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In the wake of the 2008 global financial crisis (GFC), the G20 was upgraded from the finance ministers and central bank governors’ level to leaders’ level. The purpose was to coordinate policy responses by the governments of the major economies in order to prevent the GFC slipping into a worldwide depression. The leaders agreed at the third summit at Pittsburgh in September 2019 that the G20 would be the premier organisation for their international economic cooperation. The purpose of this cooperation was to generate strong, sustainable and balanced growth (SSBG). While the cooperation among the leaders succeeded in stabilising the world financial system and avoid a world depression, it has been less successful in achieving SSBG. The chapter, “G20 and International Economic Coordination: Lessons from the Inter-War Years”, by Agarwal, analyses the attempt at policy coordination during the tumultuous inter-war years in order to draw lessons for when coordination can be expected to be successful.

The inter-war years were a period of considerable turbulence. Governments tried to cooperate at various levels to tackle the problems emanating from the war. Cooperation was achieved through the establishment of central banks in the countries formed after the breakup of the Austro-Hungarian Empire, negotiations about reparations and achieving monetary stability in order to help the recovery of the world economy. The chapter finds that it was easier to solve numerous technical problems, but where power relations were involved, agreement could not be always reached. Though smaller countries in East Europe were allowed to adopt the gold exchange standard, the US would not accept Germany, an important economy, being on it.

Today a host of international institutions with a history of cooperative behaviour make cooperation easier. The World Trade Organization (WTO) and financing from the International Monetary Fund (IMF) reduce the need for protectionist policies. Agreement on additional funds for the IMF to tackle the GFC was soon reached. However, agreement has not been so easy to reach in the Doha Round of multilateral trade negotiations or for additional funds and reform at the World Bank or in implementation of the agreed upon reforms to the change in voting shares and representation on the Board of the IMF. The traditional powers are not so ready to cede power to the rising powers unless forced by circumstances such as the IMF needing additional funds after the GFC.

Among the host of institutions that seek cooperative solutions in their field are institutions developing rules and procedures in areas such as banking insurance and stock exchanges. These rules and procedures bring about greater certainty and uniformity in regulations, which in turn reduce the uncertainties companies face.¹ Despite all these institutional innovations, recovery has been very slow. This stems from the models guiding monetary and fiscal policies are similar to those in the inter-war years. Monetary policy run by largely independent central banks in many countries is merely to control the rate of inflation. Central banks are more sensitive and responsive to any possibility of overshooting the target than undershooting it.² The expectation is that with the slightest recovery interest rates will be raised. So monetary policy is biased towards deflation.

Fiscal policy is not supposed to be very effective in tackling short-term fluctuations and is expected to be geared towards long-term growth. In fact, modern macro is geared towards the long-term and does not really deal with short-term fluctuations. Consequently, many countries argued at the Toronto summit in 2009 that budget deficits should be reined in to provide a conducive atmosphere for private investment — the same arguments that were made in the 1930s to rein in budget deficits.

Today also there is a shift in the balance of power and no hegemon may exist just as in the inter war years. But cooperative practices are more deeply entrenched. When the IMF had to raise fresh resources in 2008, China and India agreed to provide them without any quid pro quo. At the time of the 1997 Asian Financial Crisis, there were fears that China may also devalue its currency in order to maintain export competitiveness. But it did not do so. The newer powers have been more cooperative than the US had been in the inter-war years as their economies are much more dependent on the world economy.³

The main role we envisage for the G20 is for leaders to exchange views about how they see their economies evolving. In particular, they can inform their peers about the policies in their country so that partner countries can base their policies on a proper assessment of policies in other countries.

