countries,2 international organizations, business leaders and civil society organiza- tions, this approach would be eclipsed by the imminent appearance of the G20 leaders’ summits. 2 specifically, five emerging countries, Brazil, China, India, Mexico and south Africa, were in- vited by the Group of eight (G8) to participate in the 2005 Gleneagles summit, in acknow- ledgement of the importance of their economies and their regional leadership, and as a way of urging them to assume new responsibilities regarding transnational issues. The Group of Five (G5) came together as a result of the repeated invitations these countries received to the G8+5 expanded dialogue, and its members held leaders’ and sherpa meetings to coordi- nate their positions and to speak with one voice, although it did not address the G8 members on equal terms. *7*
  6. 6. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 8 Lourdes ArAndA BezAury As was the case with the economic difficulties experienced in the early 1970s, the financial crises in Mexico in 1994-1995, southeast Asia in 1997 and Brazil and Argentina in 1999 spread to the rest of the global economy. The unusual degree to which these crises expanded led to the creation of an economic forum that was broader and more representative than the G8. The Group of 20 thus emerged in 1999 as a forum composed of finance ministers and central bank governors to start discussing the financial policies that im- pacted global economic stability. In addition to the G8 countries and the european union, the G20 included 11 “systemically important”3 countries: Argentina, Australia, Brazil, China, India, Indonesia, Korea, Mexico, saudi Ara- bia, south Africa and Turkey.4 It must be stressed that the G20 represents about 65 percent of the world’s population and 85 percent of the global eco- nomy.5 Although the G20’s limited membership is debated, it is clearly more representative than the G8 while at the same time its size makes it swift and effective at making decisions, at unblocking negotiations and at fostering mechanisms, due to the regional and international leadership of its members and their geopolitical and economic attributes. From the very beginning of the G20, Mexico has promoted the en- hancement of its role as a representative, inclusive and effective forum for taking and implementing economic and financial decisions in a world where the international economy is increasingly interdependent and mul- tipolar. As John Kirton has suggested, the G20 is “the culmination of an ex- pansion of the center of global governance to include ascending powers alongside advanced ones, and to give each equal, institutionalized involve- ment and influence in the central club.”6 Therefore, the G20 is an achievement 3 This refers to economies that have the ability to impact the stability of the international economic and financial system as a whole. 4 The most important criteria is the size of the country’s economy in relation to global GnP, but the extent to which it is connected with the rest of the world, demography and other criteria are also taken into account. see G8, G7 Statement, June 18, 1999, at http://www.g8.utoronto. ca/summit/1999koln/g7statement_june18.htm. 5 see “What is the G20?” at 6 JoHn KIrTon, “G20, G8 & G5 and the role of Ascending Powers,” speech given as part of the seminar on “The International system and the emerging Powers,” Mexico, Instituto Matías romero, december 14, 2010, at *8*
  7. 7. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 9 The Role of Mexico in the G20 per se in that it brings to the table for discussion and negotiations global and regional powers, developed and emerging economies alike, that have the joint capacity to propose and implement decisions that make the global economy viable and benefit all countries and their populations, be they members or not. Mexico’s membership in the G20 since its inception at the ministerial level in 1999 reflects the weight of its economy (the tenth lar- gest exporter7 and thirteenth largest economy in terms of its participation in the global GnP),8 its open trading regime, its regional leadership and its macroeconomic stability. 7 seCreTAríA de eConoMíA, at padre/estadisticas. 8 THe eConoMIsT, Pocket World in Figure, Edition 2011, London, Profile Books Ltd., 2010. *9*
  8. 8. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 10 eVoLuTIon oF THe G20 AT THe LeAders LeVeL The G20’s agenda is directly related to the imbalances that led to the 2008 economic and financial crisis and that raised the forum to the leaders’ level. When the crisis became global in scope, neither national policies nor the international financial institutions were able to respond as quickly and comprehensively as the situation demanded. In addition, the G8’s limited membership meant that emerging economic powers that were key to putting a global solution together were not involved. The G20 filled this institutional “vacuum” by organizing a collective initiative to avoid the possible collapse of the global economy. The crisis had a very unique charac- teristic: its negative effects were felt immediately and deeply in almost all countries around the world, especially in those that make up the G20. Although the origins of the 2008 financial and economic crisis have been debated, most of the observers agree that it developed in a complex manner with the following key factors: • A prolonged period of economic growth that created excess li- quidity, an unsustainable expansion of credit and increasingly risky behavior by investors, which led to an inflationary “bubble.” • Lax regulation and supervision of the financial system, based on the incorrect assumption that the sector was self-regulating. • The limited capacity of the international financial institutions to effectively safeguard the health of the global financial system. Although these conditions had caused previous episodes of financial ins- tability in emerging economies, in 2008 the epicenter was located in the financial system with the most weight at the global level: the united states. on september 13, 2008, after Treasury secretary Henry Paulson refused to bail out Lehman Brothers, it was clear that the united states’ financial system was not in any condition to absorb the bankruptcy of one of the oldest and most important institutions in the global market. The collapse * 10 *
