On 26 March 2020, leaders of G20 met in a historic emergency summit via videoconferencing to discuss the ongoing COVID-19 pandemic. Since other international institutions like G7 and UN Security Council have so far failed to get off the ground to face of the current challenge, there is a greater expectation from G20 take charge of the situation. Once called “Globalisations’s Government” by historian Adam Tooze, the group had played a critical role in stitching together a globally coordinated response to the 2008 crisis.
Unfortunately, the 26 March summit yielded limited results. Its final statement carried vague commitments, lacked concrete proposals and ignored many key issues. Bereft of any new announcements, the joint communique aggregated the previously-announced national measures to present a figure of US$ 5 trillion as the collective commitment to manage the crisis. Tellingly, some countries did not release any details about their participation in the meeting.
Nevertheless, the discussions in and around the meeting offer us an opportunity to understand the emerging global response to the crisis. It can help us identify the key emerging issues that are being addressed and the ones being ignored. This understanding can aid in developing policy recommendations for India’s position in international forums during this crisis.
Framing the Crisis
One of the key, if unacknowledged, functions of institutions like G20 is to build a consensus around how to think about a particular crisis. Leaders must try to agree upon common understanding of issues like nature and severity of a crisis and ways to address it. It is evident that G20 largely views the crisis in health and economic terms. Remarks by various leaders sought to find a balance between dealing with the immediate public health problems and the global economic fallout expected to follow soon. However, there was some effort to think in broader political terms. Countries like India raised concerns about the future of globalisation as a whole. France cautioned against the threat that the pandemic posed to European Unity. Reportedly, French President Emanuel Macron warned, “What’s at stake is the survival of the European project… The risk we are facing is the death of Schengen.” Framing the crisis in such stark political terms is a necessary first step in changing the character of international response.
Although somewhat beyond the remit of G20, the crisis also needs to be thought of in terms of geopolitics and democracy. While not apparent yet, the pandemic may end up causing severe geopolitical instability by exacerbating the refugee crises, destabilizing governments or raising tensions between countries. Declaring the pandemic a threat to “world security” – UNSC has declared Ebola in the past – can help foster greater international cooperation and mobilise different kinds of resources. COVID-19 also needs to be recognized as a threat to democracy around the world. Not only has the crisis given cover to authoritarian leaders to expand their powers, it has also forced democracies to adopt draconian measures violating people’s privacy, civic and human rights. The world needs to become cognizant of these changes and consider exit strategies to repair the damage as the pandemic ebbs.
Shadow of 2008
The 2008 Financial Crisis was repeatedly invoked in the summit to recall previous successes of G20 and to suggest the severity of the COVID-19 crisis, at least in economic terms. Participants also urged using the 2008 playbook again, at a much greater scale. Further, in the last week, several key institutions like the US Federal Reserve and the International Monetary Fund (IMF) have begun applying the lessons learned in 2008.
Many remarks in the meeting favoured expansionary macroeconomic policies. The US$ 5 trillion that G20 countries have already committed dwarfs the total US$ 2 trillion aggregate fiscal stimulus injected by G20 in 2008-2009. IMF requested doubling of its emergency finance capacity and a sizeable Special Drawing Right (SDR) allocation. Recently, some economists have suggested SDR allocation to the tune of US$ 500 billion, twice the total allocation during 2008 crisis. Days after the summit, to stave off dollar shortages in other countries, the US Fed offered repo facility and swap lines to an unprecedented number of foreign central banks, going far beyond what it had done in 2008. G20 has also committed to coordinating its fiscal and financial policies, much like it had done in the previous crisis. In March, G20 Finance Ministers and Central Bankers remotely met three times to discuss the crisis.
However, in a way, today’s situation is inverse of 2008. During the financial crisis, governments had a high degree of political willingness to cooperate, although many of the institutions and mechanisms to do so did not exist. The crisis witnessed construction of such instruments. Even the first G20 Leader’s Summit was called to respond to the 2008 crisis. In contrast, today the instruments exist, but the political willingness to cooperate seem to have collapsed. It remains to be seen how long and how far can these institutions and mechanisms go without the support of national leadership.