The G20 has grown beyond its initial crisis management focus stemming from the 2008 GFC. The chapter on G20 and development by Agarwal and Whalley (AW) seeks to place the long-term legitimacy of the G20 in the context of whether it is able to meet the aspirations of developing countries for development. The G20 adopted the Seoul Development Consensus at its 2010 meeting and has initiated interactions with international agencies in the two areas of food security and infrastructure as they relate to development goals and the successful attainment of Millennium Development Goals (MDGs) and later the sustainable development goals (SDGs). The G20, however, lacks both resources under its direct control and a clear legal structure and faces issues of legitimacy in any discussion of development since most developing countries are not members. Its legitimacy can be further questioned because of its inability to deliver on its promise of SSBG.

AW ask what realistically can the G20 contribute to development. They argue that the potential contributions are significant even if the initial steps thus far are modest. At leaders’ level, it can provide the overall framework for cross-agency development initiatives and objectives, and its legitimacy in the area can be enhanced by regional consultative processes already initiated. The chapter provides detail on actions on development already undertaken. AW also discuss possibilities for the future. But the realisation of these possibilities will require it to go beyond its currently limited analytical framework. The G20 alone in their view cannot drive global development policy, but through its positioning across agencies, it can play a constructive role. The G20 could also decide on a more activist approach by proposing improved global resource management for development, moving towards a global legal structure and providing strengthening of international disciplines. These latter steps may be years or decades away, but strengthened global disciplines would be positive for smaller countries and for development.

The adoption of a Development Consensus at the Seoul 2010 summit which set out achieving the MDGs as a priority, the 2009 Pittsburgh declaration which seeks to reduce the high/low income country gap, the consultative process with non-members, and that developing countries have a majority participation in the G20 on seemingly equal terms (unlike in many other international agencies) suggests that there are signs of forward movement.

The challenge for the medium to longer term is whether the G20 can avoid future crises with their large costs and move actively towards incremental resource mobilisation for development and strengthened global rules or whether their efforts on development remain more at the coordination across international agencies level. The chapter by Agarwal and Banerjee (AB) analyses the performance by large emerging economies in Latin America (LA), Asia and Sub-Saharan Africa (SSA).

Countries of the three regions reveal similar trends. Growth rate of GDP per capita fell in the years 2008–2009 immediately after the financial crisis but recovered subsequently. Furthermore, the growth rate for the period 2010–2015 was higher than in the period 1990–2007 for Africa and Asia, while it was lower in LA. The crisis had a more lasting effect on growth in the Latin American countries.

Gross fixed capital formation (GFCF) as a share of GDP increased in 2008–2009 despite the slowdown in growth. But later, the share decreased for LA and SSA while it continued to increase in Asia. However, the investment share was higher during post-crisis period compared to the pre-crisis period for all the three regions. The investment in Asian countries financed by higher savings rates implied maintenance of a sustainable current account (CA). CA deficits in African countries were larger than those reported historically and further adjustments may be needed to sustain higher growth. Latin American countries experienced a reversal of the temporary increase in savings rates during 2008–2009 leading to a decline in investment, decrease in rates and a worsening CA; thus, they still face major problems of adjustment.

Share of exports of goods and services (XG&S) in GDP increased in all three regions during 2008–2009, i.e. the immediate aftermath of the crisis. The increase was particularly large for LA. Subsequently, the share fell in LA and Asia but continued to increase in SSA.

CA improved for countries in LA and Asia during the period 2008–2009 as there was a surge in exports, but it worsened in SSA as savings did not keep pace with the surge in the share of GFCF in GDP, which rose from 18.4% to 23.5%.⁴ In the recovery period, 2010–2015, the current account balance (CAB) deteriorated in LA and Asia.

The performance of the individual countries presents a mixed picture. Only three countries have a significantly different growth rate, Bolivia a higher rate and Pakistan and South Africa a lower one. It seems that these large countries have weathered the crisis without a significantly lower growth. Since the overall growth rates of the developing countries have fallen, this suggests that the brunt of the adjustment burden has fallen on smaller countries. In addition, there is a good relation between export performance and growth rate. Bolivia’s export share increased and its growth rate increased. The two countries in which the growth rate fell also saw a decrease in the export share. By and large the countries have a higher investment ratio. The countries also had a higher money growth and a lower interest rate, which helped to maintain the investment rate.