  9. 9. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 11 The Role of Mexico in the G20 of Lehman Brothers and the quasi-liquidation of American International Group (AIG) triggered the beginning of the most severe financial crisis since 1929. That same week, several of the most important banking institu- tions in the united states became unable to insure the deposits of their creditors. days after Lehman Brothers collapsed, secretary Paulson an- nounced that the u.s. Congress was being sent a 700 billion dollar bank rescue package to “restore stability to the system, halt the crisis of con- fidence and protect the taxpayer.”9 But the u.s. bank rescue was not enough to defuse a global crisis in confidence and liquidity. What began in August 2007 as turbulence in the u.s. mortgage market became the origin the biggest crisis since the 1929 Great depression. Countries that did not seem to be immediately affected by the collapse of Lehman Brothers in september 2008 were impacted later through their export markets.10 To mention just a few statistics, the crisis caused the global GnP to contract by 0.5 percent and global trade to fall by about nine percent.11 Mexico’s GnP fell by 6.1 and about 700,000 jobs were lost because of the crisis.12 Given the dire circumstances, President George W. Bush convened the first G20 Leaders’ summit in october 2008 in Washington d.C., in 9 seCreTAry oF THe TreAsury, “Text of draft Proposal for Bailout Plan. Legislative Proposal for Treasury Authority to Purchase Mortgage-related Assets,” New York Times, september 20, 2008, at 10 PAoLA suBACCHI and PAuL JenKIns, Preventing Crises and Promoting Economic Growth: A Framework for International Policy Cooperation, London, Centre for International Governance Innovation (CIGI)/Chatham House, 2011, available at default/files/public/Research/International%20Economics/r0411_ipc.pdf. 11 BAnCo de MéxICo, 2010 Annual report, April 2011, at publicaciones-y-discursos/publicaciones/informes-periodicos/anual/%7B4DD504A9-510A- F0DC-76B2-D028BE9FB374%7D.pdf. 12 Idem.; and ernesTo Cordero Arroyo and JAVIer LozAno ALArCón, Statements of the Secre- taries of Finance and Public Credit and Labor and Social Security, Ernesto Cordero Arroyo and Javier Lozano Alarcón, respectively, at the press conference they offered on the employ- ment situation in Mexico, January 4, 2011, at doc_discurso_funcionarios/secretario/SHCP/eca_jla_conferencia_empleo_04012011.pdf (acces- sed september 26, 2011). * 11 *
  10. 10. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 12 Lourdes ArAndA BezAury order to design a global response to the crisis and agree on an agenda to maintain the stability of the international economy. since the Washington summit, there have been six Leaders’ summits: in London (March 2009); Pittsburgh (october 2009); Toronto (June 2010); seoul (november 2010) and Cannes (november 2011). What follows is a brief description of how the G20 has evolved since it began meeting at the leaders’ level, and of Mexico’s role in the group. Stability and the Framework for Strong, Sustainable and Balanced Growth The G20 has gradually moved from its initial focus on heading off a crisis to preventive, long-term macroeconomic cooperation. When the leaders met for the first time in november 2008 in Washington, their main goal was to reach an understanding on the causes of the global crisis and to assess appropriate policies to deal with it. Given the critical global eco- nomic situation, the G20 countries began to cooperate closely on macro- economic policy in order to restore growth and contain the spread of the crisis to the most vulnerable economies. The strongest response to the crisis came at the London summit in March 2009 when the leaders agreed on a two-year, five billion dollar coordinated fiscal and monetary stimulus package. six months later, the leaders noted that this package was the largest in economic history and that it effectively accomplished its goal of avoiding the collapse of global economic activity, stabilizing the markets and restoring trade.13 Without a doubt, this swift coordination of stimulus measures demonstrated the G20´s ability to reach agreements that bene- fited the world economy and enhanced its status as a credible participant in world governance. Thanks to their deeper understanding of the global imbalances that contributed to the 2008 financial debacle, the leaders drew up a Frame- 13 G20, The Pittsburgh Summit 2009 Leaders’ Statement, preamble, paragraph 6, at documents/pittsburgh_summit_leaders_statement_250909.pdf. * 12 *
  11. 11. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 13 The Role of Mexico in the G20 work for Strong, Sustainable and Balanced Growth to ensure that the fis- cal, monetary, trade and structural policies of the member countries were consistent at the global level. The framework is an ambitious effort to coordinate policies with the goal of stimulating sustainable and balanced growth; accelerating job creation; and reducing the risks to economic stability throughout the world. In very broad terms, the framework tries to eliminate the most fundamental causes of the crisis, principally the complex combination of high levels of public and private debt combined with significant fiscal and trade imbalances in some of the most advan- ced economies. As a result, the framework proposes that the deficit eco- nomies move towards fiscal equilibrium by cutting their deficit by half in 2013, reducing public debt, encouraging domestic savings and making their exports more competitive. At the other extreme, the economies that are running a surplus, which over the years leading up to the crisis showed dynamic growth driven by external demand, should put reforms in place that reduce their reliance on foreign markets, develop sources of domestic growth and implement more flexible exchange rate policies in order to strengthen domestic con- sumption and welfare. Furthermore, all of the G20 economies should implement structural reforms that encourage growth, demand and job creation. Given the wide variety of national circumstances in the G20 and an economic situation that is continually evolving, it was agreed at the Toronto Leaders’ summit that the circumstances of each country would determine the degree to which they implemented the framework. Although negotiating the framework’s progress has been complex and not entirely free of disagreements, one big advantage has emerged: it has led to closer coordination and dialogue between emerging and de- veloped economies, allowing them to set goals and assess the implemen- tation of agreements on issues that just a few years ago would have been impossible to discuss, such as the global consequences of monetary and exchange policies. Therefore, it has become a very novel instrument for cooperation that has gradually opened the door to a macroeconomic dia- logue between developed and emerging countries. As many observers have noted, preventing future crises, reducing volatility and stabilizing the global economy will depend on effective * 13 *
