G20 Summit - Is Multilateralism Lost in Rio ?

Governance, inequality and the environment: a G20 triptych

MICHEL DUCLOS: After three successive presidencies of Southern countries, Brazil will host the G20, in the exceptional context of Donald Trump's re-election and the renewed vitality currently characterizing the BRICS. What can we expect from this international gathering?

AMÉLIE DE MONTCHALIN: The G20 was created in the throes of a global financial crisis which had detrimental effects on emerging countries. A tool for economic and financial stabilization and cooperation was acutely needed at the time. Gradually, the G20 broadened its scope to become a forum for negotiating shared prosperity, while remaining focused on economic and financial issues. However, since 2008, the balance of economic power has shifted, and the BRICS have gained in power and autonomy. Some are drawing the conclusion that the G20 forum is no longer suited to certain contemporary issues.

At the November 18-19 meeting, and as previously stated during the BRICS summit in Kazan, President Lula intends to put the overhaul of multilateralism at the heart of the debate, by opening up the G20's mandate to more geopolitical issues. According to the Head of State, international bodies such as the IMF (1944), the World Bank (1945) and the UN (1945) were created in a world that no longer has anything in common with today's world, when developing countries were not even countries, but more often than not colonies. As the centenary of the independence of many G20 members approaches, two symbolic and strategic issues are at the top of the agenda: the economy and the assertion of power. Three axes will guide the discussions:

The first is the environmental priority. For Brazil, it cannot be separated from issues of poverty and inequality: sustainable development is not just about climate. The slogan "People and Planet" was chosen not only for the pleasure of alliteration, but also because the issue is not the planet, but the conditions in which humans inhabit it.

The second axis of this G20 will be devoted to financing issues, including both public and private financing options.

"Great power implies great responsibility": rethinking multilateralism

MD : So does this mean that France is ready to redistribute power, even at the expense of its own interests? 

ADM : Without a doubt: in June 2023, in front of representatives of more than 50 countries now united by the "Paris Pact for People and Planet", Emmanuel Macron repeated, in French and English, that France agreed to "dilute" itself and therefore to share decision-making and action capacities: such a line had never before been crossed so clearly by a country from the "North". However, there is no question of "shooting ourselves in the foot": multilateralism can only work if it is perceived as legitimate. Otherwise, countries that feel left out of international governance will organize themselves in parallel. Such a dynamic is already at work, for example within the BRICS, who want to create their own bank.

France and the G7 could, however, be the first to benefit from an overhaul of governance. More rights imply more quid pro quos, and major emerging countries would thus assume their responsibilities by contributing more to climate and development financing, rather than settling for the status of recipients, which hardly corresponds to the reality of their economic power. This applies in particular to China and Saudi Arabia, which are currently counted as "developing countries". Today, for example, more than half the financing of the IDA (International Development Association, an arm of the World Bank dedicated to developing and least-developed countries) is provided by G7 members, while the BRICS finance a share that is far lower than their economic weight.

Decoupling, the comedy of remarriage? Or, how to reform development financing

MD: At a time of friendshoring and protectionism, is it too late to revive multilateralism?

ADM: Indeed, "decoupling" is on everyone's lips, along with its friendshoring and derisking counterparts. However, from a commercial perspective, it is at best bogus, at worst ineffective. The figures, which are rarely analyzed in detail, are misleading: the drop in Chinese imports to many countries, particularly the US, is offset by the rise in imports from "connector countries" such as Mexico, Indonesia, Vietnam or Morocco, using OECD terminology. However, none of these countries have experienced an industrial expansion as strong as their exports. On the other hand, China's trade balance shows increasing imports: world trade has become more complex and an additional link has lengthened the trade chain, but the "decoupling" is mostly an illusion.

One reality is nonetheless tangible: financial decoupling. Today, and since the end of the Covid-19 crisis, emerging and developing countries have become positive net financiers of the rest of the world. With their external debt to repay, developing countries collectively return more money to developed countries and China than the latter send back to them, via both public and private funds. The period of massive aid during the Covid era is now over, and we can see that the less developed a country is, the less money it receives from the outside world: countries like Kenya or Côte d'Ivoire currently owe more to the rest of the world than they receive from it, paradoxical though this may be.