Our analysis using Pearson’s rank correlation confirms this, as does the correlation analysis. Countries with good export performance grew faster before the crisis and their better export performance enabled them to build up reserves. They were able to continue their good export performance after the crisis. This together with their accumulated reserves enabled them to adopt expansionary policies and thus maintain better investment and growth in the post-crisis situation.

Economic growth in LA and SSA has particularly severely fallen since the GFC. The G20 needs to consider measures that could accelerate growth in these two regions. Acceleration of growth in SSA is particularly critical for these countries to achieve the SDGs. The next two chapters discuss the problems faced by these countries in these two regions. Economic growth in SSA has lagged behind that in the other regions over the past half century (1965–2016). Civil strife and preponderance of the least developed countries in SSA do not account for this poor performance. The chapter by Agarwal and Brahmo explores this question further. SSA still remains less integrated with the major fast-growing regions of the world. Its savings rate also continues to be low. This makes it more dependent on foreign capital flows for investment. But aid has been declining and the CA has deteriorated in many countries after the GFC. Even after a period of rapid growth earlier in this century, prospects look gloomy unless the G20 steps in to provide more easy aid.

Despite a greater emerging correlation with growth rates of the world economy and major players such as the US and China, SSA is far from realising its economic potential, with a very low average annual per capita GDP growth of 0.7% over the past half a century. With liberalisation and increased financial integration with the world markets over the decades (1965–2016), the African economies are influenced more significantly by international factors than before, and this brings a fair share of both advantages and pitfalls.

SSA’s share of exports in GDP (XGS), while high, has increased the slowest out of all the developing regions and the burgeoning importance of remittances has failed to prevent the deterioration of the CAB. The savings rate in SSA remains lower than the level attained in the 1970s, leaving the region vulnerable to the vagaries of the CAB; however, the growth projections of 5%, if the current levels of the investment ratio and incremental capital output ratio (ICOR) hold, lend credence to the expectation that the effective damage to economic growth can be limited.

The next chapter by Agarwal and Brahmo (ABb) examines the performance of the countries in LA over the past half a century. The average annual growth rate of per capita income at 1.7 is higher than the growth rate of only the Sub-Saharan region. The performance has been particularly poor since the debt crisis broke in 1982. Thus, the region has not been catching up with the high-income countries. There is no convergence within the region either. If anything, the richer countries have shown a weak tendency to grow faster.

Even over the period 2001–2015, most saw a decline in their growth rates after the onset of the 2008 crisis and then a slight recovery. Only Bolivia, Guyana and Uruguay grew faster after the crisis than they had done earlier, and only Brazil did not experience a recovery over the 2010–2015 period.

The share of GFCF in GDP declined after the onset of the debt crisis and has never recovered to previous levels. This share is also much lower than that in other regions. But despite this lower GFCF share, growth has been so much slower so that the ICOR in the region and of most countries within the region has been relatively high. The region has experienced a greater integration with the world economy as the share of exports in GDP has doubled over the last half century. The integration with other countries has resulted in an increased correlation between growth rates of the countries of the region with the outside world. The correlations are particularly high for growth rates with the entire world and with the region itself. The correlation with growth rates in China is also becoming stronger. However, the increase is less than that in other regions; thus, the ratio of exports to GDP despite the increase was the lowest for the Latin American and Caribbean (LAC) region in the period 2011–2015. This has meant that the CA remains precarious. However, foreign exchange reserves as a share of GDP have continued to grow after the 2008 crisis unlike in many other large countries.

The slow recovery since the crisis, the low rates of investment and the precarious state of the CA all point to continued slow growth for the region. Recovery of the world economy would help. In addition, the stronger correlations between the growth rates of the countries and that of the region as a whole suggest that the time may be ripe for a revival of the project for closer regional integration.