  12. 12. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 14 Lourdes ArAndA BezAury international economic cooperation.14 The challenge for the G20 and the Framework is to achieve a global understanding of the fact that it is in the national interest of all countries to manage the risks and global im- balances within an effective multilateral cooperation framework. This, of course, is related to another key issue on the G20 agenda: reform of the international financial institutions. Reforming the International Financial Institutions This is, without a doubt, one of the areas where the G20 has accomplished its goals remarkably, and in a very short period of time. The reform has come about mainly to satisfy the institutions’ need for sufficient capitali- zation to help countries in financial difficulties, as well as their need to adjust their decision-making processes to reflect the structural change wrought by the new weight of the emerging and developing economies in contem- porary economic relations. Capitalization of the International Financial Institutions The first efforts of the G20 with regard to the international financial ins- titutions focused on making sure there was a stable flow of capital from them to the countries that were experiencing difficulties. At the London summit, the G20 therefore agreed to a capitalization of 850 billion dollars for these institutions to support emerging and developing economies to take countercyclical measures, capitalize their banks, invest in infrastruc- ture and assist with the balance of payments and social programs.15 In order to immediately assist its member countries, the resources of the International Monetary Fund were doubled to 500 billion dollars 14 P. suBACCHI and P. JenKIns, op. cit. 15 G20, Declaration on Delivering Resources Through the International Financial Institutions, April 2009, at Clean.pdf. * 14 *
  13. 13. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 15 The Role of Mexico in the G20 through the new Arrangements to Borrow (nAB) credit line, and an ad- ditional 100 billion dollars was provided to the multilateral development banks, specifically for loans to the lowest-income countries. At the 2010 Toronto summit, the leaders noted that the IMF’s capitalization now total- ed 750 billion dollars, and that of the multilateral development banks totaled 235 billion dollars, surpassing the financing goals that had been set in Pittsburgh. Mobilization of these resources played a decisive role in stabilizing the markets and laying the foundation for a recovery. Based on that progress, the leaders decided at the Toronto summit to authorize additional resources totaling 850 million dollars to the international fi- nancial institutions so that they could continue supporting emerging and developing countries.16 It should be noted that, at the London summit, the G20 encouraged the oMF to create a Flexible Credit Line (FCL) to ensure that its recapita- lization translate into effective and timely loans. The FCL represents an important step forward because it allows member countries with sound macroeconomic policies such as Mexico access to preventive loans should they face balance of payment problems or abrupt capital flight. In a similar manner, at the seoul summit, the leaders announced the launch of the Precautionary Credit Line (PCL) for countries which, because of their size or role in the system, are more vulnerable and need precau- tionary liquidity. Reform of the Quotas, Voice and Representation of the International Financial Institutions In addition to addressing the capitalization of the international financial institutions, at the Washington summit the G20 committed to promoting reform of the quotas so that the Bretton Woods institutions more ade- quately reflect the changes in the global economy, specifically the greater relative weight of the emerging and developing countries. With this in 16G20, The G-20 Toronto Summit Declaration, June 2010, paragraphs 23-25, at http:// g20_declaration_en.pdf. * 15 *
  14. 14. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 16 Lourdes ArAndA BezAury mind, between the Washington and seoul summits, the G20 urged a reform to the IFM that involved shifting six percent of the quota shares of the overrepresented countries to those that were underrepresented and doubling the quotas of all of IFM member countries. This is clearly very important progress: it significantly strengthens the IFM’s capitalization and its ability to assist its members. Furthermore, in seoul, the leaders agreed to reduce european overrepresentation in the IFM executive Board, taking two seats from that region. There have been similar efforts in the World Bank, including a redistribution of at least 4.59 percent of its quotas towards developing countries. Global Financial Safety Nets and the International Monetary System To the extent that the global economy has evolved towards complex in- terdependence, financial volatility has become a fundamental source of instability that has affected even countries with sound macroeconomic foundations. The creation of financial safety nets responds to the need to help the most vulnerable countries face the financial fluctuations as- sociated with abrupt changes in capital flows and with excess reserve accumulation. Based on the agreements reached at the G20 summits in Toronto and seoul, the leaders have committed to continuing to work on this issue to better prevent and manage future crises and, in general, to make the international monetary system stronger and more stable. Al- though the international monetary system has supported the expansion of the world economy, the tensions and weaknesses are increasingly evi- dent.17 For this reason, the G20 created a working group coordinated by Mexico and Germany to debate possible measures and alternatives for making the international monetary system more stable and for strength- ening the role of the IFM in this process. 17PALAIs royALe InITIATIVe, Reform of the International Monetary System: A Cooperative Approach for the Twenty First Century, January 2011, at bank_objects/Camdessus-english.pdf. * 16 *