The financial decoupling is therefore twofold: multilateral public flows from the World Bank or official development assistance do not compensate for the sums owed to pay off debts to China; and private financial flows from OECD members to non-OECD countries have collapsed compared to the growing economic weight of the latter, including India, South Africa, Brazil and Indonesia.

Many factors are at work, not least the perverse and collateral effects of financial regulation following the 2008 crisis: European investments in emerging countries have been halved or tripled, while long-term infrastructure is financed by China.

It is impossible to understand the political and power dynamics at work within the BRICS or the G20 without taking this financial decoupling into account, even though it is not explicitly covered by the international agenda. If there is one subject where the controversial notion of the "global South" is relevant, it is the lack of financing: the BRICS generally speak for themselves, and do little to defend the interests of the least developed countries, with which they have little in common... apart from the lack of financing for public needs, access to technologies or the development of energy and industrial production.

Since 2008, the investment capacity of private financial actors outside the OECD has been constrained by measures introduced by the Basel Committee, which oversees the effectiveness of prudential regulation. "Blended finance"-the use of public development funds to mobilize private capital for emerging markets-is treated as securitization. Regulation then requires investors to double the capital charge on their investments, even though the financial package has reduced the risks! Blended finance based on players such as the World Bank or public development banks has nothing in common with securitization practices misused by weak banks in the early 2000s! It is ironic to note that, even before considering these securitization rules, to finance a development project in Morocco, which is not a member of the OECD, insurers have to set aside almost twice as much capital (49%) as that required to finance a similar project in Turkey (25%). The same applies to Colombia, an OECD member, and Uruguay, which is not. As a result of its welcome enlargements, the OECD is now anything but homogeneous in terms of the financial risk profile of its members, and the difference in capital charges, 25% or 49%, is a far cry from supposedly "risk-based" regulation, as it is impossible to establish a clear binary dichotomy between low-risk countries (allegedly OECD members) and high-risk ones (non-members). In a kind of negative externality that went unnoticed in 2008, this rule undermines development objectives.

It's not a question of defending deregulation, but of promoting a coherent vision between what is developed by public multilateral banks and the incentives or disincentives given to private players. The World Bank's "from billions to trillions" objective aims to move in this direction.

Inventing new spaces for dialogue

MD: What is France's position? How does the unique vision of this "middle power" influence international relations?

ADM: The initiative taken by Emmanuel Macron in June 2023 to convene the Paris Pact for the Planet and the People ("4P"), aims to fuel work to bring about the emergence of a new "Bretton Woods" for the 21st century. The 4P is designed to tackle at the same time the challenges of financing human, economic and environmental development, based on the observation that money is not circulating as it should to achieve the objectives set out in the Paris Agreement. Its ambition is to establish a new global financial pact based on four principles:

• A dual approach combining the fight against poverty and the fight against climate change - instead of pitting them against each other, at a time when the World Bank is running out of money to meet human development targets and has no formal mandate on climate and biodiversity. Are we going to put wind turbines in a country whose population is starving? Or should we develop economies with coal-fired power plants that will poison them in the medium term? The dilemma is absurd, but our institutions are not designed to overcome it: official development assistance and transition financing continue to be considered separately.
• Respect for the principles of subsidiarity and sovereignty: France believes that economic and environmental strategy must be conceived within the framework of the nation-state. Consequently, whatever its institutions, it is up to each country to define its own strategy for achieving the triple objective of human, economic and sustainable development. Multilateral development banks are notorious for often operating in parallel with the institutions in place in countries. That's why Brazil has made the "Country Platform" concept one of the G20's prerequisites: it's up to each country to identify its needs for its public and private donors, and to plan its own public policies. This is the originality of the French approach, whereas some Anglo-Saxon players are more inclined to believe that a fragile or failing state can be circumvented.
• The reform of public financing bodies, according to the motto "Bigger, bolder, better", which calls for the development of greater capacities, for banks to lend more, to operate faster, more transparently and in better alignment with governments, and finally with greater audacity, i.e. by shifting the cursor from the ratio between capital and lending capacity, to lending capacity. World Bank President Ajay Banga wants this, but it is not yet the case for national public banks. The IMF and the World Bank have increased their lending ratios, but the question of recapitalization remains.
• Facilitating the circulation of private capital. This is a crucial issue, and one to which I am devoting a great deal of attention in my role at the OECD. The regulation sought by the G20 was designed to stabilize the financial system, but as I mentioned earlier, the implementation of some of these rules has accelerated the fragmentation of the world and affected the ability of private financiers to invest in developing countries.

