Inaction and wishful thinking: G20 summit shows why we must go back to true multilateralism
G20 leaders met in Rome last weekend (30 and 31 October) to address what they termed “today’s most pressing global challenges”. In the end they took no meaningful new decisions. The photo opportunity with G20 leaders throwing a coin into the Trevi fountain was a potent symbol of what the Summit turned out to be: wishful thinking without any action.
The G20 has never been the right forum to discuss nor decide on global issues - the place for that is in the United Nations as the only truly inclusive universal body that we have. But what the G20 countries could have done is to show that they will support inclusive multilateral decision-making processes by cleaning up their own acts as their contribution to finding global solutions.
As the G20 Summit happened back-to-back with the 26th United Nations Climate Change Conference - also known as COP26 - the lack of ambitious and new commitments by the Group to tackle climate change and to deliver on climate finance obligations was remarkable. The latest financial projections indicate that rich countries are lagging behind on their commitments to deliver US$ 100 billion per year in climate finance - it will take until 2023 to achieve that, which is three years past the goal date. COP26 must be the place to deliver on the finance that is urgently needed.
OECD tax deal was rubber stamped, but 130+ developing countries push for UN tax body
While there is still far too little finance on the table in the climate negotiations, there is still far too much of it in tax havens. Governments continue to lose hundreds of billions of dollars every year due to large-scale corporate tax avoidance, and discussion about combating tax havens and fixing the global corporate tax system has never been more urgent. The outcome of the G20 Summit on taxation was identical to the political agreement that was announced by the OECD earlier in October. But while it was sold yet again as a major victory, the reality is that the outcome is a strong reminder of why the G20 and the OECD should not be leading the decision-making on global tax rules. Loopholes and low ambitions resulted in an outcome that will only do very little to ensure that big multinational corporations increase their tax contributions. For some countries, the effect might even be a drop in income from large digital corporations, as the deal limits their possibilities for using digital services taxes. At the same time, the deal includes strong biases towards the interests of rich OECD countries. A recent analysis published by the EU Tax Observatory estimated that: “Developed countries would benefit more than the developing countries (...). The least-developed countries would probably have very limited or no revenues.”
With this in mind, it is perhaps not so surprising that the Group of 77 (G77) - a negotiation group representing over 130 developing countries - now decided to table a proposal for initiating intergovernmental tax negotiations at the United Nations. This proposal could be an important first step towards the establishment of an inclusive UN tax body where all countries participate on an equal footing in the decision making on global tax matters. Historically, the OECD countries have always insisted on keeping the decision making at the OECD, and most member countries, with the important exception of Norway, have also expressed opposition to the current proposal from G77. However, this continued refusal to hold negotiations in a forum where all countries are on an equal footing is neither morally justifiable nor in any country’s long-term interest, since it will only lead to divisions, conflicts and an incoherent global tax system. It is high time for the remaining OECD countries to come to the table and agree to negotiate fair and effective solutions to the global tax problems in the only truly inclusive body there is, namely the United Nations.
Woeful inaction on debt
At a moment when UN agencies, the IMF and the World Bank are warning that unsustainable debt burdens are putting at risk the chances of recovery for global south countries, the G20 leaders failed to take action in a repeat of the G20 Finance Ministers meeting two weeks ago, and the IMF and World Bank boards at the Annual Meetings. This is particularly worrying when lower income countries are actually spending five times more on debt payments than on climate action, according to Jubilee Debt Campaign.
The G20 reiterated blind faith that the Common Framework will tackle the debt distress in an increasing number of countries. Given the failure of this Framework to deliver any results so far, this is remarkably irresponsible. Furthermore, the G20 communiqué refers to “recent progress” and “enhancements” in relation to the Common Framework, while not offering any details of what these refer to, creating even further uncertainties among borrowing countries and creditors. According to a Bloomberg article, the G20 finance ministers had proposals on their table to improve the effectiveness of the Common Framework, including a debt payments standstill to those countries applying for debt treatment to be implemented on a case by case basis, but could not agree upon them. The fact that the countries facing debt distress are not seated at the G20 table might have something to do with this lack of progress.
This inability to grasp the gravity of the debt situation and the blind confidence that the Common Framework will deliver, demonstrates yet again that the G20 is not the right forum to design and manage debt resolution initiatives. This marks a stark contrast to the proposals made by leaders of the global south at the recent United Nations General Assembly, including in favour of the creation of a multilateral debt resolution framework.
Special Drawing Rights: a missed opportunity
In this context, the G20 also missed the opportunity to announce an agreement that would ensure developing countries - mainly low-income countries - have a widened fiscal space to recover from the pandemic. An ambitious agreement to rechannel the resources coming from this year’s IMF issuance of Special Drawing Rights (SDRs) could have made this possible. Instead, they “welcome” what they termed “pledges worth around US$  billion”, and pointed to the IMF to establish a new Resilience and Sustainability Trust (RST), something that had been already agreed at the last WB/IMF Annual Meetings. As 280 civil society organisations outlined in a letter released in early October, developing countries are in need of debt-free and conditionality-free resources, and the extent to which the RST will fulfill this need remains to be seen.
A relentless focus on mobilising private finance
This G20 stuck to the Roadmap for Infrastructure as an Asset Class, as lobbied for by business groups, and supported by the OECD. This is despite the fiscal risks that these financing mechanisms can create. The G20 also focused on promoting a dialogue between public and private investors, even when it takes place in the context of an unequal and unregulated power relationship among both sectors. Unfortunately, G20 work related to the 2019 Principles for Quality Infrastructure Investment - which could be considered as a step in the right direction - has been slow. And the G20 approach to infrastructure maintenance - which was championed by the Italian presidency - runs the risk of replicating the same bias in favour of private interests.
The G20 approach to infrastructure finance has significant implications for development finance across the world, and for the role of public development finance institutions - including the World Bank Group. These institutions should be driven by public policy objectives directed at delivering public goods in a democratically accountable way, rather than by imperatives to mobilise (or de-risk) private finance.
The crisis triggered by the Covid-19 pandemic has once more reflected the need for public investment for social infrastructure, including caregiving infrastructure. Public investment will continue to dominate infrastructure spending in many areas, especially in sectors where public interventions are critical for social equity, therefore recovery policies need to also address how to scale up and improve the quality of publicly financed infrastructure and services.
As argued in a joint recent CSO report on sustainable infrastructure, there is an urgent need to rethink the promotion of private finance for infrastructure. Private ﬁnance might be appropriate in some circumstances, but only when democratically owned development plans are followed, high quality and equitable public services are prioritised, and international standards of transparency and accountability are met. National governments should preserve their capacity to regulate in the public interest. Sustainable infrastructure and its ﬁnancing mechanisms must be rooted in human rights and socioeconomic transformation, high standards of democratic accountability, and take an intergenerational approach to climate adaptation.
Time for change
The failure of G20 leaders to produce anything of substance - particularly ahead of COP26 - was ultimately an indictment of the Group's capacity to contribute to solving the global crises we face. To be effective and legitimate, global solutions need a truly representative forum and that is the UN. Without this, we will continue to see ineffective solutions that favour rich country interests and which do not reflect the priorities of those most in need.