  15. 15. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 17 The Role of Mexico in the G20 Reforming Financial Regulation and Supervision Irresponsible practices and a high level of risk in the financial system, along with regulatory and supervisory flaws were “at the root” of the 2008 crisis.18 While regulation is the responsibility of each national jurisdic- tion and its authorities, the 2008 crisis threw into sharp relief the global nature of the financial markets and their high degree of interconnection. For this reason, at the first summit in Washington, the leaders decided to begin a process of broad reforms to the financial sector and to inten- sify international cooperation on implementing new regulatory stan- dards. They agreed that the guidelines for reforming the sector would be transparency and accountability for the banks, solid financial regula- tion, the integrity of the financial markets and improving the capabilities of the relevant international financial institutions.19 one of the most important contributions of the G20 in this area was the creation at the London summit of the Financial stability Board (FsB), which replaced the Financial stability Forum (FsF), whose member- ship had been limited to the G8 and spain, the netherlands, switzerland and singapore. The FsB is charged with the international coordination of the regulatory and supervisory authorities of all of the G20 countries, in collaboration with the Basel Committee on Banking supervision,20 and the International Monetary Fund, to promote the implementation of effec- tive regulatory and supervisory policies. 18 G20, The G20 Seoul Summit Leaders’ Declaration, november 2010, paragraph 27, at 19 G20, Summit on Financial Markets and The World Economy Declaration, november 2008, at 20 The Basel Committee on Banking supervision is a forum for cooperation on bank super- visory policies. Its goal is to facilitate an understanding on issues that are key to improving the quality of supervision around the world. The oversight authorities from the following ju- risdictions participate: Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, netherlands, russia, saudi Arabia, singapore, south Africa, spain, sweden, switzerland, Turkey, united Kingdom, and united states. Its secretariat is headquartered at the Bank for International settlements in Basel, switzerland. * 17 *
  16. 16. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 18 Lourdes ArAndA BezAury At the Toronto summit, the G20 devised a plan for financial reform that was based on four pillars: a stronger regulatory system; more ef- fective supervision; the development of a resolution mechanism to ad- dress the bankruptcy of systemically important financial institutions (sIFIs);21 and transparent international assessment and peer review of compliance with the new standards. After the leaders repeatedly voiced their support for the new “Basel III” rules22 presented at the seoul sum- mit, all members have committed to making the necessary changes to their national legislation in order to implement the new measures be- ginning in January 2013, with a critical route that concludes in 2019. This incremental process is to ensure that the new rules are not imple- mented abruptly, inhibiting access to financing and increasing costs at a period of time in which it is vitally important to continue the flow of credit to the economy in order to consolidate recovery. However, the new standards reduce the incentives for excessive risk-taking and irres- ponsibility, lessening the probability of a new crisis at the same time that it strengthens the sector in support of economic growth. 21 The collapse of banking institutions such as Lehman Brothers in 2008 which, because of its size, complexity and interconnections with the rest of the global financial system, had consequences for the rest of the world, demonstrated the need for clear rules to minimize the damage caused by the lack of a procedural framework for bankruptcies and other pro- blems. In november 2010, the Financial stability Board (FsB) established a new procedural framework so that the breakdown of this type of institution would not affect the rest of the system. Currently, the FsB is working on a methodology to identify the sIFIs. It estimates that it will conclude its work in september 2011. 22 Basel III is a set of proposals for reforming the international capital and liquidity require- ments for banks and some areas of bank supervision. Its name comes from the fact that it is the third version of the international rules for capital and liquidity of the 1988 Basel Agree- ment. Basel II was adopted in 1992. The Basel Committee has urged that the capital rules be based on the supposition that the level of capital should depend on the level of risk associated with the bank’s assets. since capital exists to protect the bank from risk, a logical consequence is that more capital is needed when the bank decides to take on more risk. * 18 *
  17. 17. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 19 The Role of Mexico in the G20 An Open Global Economy At the Washington summit, the leaders acknowledged that global trade drives prosperity and growth, and they highlighted the importance of avoiding protectionism. However, at the London summit, they noted that protec- tionist measures and the contraction in trade financing were exacerbating the decline in global demand for goods and services. Therefore, they decided to redouble their efforts to avoid the creation of new barriers to the trade in goods and services and to take all necessary steps to restore financing to the sector by ensuring 250 billion dollars of support for trade finance over two years.23 In addition, at each of the leaders’ summits, the G20 has reiterated its support for a swift conclusion to the World Trade organization’s doha round. However, it is in this area that the limits to what the G20 can do are most clearly seen. A spirit of protectionism has prevailed to the detriment of greater global growth and wellbeing. Non-financial Issues and the G20 Because the G20 was able to facilitate consensus decision-making to manage the 2008 crisis, expectations are now high that this forum will address other important multilateral issues that, because of their complexity and the many diverging opinions about them, have languished for a long time. While there is consensus that the G20 should concentrate on the financial and economic agenda that gave rise to its creation, there is also a belief that the group can serve as a forum for discussion of global issues related to financial develop- ment. For example, World Bank President robert zoellick has suggested that the G20 promote “responsible globalization” that links sustainable growth to financial stability, development and climate change.24 23 G20, Declaration on Delivering Resources…, paragraph 22. 24 roBerT zoeLLICK, Democratizing Development Economics, conference, Washington, d.C., George- town university, september 29, 2010, at EXTABOUTUS/ORGANIZATION/EXTPRESIDENT2007/0,,contentMDK:22716997~menuPK: 64822279~pagePK:64821878~piPK:64821912~theSite PK:3916065,00.html (accessed september 26, 2011). * 19 *
