G20 Steps to Boost Economy Welcomed Cautiously

By A. D. McKenzie Reprint | | Print |

PARIS, Oct 16 2011 (IPS) - Responding to pressure from civil society and members within their own ranks, the Group of 20 industrialised and emerging countries on Saturday said they were committed to reforming the financial sector and were examining innovative methods to fund development.

“We are more determined than ever to reform the financial sector to better serve the needs of our economies,” the group stated at the end of a two-day meeting here of their finance ministers and central bank governors.

Stressing that “excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability”, the G20 used diplomatic language to put the banking system on notice.

The group said it would strive to foster growth and job creation, and to “promote social inclusion.”

The reunion came ahead of the G20 summit next month in Cannes, southern France, and it revealed tensions among member states as they attempt to address the global economic crisis. But non- governmental organisations said they were pleased by some of the measures being taken.

The anti-poverty organisation ONE said it was happy about the agreement in principle that French Finance Minister François Baroin announced on regulating the markets, especially in the commodity sector.

“Speculation on the commodity markets is one of the factors in price volatility and so one of the sources of repeated food crises that developing countries undergo,” said Guillaume Grosso, director of the French branch of ONE, which was co-founded by musician Bono.

“One of the issues is to find ways to stop this excessive speculation,” Grosso told IPS. “We need serious measures against food price volatility, and to support long-term agricultural growth in developing countries.”

He said the group hoped that heads of state who will meet in Cannes towards the end of France’s presidency of the G20 would validate this agreement in principle in order to achieve concrete and immediate actions.

Grosso pointed to the famine in the Horn of Africa as a consequence of inaction on the part of the international community.

“What is happening currently in the Horn of Africa is unacceptable,” he told IPS. “A drought is an act of nature, but famine is man-made. ONE asks the G20 to respond to the UN call to feed the Horn, but also to reach an agreement on food security through better investment in longer-term agriculture programmes to stop the cycle of extreme hunger.”

ONE and other groups praised France and South Africa for their joint initiative in favour of creating innovative financing for development and for the fight against climate change. Many NGOs have been pushing for a global agreement on new methods of supplementary funding for development aid, including a financial transaction tax (FTT).

In a document leaked before the end of the meeting, France and South Africa outlined the need for the G20 to address climate change, and to raise funds for developing countries affected by such change.

“A strong and positive signal sent by the G20 on climate change finance and its architecture would both give solid guarantees to all developing countries that financial commitments will be met,” the document said.

It also looked at ways to deal with the emissions from the aviation and maritime sectors, a demand that NGOs had made prior to the meeting.

“The joint declaration from France and South Africa is good news,” said Elise Buckle, G20 policy campaign leader for WWF International. “It shows that some ministers of finance are taking the issue of climate change seriously, and recognise that innovative sources of finance can help in addressing the current crisis, which is not only a financial crisis but also social and environmental.”

She told IPS that the conservation organisation hoped other nations would join “a coalition of pioneer countries together with France and South Africa, even if the U.S. is still opposed.”

The French government has repeatedly said that it supports implementing a financial transaction tax, and parliament adopted a resolution in June calling for implementation of the FTT. Officials say they hope that the levy will also be supported by all the G20 countries in Cannes.

“Innovative financing gives sense and credibility to politics,” Nathalie Kosciusko-Morizet, French minister for ecology, sustainable development, transport and housing, told IPS last month. “We all know we need money to develop jointly in the North and South, in this time of change. It’s a problem of credibility not to know how to raise these funds in a context when there is no budgetary money available any more.”

By implementing the tax, France could gain some 12 billion euros, according to the International Monetary Fund. At the European level, more than 40 billion euros could be raised, and if all the G20 countries apply the FTT, the figure would reach about 260 billion, the IMF says.

The tax is supported by the IMF, the World Bank, the European Union Commission and many economists around the world. There is also support for a global levy or a market mechanism on carbon emissions from shipping and aviation.

“Deep crises facing the global economy and environment require new and innovative solutions,” said Buckle. “Solutions exist, but the leadership has been lacking. G20 leaders now have the opportunity to make a difference by agreeing on financial transaction taxes and on the regulation of aviation and maritime bunker fuels.”

WWF says that an FTT would “make the financial sector more accountable and raise income needed to finance domestic and international public goods.”

The taxes could fund “a range of initiatives from climate mitigation and adaptation through to biodiversity protection, social welfare and poverty reduction,” the group says.

NGOs have now called on Mexico, which takes over the presidency of the G20 in 2012, to “keep the issue of climate finance on the agenda for next year.”