MD: The BRICS met without mentioning the Paris Pact: is the G20 no longer the obligatory point of passage? How does France defend the vision you have just outlined?

ADM:The UN system is highly polarized, making it very difficult to achieve an operational consensus. So, as our Chairman advocates, we need to proceed on a subject-by-subject basis, bringing together countries that are genuinely keen to work together, even if they may have divergent views on certain points. The reform of multilateralism, the regulation of AI... these are all issues that are tackled more effectively in specific forums for dialogue and mutual support. The Paris Pact, which now brings together 68 countries, is one such forum, and the subject of financing, which elsewhere can divide countries of the "South" and those of the "North" so sharply, is making very encouraging progress. The idea of climate resilience clauses in debt repayments is making headway, to enable countries suffering natural disasters to suspend their debt payments in order to deal with the most urgent situations, and to prevent highly indebted countries with significant environmental assets from being forced to agree, for example, to oil drilling in order to finance their debt... It was also here that a new tax on global flows was proposed to finance the transition, as discussed at COP29, or a coalition on debt and climate. António Guterres, Secretary General of the United Nations, described the Paris Pact for People and Planet as one of the most promising initiatives of recent years, since it is "multi-block", "multi-income" and "multi-geographical". It brings together countries with very different incomes (four G7 countries are involved: the UK, Canada, Germany and France, alongside countries of much smaller size or GDP), and its commitment to transparency and openness is particularly welcome. France, which initiated the initiative, has seen its vision shared with that of all the other 4P members during the G20 debates: as we can see, the "dilution" implied by better sharing of governance does not mean abdication of all power to influence!

MD: Is the need to regenerate multilateralism compromised by the election of Donald Trump?

ADM: Will Project 2025 be, or will it not be, tempered by a certain pragmatism? The Heritage Foundation advocates that the United States stop funding organizations like the IMF and the World Bank. A republican US administration would lend legitimacy to a certain kind of BRICS victimhood argument, according to which antagonisms with the West are unsurpassable. This would create a schism that would be rather difficult to repair afterwards. Hyper-isolationist rhetoric could prove the Global South coalition right.

MD: Certainly, if by "the West" we mean only the United States. But could other democracies, with unequal but nonetheless substantial levels of wealth, act as a counterweight?

ADM: It is up to the Europeans to propose an alternative path, and perhaps use Donald Trump's election as an opportunity to bring together the middle powers, from North to South. Inácio Lula's Brazil, for example, is well aware that it is in its interest to ally itself with Europe. So are Narendra Modi's India and Prabowo Subianto's Indonesia. Trump's United States may try to force its partners to choose sides, but this will likely prove illusory: Europe cannot "decouple" from China, where it imports as well as exports, unlike the United States, which remains an economy that exports very little to the rest of the world (10% of its GDP for goods exports, i.e. a third of what the UK or France do, and a fifth of Sweden or Denmark). India does not want to relive non-alignment, and Africa does not want to lose the benefits of globalization. In a world where public financial bodies remain largely dependent on the weight of the United States, and where the manufactured goods traded are largely Chinese, how do you choose? It's not out of the question that the transactional approach favored by the new president will lead him to make some shock proposals: the United States could remain in the World Bank, provided the Chinese contribute to its financing, or in the OECD, provided the minimum corporate tax rate is reduced from 15% to 12.5% (the rate currently in force in the USA). Faced with these possibilities, we'll need to play collectively - and not just between Europeans - and show intelligence and tactics with emerging and developing countries.

Interview by Hortense Miginiac
Copyright image : Mauro PIMENTEL / AFP
Brazilian President Luiz Inacio Lula da Silva and European Commission President Ursula von der Leyen on November 17, 2024, ahead of the G20 summit.