  18. 18. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 20 Lourdes ArAndA BezAury Development Various observers have noted that, by including the issue of development on its agenda, the G20 has signaled the beginning of a new stage in its evolution. It certainly reflects the impact of the developing countries on the forum and the fact that their agenda has gained legitimacy, and com- mitted the G20 more clearly to the less-developed countries and sectors. The group has the potential and the political leadership to give impetus to higher levels of development thanks to the impact of its economic poli- cies. In fact, the G20 could play an important role in promoting the Mi- llennium development Goals despite the restrictions currently faced by the international economy. Climate Change Without a doubt, the global response to the problem of climate change is intrinsically related to the international economy. Climate change pre- sents us with clear challenges but it also represents opportunities for the global economy. The challenges derive from the need to limit greenhouse gas emissions through the development of greener industrial technologies. The transition to the use of low-carbon technologies and production chains creates new business and investment opportunities that are linked to growth and jobs. Therefore, the G20, as the most important forum for inter- national economic cooperation, cannot remain detached from the fight against climate change. The negotiations on climate change and its financing have been addressed by the G20 leaders in their declarations. However, the G20 does not intend to become the main platform for climate change coopera- tion, but rather to simply support and promote the process as it evolves within the united nations framework. * 20 *
  19. 19. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 21 The Role of Mexico in the G20 Energy In response to the increasing energy price volatility and its impact on economic activity, the G20 became involved in this area beginning at the Pittsburgh summit in order to address several challenges in this sector. In addition to laying the foundation for dealing with the price volatility, the G20 seeks to contribute to reducing subsidies for fossil fuels that damage the environment and to facilitating the exchange of best practices in clean energy and energy efficiency. Agriculture The G20 agriculture ministers meet during the preparations for the sum- mits to share opinions and seek solutions to problems that impact the stability of the global economy such as food security and agricultural price volatility. over the past months, these problems have worsened considerably, which has had serious consequences in some regions of the world such as the Horn of Africa. The Fight against Corruption In recognition of the serious implications of corruption on economic growth, such as increased transaction costs and market distortion, at the G20 Toronto summit in June 2010, an Anti-Corruption Working Group was created. This group seeks to promote the main united nations and the organization for economic Cooperation and development (oeCd) in- ternational anti-corruption instruments; avoid access by corrupt officials to the financial system; combat money laundering and tax havens; strengthen agreements on mutual assistance, extradition and the confis- cation of assets; improve protection for whistleblowers, and to exchange best practices. To date, significant steps have been taken towards the im- plementation of the group’s Anti-Corruption Action Plan, and a progress report was submitted at the Cannes summit. Mexico has participated * 21 *
  20. 20. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 22 Lourdes ArAndA BezAury actively in the Working Group and will co-chair it with the united King- dom in 2012. Employment The G20 leaders have repeatedly stated that job creation must be at the center of the global economic recovery. To this end, the G20 labor mi- nisters meet periodically to discuss strategy and to exchange best prac- tices in order to respond to the social consequences of the economic and financial instability. At the september 2011 meeting of labor ministers in Paris, it was agreed to create a task force to facilitate the development of job creation strategies, especially for youth. The agenda briefly described above shows that the G20 is pivotal in promoting non-financial global issues closely linked to economic de- velopment, such as the fight against corruption as well as development itself, in which its leadership can make a difference. * 22 *
  21. 21. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 23 THe G20: sTruCTure And FunCTIon Although it is true that the G20 is an informal forum for discussion, with- out its own headquarters or administrative structure, it exists and func- tions based on a complex network of consultations and communication between various areas and levels of government of its 19 member coun- tries and the european union. of course, the leaders are the highest authority. It is they who provide the political capital and give impetus to the negotiations at the summits. It is worth mentioning that the G20—whose main value added vis- à-vis other international organizations is precisely the political capital and the level of dialogue made possible by the presence of the leaders—orga- nizes its agenda along two lines. There is a “finance channel” managed by the central bank governors and the finance ministers of all of the member countries with technical assistance from the main international financial institutions. In Mexico, this channel is the direct responsibility of the Mi- nistry of Finance and Public Credit (sHCP) and the Banco de México. Based on the analyses and recommendations of the finance leaders, the goal is for the leaders to promote coordination of economic and financial policies at the international and national level in order to achieve a