In this second EABER-ISEAS joint webinar, we have panellists Prof Peter Drysdale, Dr Homi Kharas and Dr Muhamad Chatib Basri who spoke on the focus and agenda of Indonesia’s G20 Presidency to foster inclusivity and multilateralism and to achieve global cooperation on challenging global issues.
EABER – ISEAS JOINT WEBINAR
REGIONAL ECONOMIC STUDIES PROGRAMME
15 June 2022, Wednesday – This webinar is the second in a series on regional and global economic issues organized by the Australian National University’s East Asian Bureau of Economic Research (EABER) and ISEAS – Yusof Ishak Institute (ISEAS). Dr Wempi Saputra, the Assistant Minister of Macro Economy and International Finance of Indonesia’s Ministry of Finance and the Finance Deputy G20 Indonesia delivered a (recorded) keynote speech on behalf of the Minister of Finance, H.E. Sri Mulyani Indrawati. Prof Peter Drysdale from the Australian National University, Dr Homi Kharas from Brookings, and Dr Muhammad Chatib Basri from the University of Indonesia spoke about what the G20 has and has not delivered and what Indonesia’s G20 Presidency can deliver this year, in a panel discussion, chaired by Dr Maria Monica Wihardja, a Visiting Fellow at ISEAS.
Dr Wempi spoke about the challenges that Indonesia’s G20 Presidency was facing including the unprecedented war in Ukraine and the looming global food crisis. However, Indonesia is committed to delivering the goals set under both the Finance Ministers and Central Bank Governors (FMCBG) and the Sherpa’s tracks while standing ready to adapt the agenda and deliverables to ensure that the G20 continues to effectively manage the downside risks to ensure macroeconomic and financial stability, long-term fiscal sustainability and safeguard the economy against negative spillovers. Collective actions are needed to manage the immediate crisis and to ensure that the recovery from the COVID-19 pandemic is green, resilient and inclusive. Before going into the agenda of the Indonesia’s G20 Presidency in more detail, Dr Wempi reported Indonesia’s pre-pandemic level of growth of 5.01% in Q1 2022, mainly supported by the growth in industry, trade, transportation and warehouses, domestic consumption, investment, and international trade. Indonesia is also on the path to fiscal consolidation with a target of below 3% fiscal deficit in 2023. To build better, structural reforms through building better human capital and physical infrastructure, digitalization and downstreaming are underway, while continuing to be mindful of the downside external risks. Indonesia is now part of the UN Global Crisis Recovery Group (GCRG), which will deal with food, energy and financial issues.
There are six main areas of discussion under the FMCBG track: exit strategy towards recovery, addressing scarring effects to secure future growth, digital finance system, sustainable finance, financial inclusion, international tax, and global health financing. Indonesia also successfully conducted the second FMCBG meeting in April 2022 despite the ongoing tensions due to the war in Ukraine. Under the FMCBG track, the G20 recognizes the disproportionate impacts of the energy and food crisis on low-income and less developed countries and supports these countries, especially those that are at risk of debt distress.
Indonesia’s G20 Presidency has set three priority topical agendas: global health infrastructure, digital economic transformation and energy transition. Under the global health infrastructure agenda, the agenda items include: (1) establishing a new multilateral financing mechanism to address the financing gap for pandemic prevention, preparedness and response, supported by WHO and World Bank, (2) enhancing coordination between health and finance ministers, and (3) harmonizing cross-border health regulations. Under the digital economic transformation agenda, the agenda items include: (1) enhancing skills and literacy to ensure inclusiveness and attract digital investment, (2) diversifying digital financial services for MSME, (3) developing digital financial inclusion policy framework, and (4) managing digital risks. Under the energy transition agenda, the agenda items include: (1) coming up with a high-level framework for transition finance and scaling up sustainable finance instruments that should also support MSME, (2) managing energy crisis in the short run and energy security in the long run, (3) ensuring transition towards new and sustainable energy by prioritizing energy security, accessibility and affordability, and (4) increasing sustainability of financial instruments and investment for the transition agenda.
Dr Wempi also highlighted the G20 agenda on international financial architecture, among which are the establishment of the IMF Resilience and Sustainability Trust (IRST), a USD100 billion Climate Fund of voluntary contribution for countries in need, and improving the role of Multilateral Development Banks in development financing and catalysing private sector mobilization. Dr Wempi also said that Indonesia is playing a role to reconcile divergent views between developed and developing countries and to ensure that multilateralism is protected and brings benefits to the world.