The second part of the volume deals with the interests and strategies of some of the developing country members of the G20. These chapters seek to answer questions such as what the country expects from the G20, the strategies adopted to achieve its ends, the extent to which it sees itself as a representative of developing countries in its region and how does it seek to represent them. Aparajita Gangopadhyay (AG) discusses Argentina. According to AG, Argentina has not been a valuable member of the G20 and there have been attempts to expel it. It had one of the worst records between 2008 and 2013 in fulfilling its commitments. Because of this, it is often seen as an outsider. Argentina sees its presidency as a way to bolster its credentials. It seeks to represent the interests of the region, trade liberalisation, agricultural growth and food security and inclusive and sustained growth. These match its own interests. It seeks to coordinate its positions with the other two Latin American members, Mexico and Brazil. Its interests align more closely with those of Brazil.

Indonesian conditions changed significantly after the ouster of Suharto and the subsequent switch to democracy, claims Shankari Sundararaman (SS). Internally, it has sought to undertake reforms which essentially underpin the new regime structure, and a key aspect of this is decentralisation. This has increased the number of stakeholders in the system. The regime switch has also resulted in an acceleration of growth. Indonesia seeks to become a pivotal country in ASEAN, but the regional integration is not proceeding as rapidly as the government desires. Thus, it is expanding its activities in the international arena. In particular, it seeks to advance reform of the international financial structure, one that would provide better support to growth in developing countries. It seeks to represent ASEAN interests at the G20.

Saudi Arabia was a very backward country as far as social development was concerned. But, according to Kumaraswamy and Quamar, the accrual of revenues after the increase in oil prices in 1973–1974 changed the situation dramatically. A substantial portion of the increased revenues were spent on providing social services. As a consequence, Saudi Arabia was able to meet almost all of the MDGs ahead of the scheduled end date of 2015. However, there are two major problems. One is gender inequality. The other is that the economy is entirely dependent on oil and the attempts to diversify the economy have not been successful. Saudi Arabia is committed to the SDGs and would like the G20 to act to ensure the fulfilment of the SDGs.

Anwar Alam (AA) argues that Turkey had very successfully integrated its economy into the world economy through liberalisation of both its trade and capital flow regimes. Its rapid growth went hand in hand with a very prosperous small and medium enterprise sector. It is following a reformist-cum-revisionist agenda. It seeks reform of the international financial institutions, particularly the IMF. The reforms should enhance the growth prospects of the developing countries.

A common theme in the country chapters is that the countries seek to accelerate growth. They expect the G20 to establish an international economic governance structure that would assist in development. The main changes they seek are reforms in the WTO and IMF. They find, in particular, the international financial structure as not conducive to rapid growth. In this they supplement the chapters in the first part that had found that the 2008 crisis had a profound, deep and lasting deleterious effect on the growth of developing countries, particularly the low-income countries and their prospects.

¹It is important to remember that after the Asian crisis of 1997, a Financial Sector Assessment Program (FSAP) run jointly by the IMF and the World Bank was started. Under the program, the working of the financial sector was studied to see whether companies were following the rules recommended by the relevant international body. Furthermore, stress tests were conducted. Countries were subjected to such analysis. But the US refused to participate in any analysis of its financial system and we know that the 2008 crisis originated in the US financial system.

²Even at the height of the recession, the Bank of International Settlements (BIS) was calling for an increase in the rate of interest, and as the reason they gave was seen to be irrelevant, they gave new reasons. It is perhaps because they believed that it was impossible to change the mindset of central bankers and their prejudices would be strengthened if there was a body such as the BIS that both Keynes and White had wanted the BIS abolished.

³Even now the threats to multilateralism seem to be coming from the US. Earlier, the US had withdrawn from or not signed such multilateral initiatives as the Law of the Sea, the International Court of Justice or the Paris accord on climate change.

⁴Egypt and Russia follow a somewhat similar pattern. Russia is different because of the massive upheaval in the 1990s associated with its transformation from a planned economy. It follows the same pattern if the pre-crisis period is taken as 2000–2007.