more prospe- rous, balanced and sustainable order in all regions of the world. In addition to the “finance channel,” the “sherpa channel” coordina- tes the non-financial issues. The sherpas are the leaders’ personal repre- sentatives. The term refers to the guides that lead climbers on expeditions to scale the Himalayas. This channel addresses issues such as the fight against corruption, the development plan adopted in seoul, energy effi- ciency and food security. The sherpas are also responsible, of course, for the group’s internal coordination and outreach to third-party actors. The rotating presidency of the summit is supported by a group of advisors that each government appoints according to its own specific cir- cumstances. one way of providing continuity from one summit to the next has been the creation of a G20 “Troika,” made up of the past, present and future summit chairs. Working in an advisory capacity, the Troika ensures a certain continuity and consistency to all of the summits without incurring * 23 *
  22. 22. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 24 Lourdes ArAndA BezAury in the high administrative costs that would come with creating a secre- tariat. nor does it take away from the G20’s flexibility, which is based on a direct dialogue between its main participants. It is also important to point out that the G20 works without a formal secretariat because the in- ternational financial institutions with a universal and permanent mem- bership such as the IMF provide it with the human and technical resources it needs for its decision-making process. Before debating whether or not it should create a more formal institutional structure for itself, the G20 should demonstrate that it has successfully fulfilled the terms of its agre- ements. For this very reason, the G20 focuses its efforts on fulfilling its original commitments and limits its engagement with other issues. Lastly, regarding the growing debate about the role of the G20 and the formal multilateral organizations, it is important to stress that the G20 is a complementary forum for cooperation that does not intend to replace the existing institutional arrangements. The nature and function of the G20 are frequently misconstrued, as are its comparative advanta- ges and strategic relationship vis-à-vis, for example, the united nations. on some issues, such as development, coordination between the G20 and the united nations is key to contribute to fulfilling the Millennium deve- lopment Goals. In addition, in response to the legitimate concerns of the impact of the G20’s decisions on other countries and actors, the leaders committed at the seoul summit to increasing the group’s consultations and outreach programs in a systematic fashion, based on the G20’s relations with the international financial institutions, the united nations, regional organi- zations, civil society and academia.25 The goal is to establish connections and synergies between the various organizations and actors instead of juxtaposing agendas. 25 G20, The G20 Seoul Summit…, paragraph 73. * 24 *
  23. 23. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 25 The Role of Mexico in the G20 The role of Mexico in the G20 Mexico actively participates in the process of strengthening the G20 as the main forum for international economic cooperation and discussion between developed and developing countries. In addition, the G20 also provides an opportunity for Mexico to increase its interactions with coun- tries that are particularly important for its foreign policy, because they are important trading partners, foreign investors or because we share common positions in international forums. As a general strategy, Mexico seeks to take advantage of its situation as a country that bridges regions, benefiting from its geopolitical and geo- strategic position between north America, Central America and south America; as a country of both the Atlantic and the Pacific; and from its historic ties with europe. In addition to the above, Mexico is able to bridge the gap between developed countries (oeCd members) and developing countries, with which it shares concerns related to economic growth, food security, the fight against poverty and climate change, international trade and reforms of the organizations involved with global governance. These characteristics make Mexico a natural facilitator in international negotia- tions, able to reconcile varying positions on the most pressing economic and financial challenges we face today. That said, Mexico does not encou- rage the creation of groups within the G20 so as not to alter its current composition as a forum in which each member country participates on equal terms. Mexico’s role in the G20 summits Global Economic Stability Mexico’s role in the G20 has been consistent with its macroeconomic po- licy, which seeks to maintain fiscal stability by increasing tax collection and maintaining low levels of public debt and a moderate deficit. sound management of Mexico’s economy led to a growth rate of 5.5 percent in * 25 *
  24. 24. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 26 Lourdes ArAndA BezAury 2010 after a contraction in 2009.26 When the severity of the crisis led to the first G20 summit in Washington, Mexico favored adopting countercy- clical policies as the first line of defense. However, Mexico has also stressed that plans to restore a fiscal balance should be compatible with growth, as this is a condition for economic development in the future. In addition, Mexico has confirmed its commitment to the Framework for Strong, Sus- tainable and Balanced Growth as the way to achieve a full recovery that has progressed in very different ways among the world’s countries and regions and has not been strong enough to create new jobs. Mexico be- lieves that the ultimate solution is the establishment of macroeconomic policies that are much more responsible and that do not manipulate va- riables such as the exchange and interest rates, given that one of the most important causes of the 2008 crisis were macroeconomic imbalances.27 Although the Framework itself is clearly a step in the right direction, there is a long road ahead on the way to correcting the imbalances, which makes it important to overcome the resistance to acknowledge the pro- blem and begin a serious discussion on how to continue to make progress in the near future. Reforming the International Financial Institutions Mexico has actively supported reforms to the most important financial institutions that enable emerging countries such as our own to participate in a more balanced fashion and according to their weight in structuring solutions to the international economic challenges. With this goal in mind, Mexico has supported increasing the capital of the International Monetary 26 BAnCo de MéxICo, op. cit., p. 16. 27 sre, Report on the participation of the President of the United Mexican States, Felipe Cal- derón Hinojosa, at the 5th G20 Leaders’ Summit and the 18th Summit of Economic Leaders of the Asia-Pacific Economic Cooperation (APEC) Forum, Mexico, 2010, p. 5, available at 2725043_20101214_1292 343974.pdf. * 26 *