The panel discussion started off with each speaker giving their long-term views about the G20. Prof Drysdale noted that the G20’s origins went back to 1998 and the Asian Financial Crisis. After that crisis, it was felt the need then to build broader consultation among finance ministers and central bank governors on international financial developments to strengthen the global financial system. The G20’s elevation after 2008 to a leaders summit marked an important success in mobilizing the global response to the Global Financial Crisis. The initiation of the G20 changed the whole structure of global governance. It is the first global forum of international economic cooperation that includes both the developed and developing countries, representing about 90 percent of the world’s GDP. The challenges the G20 faces today are more complex and centred on the gaps and weaknesses in global governance that have emerged over time. It also faces challenges on the impacts not only of the COVID pandemic but also now the emerging geopolitical divide and the war between Russia and Ukraine in Europe. Geopolitical cooperation is needed more than ever but it is weak. These issues must be dealt with by the G20 leaders; if avoided they risk the G20s becoming irrelevant. How the war plays out and how its settlement is managed is crucial to global economic outcomes as we know from the food and fuel price hikes. The G20 has the convening power and Indonesia is seen, by virtue of its position and standing in the world and its core multilateral interests, as best qualified to lead the G20 at this challenging time.
Dr Homi Kharas reminded the audience that there is nothing new under the sun, and we have been experiencing recurring global crises. He contended that the G20 must do better in addressing these recurring global crises. This could be done by maintaining strategic commitments and focusing on delivering sustained, long-term strategies, frameworks and institutions to address the underlying causes of the multiple, large-scale, structural problems the global economy confronts today, instead of acting like a firefighter when a crisis arises. It is commendable that the G20 is preparing to set a program to fundamentally improve the global preparedness to manage the next pandemic. Dr Kharas also pointed out the need to reconcile the divergent views between developed and developing countries.
Dr Chatib Basri highlighted G20’s role in global economic cooperation, including the international agreement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. But, currently, we are facing fragmentation, changing global supply chain (from ‘just in time’ to ‘just in case’), and rising economic sovereignty. But, in this context, the world will not be better by ‘looking inwards’. The G20 needs to adapt to the changing global landscape and find a different narrative. This is not the first time that multilateral economic forums need to adapt its agenda. For example, capital flow control used to be a ‘taboo’ topic to discuss in international forums like the IMF-WB annual meetings, but now it is discussed in these forums due to changing global economic landscape. Dr Basri highlighted the need to discuss topics that are universally shared by all the G20 member countries, such as health, food security and climate change, to pique interest, avert divergent views and conserve the solidarity of the G20. Dr Kharas pointed out that three topics – health, food security and climate change – are however interconnected.
On Indonesia’s G20 Presidency, there is a concern that the G20 is becoming like a Christmas tree with growing mandates, agenda and auxiliaries. Prof Drysdale argued that the G20 needs to focus on the big issues that confront the global economy today. They include the safety net for developing countries against the sharp rise in capital costs; defending multilateral trade and economic openness to promote recovery and sustainable development. It is not only about agenda setting but also about process development, so that there is continuity of the agenda and following through commitments with real action. In the face of dysfunctional multilateralism, he argued that the G20 must defend multilateralism and protect the systems that make it happen, such as a bold agenda for WTO reform, which can be carried forward in the follow-up to Indonesia’s trade paper presented to the Osaka Summit and executed through the G20’s taskforce on trade and the Bali Summit.
When asked about what Indonesia can deliver under the health, food security and climate change pillars, Dr Kharas argued that the G20 should address long-term structural issues and recognize that the institutions and processes that the world rests upon to deal with these issues are outdated. The SDG progress is dismal. Structural changes the world is underdoing need to be addressed by structural reforms. But, at the same time, we are also at the best time to make a transformation and do better. Moreover, we need long-term and sustained strategic investments on the scale of trillions of dollars, and not billions of dollars, like the USD100 billion Climate Fund. The G20 member countries have consistently shown reluctance to make concrete resource commitments since the 2010 infrastructure initiative. When asked how to overcome their reluctance and persuade them to think in terms of trillions of dollars needed for strategic investments, Dr Kharas responded that the G20 could start by monitoring the progress of their pledge or goal on global issues, such as the USD100 billion Climate Fund, and inform the rest of the world about the progress. The G20 could then discuss how the world could better deliver this goal.
Dr Basri also discussed how the G20 member countries under the FMCBG track have been delicately trying to balance out the commitment to exit the COVID-19 stimulus policies to preserve fiscal sustainability with the need to address the potential scarring effects to secure future growth and to manage the looming global food and energy crisis as well as high inflation. Debt restructuring especially for low-income countries in or at risk of debt distress needs to be addressed, partly to avert scarring effects, especially among youth, that could cut deeper if the economies of these countries fall into debt distress. China, as the single largest creditor in the world, but also advanced economies, must work together to address this looming global debt issue.
In closing, Prof Drysdale argued that Indonesia’s G20 Presidency will need high-level and proactive diplomacy in its leadership of the G20 this year. High hopes and trust are placed on Indonesia in the leadership of the G20 Summit and its capacity to frame agreement on dealing with the big problems we face.