With the US indicating its unwillingness to take a leadership role in the current crisis, many observers looked towards China to fill in those shoes. In the last month, Beijing has been disbursing aid and assistance to numerous countries across the world and earning plaudits for it. However, while these moves are likely to improve its global standing in the long term, China is ill-positioned to fill the global leadership void in the immediate crisis. Historically, many countries – including several of its neighbours – have been suspicious of its intentions. Today, it also faces intense criticism for suppressing the extent of the pandemic in its early days. This has been further exacerbated by concentrated US diplomatic efforts to hold Beijing responsible for the pandemic and label COVID-19 as “Chinese virus”. These image problems limit Beijing’s ability to project itself as a global leader. Indeed, its diplomatic actions in the recent weeks are more to control the damage to its image rather than to enhance it further.
Chinese President Xi Jinping’s statement in the G20 meeting reflected this reality. He spent some time establishing the sacrifices made by China and how the country waged a “people’s war” against the pandemic. He then offered several concrete proposals for greater international cooperation, but none of them suggested that China would be playing a leading or major role. One may compare it to the US President Barack Obama’s speech on Ebola crisis to the UN in September 2014. In it, Obama had clearly positioned Washington as the leader of the global response, confidently taking responsibility for coordinating the international effort. While the two circumstances are not exactly comparable, the tonal difference in two speeches speak to the normative limit of China’s bid for global leadership.
Maintaining Global Supply Chains
One of the major issues raised in the meeting was the need to maintain global supply chains, especially to boost global production capacity of essential supplies. Many participants pointed out that supply chains are facing a triple challenge – the new pandemic-related travel and trade restrictions, pre-existing protectionist policies, and economic sanctions imposed due to geopolitical reasons. Some called for lifting all barriers to international trade. However, the final G20 statement used water down language of committing to “minimise disruptions” to global supply chains.
The pandemic-related restrictions are now widespread, even though WHO has advised against them. In absence of strong international trust, they are likely to stay in place owing to collective action problems. Countries may also hesitate in suspending sanctions or lower their trade barriers. Erecting these restrictions takes political capital and time. Once suspended, it may not be politically viable to resume them with ease.
Russian President Vladimir Putin proposed creating “green corridors” to allow free movement of select goods and services like medical supplies and food. While politically more viable than the proposal to lift all restrictions, such an approach may face serious implementation problems.
The Looming Debt Crisis
The meeting discussed the challenge of global debt, without reaching any substantial conclusion. IMF MD Kristalina Georgieva described exceptional economic problems facing the developing world due to a combination of “health crisis, sudden stop of the world economy, capital flight to safety, and… sharp drop in commodity prices.” Putin pointed out that while recommending expansionary policies, it must be noted that borrowing options are limited for many countries due to the volatility of global markets. Together, these factors are likely to create enormous debt vulnerabilities, especially in the developing world. Further, the crisis is playing out within the context of a historically unprecedented global debt wave. In 2019, global debt-to-GDP ratio was 322%, highest on record. By 2018, total debt in Emerging Markets and Developing Economies had reach a record-high 170% of GDP. About half of this debt is from external sources (excluding China).
IMF has asked for expansion in its resources. World Bank has expressed willingness to spend US$ 160 billion to combat the pandemic. EU is debating whether to offer jointly-backed “coronabonds”, although Germany is resisting the idea. In the G20 meeting, Russia proposed a global fund to offer long-term loans on zero-interest rates. Currently, IMF offers such loans but only to the poorest nations.
On the whole, countries need to take a coordinated approach to ensure stability of global financial markets. In coming months, there will likely be a need to develop new ways to assist the developing world. However, given the high levels of debt in the developed countries, the crisis may hit bigger economies of the world as well. As the 2010 Eurodebt crisis has shown, tackling such challenges may prove to be politically far more difficult than providing some assistance to African countries.