  25. 25. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 27 The Role of Mexico in the G20 Fund and the World Bank, and has promoted reforms that strengthen the voice of the developing countries in the decision-making process. specifi- cally, the role of Mexico in London and Pittsburgh was very important in arriving at the agreements that created new instruments for flexible credit lines to developing countries to improve their access to resources in difficult times.28At the seoul summit, Mexico highlighted the importance of the IMF reform that will enable emerging countries such as ours to increase their participation on its governing bodies and will substantially improve the assistance we can receive if faced with difficult circumstances.29 Reform of the Financial System The Mexican Government proposed a detailed review of the regulatory weaknesses of the financial systems, both in the developed and emerging countries, stressing the problem created by excluding emerging countries from the main forums for discussion of financial policies. In this context, Mexico played an important role in the G20’s decision at the London sum- mit to expand the membership of the Financial stability Board to include emerging countries.30 In addition, Mexico has urged G20 members to avoid introducing regulations that could make access to credit more costly, such as overly strict capital requirements. Mexico has also backed the efforts of the Basel Committee on Banking supervision and the Financial stability Board to draft new standards and rules to mitigate the risks in the sector and agrees on the need to strengthen both the international coordination between supervisors and the scope of the regulations of the financial ins- truments, entities and markets that have inherent systemic risks. 28 sre, Report on the State Visit of the President of the United Mexican States, Felipe de Jesús Calderón Hinojosa, to the United Kingdom of Great Britain and Northern Ireland, and his participation in the Second G20 Leaders’ Summit from March 29-April 2, 2009, México, 2009. 29 sre, Report on the participation… 30 sre, Report on the State Visit… * 27 *
  26. 26. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 28 Lourdes ArAndA BezAury Preventing a New Era of Protectionism Given the export-oriented nature of the Mexican economy, our country has spoken out strongly against a resurgence of protectionism and increased tariffs. In addition, President Calderón has stated repeatedly that Mexico is committed to concluding the doha round negotiations. However, given the lack of progress with the World Trade organization negotiations, our country has said that it is in favor of eliminating the trade barriers erected by the industrialized countries because their slow recovery is affecting the prospects of the export sector of the developing countries.31 other Issues Encouraging a Green Global Recovery In Pittsburgh, President Calderón introduced climate change as one of the summit’s central issues. His explanation of the Green Fund was received with interest, and the shared but different responsibility of countries to finance the problems of mitigation, adaptation and technological change caused by climate change were acknowledged.32 In addition, Mexico has strongly promoted eliminating subsidies for inefficient fossil fuels while at the same time acknowledging the varied circumstances of each of the G20 members. our country has affirmed its political will to comply with 31 sre , Report on the participation in the 4th G20 Leaders’ Summit of the President of the United Mexican States, Felipe Calderón Hinojosa, Toronto, Canada, June 26-27, 2010, page 6, available at 20100825_1282746206.pdf. 32 sre, Report on the working visit of the President of the United Mexican States, Felipe Cal- derón Hinojosa, to New York and his participation in the Summit of Heads of State and Go- vernment of the United Nations Security Council and in the 3rd G20 Leaders’ Summit in New York and Pittsburgh, United States, september 23-25, 2009, at http://sil.gobernacion. * 28 *
  27. 27. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 29 The Role of Mexico in the G20 this commitment through an action plan that gradually eliminates subsi- dies to fossil fuels that damage the environment.33 Climate Change Although the forum to address climate change is the united nations Fra- mework Convention on Climate Change and therefore the issue is not part of the G20 agenda, one of Mexico’s most important goals at the G20 sum- mit in seoul was to contribute to creating a political environment that led to success at the CoP16 in november 2010.34 The information session on the state of the negotiations led by President Calderón no doubt had a po- sitive impact on the process. Development In seoul and Toronto, Mexico supported the creation of a working group on this issue in the belief that the G20 should promote sustainable develop- ment on a global scale and that it would help fulfill the Millennium deve- lopment Goals. In addition, Mexico upholds the commitment to contributing to the Multi-year Action Plan adopted in seoul to eliminate barriers to growth and to help move towards a more sustainable economy and job creation. 33 sHCP, “Las acciones coordinadas pueden asegurar un futuro más próspero para los ciu- dadanos de todo el mundo: G20,” Informe Semanal del Vocero, november 8-12, 2010, p. 2, at 46_2010.pdf (accesed october 5, 2011). 34 sre, Report on the participation… * 29 *
