Courtesy of Ngaire Woods.

Is the G20 just papering over the cracks or does it offer a real way forward in dealing with the global financial crisis?

To imagine that the G20 offers reconstruction of the system of global governance is in my view completely wrong. People look upon it as a complete revolution in global governance. This isn't so: it just recognises a power shift in the world and the need to have a different informal group of great powers making strategic decisions.

The G20 has no formal authority to make decisions. It has no implementing capacity to make decisions and few of its members would agree to it being used in that way.

When former US President George Bush called the first G20 leaders’ meeting in November 2008 (ed: in Washington), it was through the recognition that the financial crisis required an immediate global coordination of policies which would be credible to the market and investors. This initial meeting successfully gathered leaders very quickly. The first G20 Summits came out with action plans which charged different institutions and governments to do specific things. The G20’s Finance Ministers have been meeting for 10 years. After the financial crisis in 1997, the G7 already recognised that they had to have a wider group which would come up with global solutions to the financial crisis.

The London Summit in April 2009 followed up the action plan of the first G20 meeting and pushed it forward. Its main achievement was to get an agreement that major economies would contribute credit lines to the IMF. They collectively agreed to inject money into the global economy to stop the crash. The first thing was to stop the world economy from seizing up; the second was to start thinking immediately about how to regulate finance in order to prevent another crisis becoming a major one; the third was to find ways to mitigate or to reduce the impact of the crisis on developing countries; and the fourth was to reform international institutions because the very fact that they had to meet at the G20 as opposed to meeting within the IMF, for example, was to put out a signal that reform of international institutions was necessary.

At the third meeting in Pittsburgh, there was much more of a focus on jobs because the industrialised countries feared that unemployment would become more acute. So it went back to the number one point on the agenda: stopping the economy seizing up. There was less focus at the G20 in Pittsburgh on how the crisis was affecting developing countries. The major agreement to come out of Pittsburgh was that Brazil, China, India and Russia (the BRIC),  would contribute to credit lines of the IMF in return for more reform of the IMF.

As you said, the IMF moved slowly. Do you think the IMF and World Bank have got to grips with the crisis?

Inside the IMF and World Bank there is tremendous motivation and determination to try to get as much money as possible to developing countries. What is slowing the IMF and World Bank down is that the powerful countries, the member countries, have been slow to give these institutions the resources and mandate to act, to move quickly particularly in respect to the poorest countries. The WB has been left trying to deal with this crisis by simply front-loading   speeding up already agreed loans. So it has not been given the additional resources to pump into developing countries. The IMF was directed by powerful countries to deal with the financial crisis in countries in the European area and that means that some 80 per cent of the money that the IMF has lent since the crisis began has gone to countries in the European area, and only between about two or three percent has gone, for example, to African countries.

What does the future hold for the G7 and G8?

I think the G8 at the leaders’ level is dead. It can keep on meeting but it is fairly irrelevant as an institution. The G7 Finance Ministers’ group is probably going to survive because it is the powerful way for the G7 countries to coordinate their position within the G20. They give it more power than the G20. But if the G7 Finance Ministers continue to meet, what they risk is pushing the emerging economies into a similar counter group. That is what we saw at the G20 Finance Ministers’ meeting in London earlier this year where the G7 countries had met to prepare their own position. The BRIC also met to prepare their position. It could polarise the G20 in two camps.

If the G20 has no real authority, what is the main interest of countries such as China or Brazil in being part of this club?

Their interest is to ensure that they can influence strategic decisions and I think the fact they have participated to the G20 Finance Ministers’ group in the last ten years has given them an experience of how to use this kind of grouping, which is proving interesting. The crisis in 1997 was a crisis in emerging economies; it was South Korea, Brazil and so forth and Russia who were in crisis. But this crisis is different. The crisis itself is a crisis in the G7, in United States, Great Britain and Europe. At the end of the day the emerging economies are very well placed, not least because they have already been in crisis themselves and are hence able to better protect themselves against this crisis. When the 2008 crisis arrived, these countries were in a much stronger position because they had reserves; they had taken measures which have prevented the crisis from hitting them too hard; they have had experience in engaging in the G20 Finance Ministers’ group. We have also seen emerging economies become more assertive; which had not been the case in the global network before then.

Are China, India and Brazil really standing up for the developing nations?

You are right. They say that they are but what strikes me in the G20 leaders summit, is that the main voice for developing countries has actually probably come from the presidents of the WB, the Managing Director of the IMF and from the African Union representative. They have been saying, “Look this is a development emergency, we have to do something about it”. But in my view, the G20 has not performed well vis-à-vis developing countries. They have done very well in preventing the wealthy economies from seizing up. They coordinated quickly and they took some decisive cooperative action. I think they get high marks for that. They have done a little bit   we can give them 5 out of 10   on financial regulatory reform. But when it comes to easing the impact of the crisis on developing economies, I would probably give them 3 out of 10 because they have been high on promises but low on delivery.

How important was the role played by South Africa and African Union in the G20 leaders’ meetings? Were they merely spectators?

They were not in a great position of power particularly because in these first three meetings the wealthy country governments have been so focused on their own crisis. The Pittsburgh summit was focused on the unfolding economic crisis inside United States and inside Europe. It has been quite difficult, particularly for African governments who are facing a real crisis as a result of the financial crisis. It has been very difficult for them to put their needs on the agenda and have them given priority.

* Mattli, W. and Woods, N. (co-Author), The Politics of Global Regulation, Princeton University Press March 2009.  
* Woods, N. (Co-Author) Inequality, Globalization, and World Politics, Oxford University Press, 1999. 
* Woods, N. (Co-Author), Inequality, Gl ; Explaining International Relations since 1945, Oxford University Press, 1996.
* Woods, N., The Political Economy of Globalization, Macmillan, 2000.
* Woods, N., The Globalizers: the IMF, the World Bank, and their Borrowers, Cornell University Press, March 2006.

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