Back in 2008, at the height of the Global Financial Crisis, there was an intense debate within the international community on the core question of the best institutional response to the unfolding collapse of the global economy.
In the six months between the collapse of Bear Stern to the collapse of Lehman’s in September, the question being debated in Washington was whether to expand the G7, and if so, to what extent. As the crisis deepened there were many proposals being considered, including a G12 consisting of China, India, Brazil, South Africa and Russia, plus the original G7 members, in other words, the G7 plus the BRICS. Then there was the idea of a G15 including Egypt, Spain and the Netherlands or Mexico. Then came about the proposal of a G20 which would elevate the existing G20 finance ministers’ meeting to summit level, and therefore include the G12 plus Korea, Indonesia, Australia, Turkey, Saudi Arabia, Mexico and Argentina.
There were concerted efforts both in parts of the Washington bureaucracy and in certain European capitals (who wished to maximize the European voice at the table) to push for a G12, or at maximum, a G15. Of course, this would have excluded a number of middle powers in the world, including Australia, Indonesia, Korea, Mexico and Turkey.
The advantage of the original G20 structure, established after the Asian Financial Crisis in 1997 in order to learn the lessons of that crisis, was that it already had ten years of institutional experience in dealing exclusively with global financial and economic challenges. It had the additional advantage of being representative of about 90% of global GDP, 85% of global trade, and more than 90% of total market capitalization on global exchanges. Furthermore, there was a fairer geographical distribution in G20 decision-making with four members from Europe (or five if we include the President of the European Commission), five from the Americas, five from Asia, and five from elsewhere across the world. And finally, for the first time, there would be three nations from the Muslim world represented around the table.
The internal debate between capitals was fierce, with a number of Europeans still seeking to keep the number as small as possible. As Prime Minister of Australia at the time, I engaged many of my counterparts from around the world, starting with Washington, in support of the G20. In the end, President Bush was supportive of the elevation of the original finance ministers forum to summit level for the reasons outlined above. But in the process, it was critical to secure the support of the great powers as well. Britain, Germany and China were, in particular, highly supportive. But it was also crucial to harness the support of the middle powers in their collective diplomacy with those who sought a different outcome. Then Prime Minister Erdogan and I exchanged many calls on this subject. Both his diplomacy and that of then Foreign Minister Davutoglu were critical in bringing about a G20 outcome. These are now matters of diplomatic fact and history.
While the crisis may have been averted and the risk of a future crisis may have been reduced significantly, global growth remains sluggish. This must be the core focus of the G20 for the future.
Many have been critical of the G20 since its first meetings in 2008 and 2009. I disagree with much of the criticism. The truth is the G20’s actions at its London meeting in March 2009 under Prime Minister Gordon Brown broke the fall: collectively our actions prevented a deep global recession from becoming the first global depression since 1929, eighty years before. This was no small achievement.
Second, we initiated a major series of systemic financial reforms through the Financial Stability Board and the Basel Committee, which has produced major changes in the international financial system. These have dealt with stress testing all major banks, lifting capital adequacy ratios, and tacking the problem of “too big to fail.” After five years of painstaking and difficult work, about three-quarters of that work has been completed. This reduces the risk of a repeat crisis, while never eliminating it.
Third, where the G20 has yet to succeed is in its implementation of the so-called Pittsburg agenda of “balanced, sustainable long-term growth.” While the crisis may have been averted and the risk of a future crisis may have been reduced significantly, global growth remains sluggish. This must be the core focus of the G20 for the future. Otherwise, growth and employment will continue to suffer, undermining the livelihoods of ordinary families across the world.
Apart from this overriding agenda for the G20, a further debate is alive among its member states. And that is how the organization can sustain its institutional vitality for the future. Its core financial agenda remains strong. But to be successful, every institution must also continue to re-invent itself against the needs of the time. That is where MIKTA comes in.
The G20 at its core is made up of the old G7, the BRICS and then what I have long called the “Middle Seven” namely: Indonesia, Korea, Australia, Mexico, Turkey, and possibly Argentina and Saudi Arabia, although their circumstances are in certain respects unique. The core difference between the G7 and the BRICS on the one hand and the Middle 7 (M7) on the other is that the latter have a fundamental need to sustain the integrity and effectiveness of the G20 overall. There is a sense in some of the capitals of what I might call the “greater 12” that the G20 may in the long term be optional. Yet for the M7, it is not optional, it is crucial.
This is not just an argument about the national importance for countries like Australia, Turkey and Korea to be a part of the major decision-making body of the global economy. It is about the need to ensure that the world, in fact, has a functioning system of global economic and financial governance, because all our economies are ultimately vulnerable to any missteps of the great powers. And we, the middle and smaller powers of the world, do not want to become collateral economic damage.
The argument is analogous to why we need a functioning UN multilateral system. Great powers may be able to survive without it, but non-great powers cannot. This is why there is a deep responsibility in the UN system for “constructive” powers to have their core mission statements put forward the continued revitalization of the UN. All our interests ultimately depend on it.
This is why as Australian Foreign Minister in Cancun in 2012, I convened the first meeting of M7 Foreign Ministers including Indonesia, Korea, Mexico, and Turkey, in which I circulated an initial policy paper for our future collaboration within the G20. And I am glad, for the reasons outlined above, this has now grown into MIKTA.
For the future of our global economy, and for the future of our global order at large, it is critical that this group of states continues to work closely together. Turkey also has a critical role to play this year as 2015 host of the G20, during which it can continue to revitalize this important global institution.
By: Kevin Rudd (Former Prime Minister of Australia)