  28. 28. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 30 Lourdes ArAndA BezAury The G20 Today and Priorities for the Mexican Presidency Three years after the financial debacle that pushed the world’s economy to the brink of collapse, it cannot be denied that the G20’s first line of de- fense was successful in avoiding a deeper and more prolonged recession and in saving millions of jobs, although unemployment continues to be critically high in some economies. Given the magnitude of the crisis and the risk inherent in failing to coordinate policies, it was easy for the G20 to reach agreements that made it an important player on the global stage. However, there are several areas in which its original commitments have yet to be fulfilled. Among these are the goal of creating the conditions for strong, sustainable and balanced growth throughout the world that leads to jobs and wellbeing for all. In 2011, the outlook for the world’s economy is uncertain, perhaps moreso than in 2008. While the markets reacted skeptically to the fiscal plans of the advanced economies in the second half of 2011, the emerging economies are concerned with the risk that their economies will overheat and create new financial bubbles.35 However, faced with an increasingly complex situation and the risk of a new financial debacle, the G20 has not been able to find a way to promote consultations and collective action as it did in 2008. While differing views persist on how to address the global imbalances, the term “currency war” was used by several participants and observers at the seoul summit to refer to the tensions created as part of the debate over international monetary policy. The Mexican Government has openly criticized the inconsistency of various G20 countries that have spoken against protectionism at each G20 summit only to then implement protectionist measures at home. The possibility that the current complex international economic si- tuation leads to a recession and that the G20 has worn out its ability to facilitate agreements could put the entire world at great risk. Another re- 35 InTernATIonAL MoneTAry Fund, World Economic Outlook September 2011, Slowing Growth, Rising Risks, Washington, d.C., International Monetary Fund, 2011, at external/ pubs/ft/weo/2011/02/pdf/text.pdf (accesed october 5, 2011). * 30 *
  29. 29. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 31 The Role of Mexico in the G20 cession that could affect growth, employment and welfare to an even gre- ater degree than in 2008-2009 makes it imperative for the leaders to act responsibly and decisively. Therefore, the G20 must maintain the spirit of cooperation that led to its creation at the leaders’ level in 2008. The G20 must overcome its differences regarding approaches to the economy to focus on the current situation. Another global economic crisis is not in the interest of any nation. There is no place for purely national interests in this scenario. The G20 must find its long-term vision again. If we lose sight of the original reason for our cooperation, the G20’s role as the most important forum for economic cooperation could soon be history. * 31 *
  30. 30. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 33 THe MexICAn PresIdenCy oF THe G20 Mexico will host the seventh G20 Leaders’ summit at a very critical and uncertain time for the international economy. It will promote a substan- tive agenda that will address the most pressing global economic challen- ges. In light of the complex global economic environment, the G20’s role in coordinating macroeconomic policies that give certainty to the mar- kets, ensure liquidity and strengthen the recovery of the global economy becomes crucially important. Given the recent episodes of financial ins- tability in europe and the united states, it is important for the G20 to make progress in fulfilling the commitments it has already adopted and that must be met so that economic growth can recover. Therefore, President Calderón has said that one priority will be to follow up on issues such as economic stability in order to re-start growth, boost international trade and improve financial regulation. In addition, Mexico will promote specific issues of interest for emerg- ing and developed countries to which the Mexican presidency can bring value added. some that have been proposed have to do with food security and green growth. We are committed to organizing a process of consultations and an expanded and transparent dialogue with the united nations, non-member countries, regional organizations and all of the relevant participants in the process of finding solutions to the complex economic and financial problems that the international community as a whole faces today. * 33 *
  31. 31. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 35 ConCLusIons The G20’s presence on the world stage opens a window of opportunity for achieving a more effective system of global economic governance. The G20 has proven to be indispensible in times of economic and financial crisis. But it can also play a key role in non-crisis situations by laying the founda- tion for a more prosperous, secure and balanced global economy. For this reason the group must remain united and retain its spirit of cooperation. one of the most distinctive characteristics of the G20 is its inclusion of the interests and priorities of both emerging and developing countries in the governance of the international economy. This clearly reflects the re- ality of our multipolar and interdependent world. Its role in global econo- mic governance should be to promote clear rules that are acceptable to all countries and that lead to a more stable and prosperous world economy. despite successfully managing the international financial crisis in 2008 and 2009 and its important contributions to reforming the interna- tional economic architecture, the economic picture remains complex and the G20 must be on guard. Its creation stems from the awareness that all of its members, both the developed and the emerging economies, must share the responsibility of putting collective action before national inte- rests. This is the only way to achieve economic growth and stability and better employment rates and wellbeing on the entire planet. up until now, the G20 has made a difference. Mexico’s presidency will undoubtedly be an opportunity to move forward and to take further steps that benefit global economic stability. * 35 *
  32. 32. G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 36 Instituto Matías romero secretaría de relaciones exteriores república de el salvador no. 43 and 47 Col. Centro * Cuauhtémoc C. P. 06080 * Mexico City Tel. (55) 36865100 * exts. 8246 and 8268 responsible for the publication and electronic version: María Cristina Tovar Gómora Gabriel López López Cover desing: Luis niebla Book design: uli stehlik Composition: susana Guzmán de Blas Translation: Brett duel The fonts used are: Cambria * 10 and 14 pts. and Trajan Pro * 80, 42 and 24 pts.