The Treasurer, Mr Peter Costello, and the RBA Governor, Mr Glenn Stevens, chaired the 2006 meeting of the Group of Twenty (G-20) Finance Ministers and Central Bank Governors in Melbourne on 18-19 November, 2006.
“The G-20 meeting was the most important economic and financial forum ever held in Australia”, said Mr Costello.
“It was a very successful meeting, which saw wide-ranging discussions on substantive issues in the global economy under the overarching theme of ‘Building and Sustaining Prosperity’.”
“Key issues discussed by the G-20 included global energy and minerals markets, reform of the IMF and World Bank, and demographic change.”
“These discussions were conducted in the best G-20 tradition, with open and frank dialogue, as countries worked to achieve co-operative and practical solutions to major international economic problems,” Mr Costello said.
With its unique representation of developed and emerging-market economies1, covering two-third’s of world population and 85 per cent of world output, the G-20 is ideally suited to drive international policy co-operation in the global economy of the 21st century. Australia has worked hard this year to ensure that the G-20’s influence on the world stage continues to be enhanced, based on member countries’ commitment to market- and rules-based frameworks as the foundation for sustainable global economic growth.
Global energy and minerals markets
At Australia’s initiative, the G-20 conducted a dialogue on global energy and minerals markets for the first time. Ministers and Governors held a very productive exchange.
With its unique representation of key producer and consumer countries around the table, the G-20 is ideally placed to address the broader economic dimensions of energy and minerals markets and find ways to ensure these markets can be harnessed for economic and social development. Some of the key themes from the G-20 discussion were:
- Patterns of energy and minerals use and production mean a growing inter-dependence among nations for cross-border trade and investment. Markets must be strengthened.
- Achieving lasting resource security and addressing global challenges, such as climate change, require effective domestic and international policy frameworks to support these markets.
- Clear price signals, open trade and investment rules, market transparency, good governance, and effective competition among firms are needed. Such policies will support investment in new supply, create efficiencies and encourage new technologies, and allow knowledge and resources to flow across borders.
- Further reform of energy price subsidies is a priority for fiscal sustainability, for improving market efficiency, and better targeting poverty.
- The G-20 highlighted the benefits of the Extractive Industries Transparency Initiative (EITI), a voluntary initiative, to help create the conditions for growth and development in resource-rich developing countries and called on governments and firms to support it.
- The G-20 called for the Joint Oil Data Initiative (JODI) to be extended to other energy sectors, such as natural gas, and for further work on incorporating a common definition of energy reserves.
For the first time at a G-20 meeting, I arranged for a select delegation of global energy and minerals leaders2 to inject business perspectives on ways to strengthen energy and minerals markets at a working lunch with Ministers and Governors.
“Dialogue between the world’s leading economic policy-makers and global business leaders is an essential part of making markets work. This was a truly world-class group that we brought to Melbourne to engage on these issues”, said Mr Costello.
“Australia will continue to play a pivotal role in meeting the resource needs of Asia and pursuing open trade and investment in global markets.”
The Treasurer said that he was very pleased that South Africa, as the 2007 G-20 chair, will continue to advance the G-20’s work on extractive industries. Part of this work will be to assess the adequacy of the national and global frameworks around trade, investment and firms in energy and minerals.
Reform of the Bretton Woods Institutions
Australia is a long-standing advocate of IMF quota reform. Our main objective has been to enhance the effectiveness of IMF crisis prevention and resolution by improving representation in the Fund to reflect the importance of rapidly growing emerging market economies. The authority and effectiveness of the IMF were being undermined by its failure to keep pace with this new global reality.
The G-20 made an important contribution to the IMF’s historic decision in September to undertake, in a two-stage process, comprehensive reform of its quota arrangements and enhancement of the participation and voice of low-income countries. At the G-20 meeting, Ministers and Governors agreed on the importance of ensuring that the second stage of reforms is comprehensive and delivered on time. They agreed the G-20 remain closely engaged with this work over the next year.
The meeting also agreed on the need for further G-20 consideration of IMF and World Bank key policies and instruments, giving priority to: IMF surveillance; the Fund’s role in emerging market economies, including a possible new liquidity instrument; and collaboration between the Fund and Bank. In addition, the meeting agreed that it can play an important role in the renewed debate within the World Bank aimed at modernising its governance arrangements.
Currently, both the Managing Director of the IMF and the President of the World Bank are appointed under outdated conventions reserving the positions to candidates from particular geographical areas. These are key international appointments which should be based on merit. The meeting reiterated its position on this issue, while welcoming any steps to ensure a fully transparent process for the selection of the IMF Managing Director and the World Bank President.
The Treasurer said that he was very pleased that the G-20 had agreed to maintain the momentum necessary to deliver on further essential reforms of the IMF and World Bank.
Demographic Change
For the third consecutive year, the G-20 considered the effects of the global demographic transition. The meeting discussed both its implications for financial markets and, following its initial work last year, further labour mobility aspects.
The G-20 agreed on the importance of improving the depth and efficiency of financial markets and the range of available products, and on raising people’s awareness of their retirement income needs. Because countries are ageing at different speeds, reforms that assist the flow of capital to developing countries with relatively younger populations are particularly important.
Following discussion of the potential for improved portability of social security and health care payments to reduce the cost of migration, the G-20 invited the World Bank to quantify the costs and benefits of improved portability.
Macroeconomic developments
The G-20 had a very informative discussion of the world’s macroeconomic situation. The discussion highlighted the positive outlook for the world economy, although some moderation in growth is in prospect, particularly in the industrialised countries.
The ongoing strength of the world economy has heightened the risk of increased inflation and the need to give careful attention to appropriate adjustments in monetary and fiscal policy settings and exchange rates and further structural reforms.
The G-20 agreed that trade and investment are fundamental to global prosperity. Rising protectionism and the failure so far to conclude the Doha Development Round pose serious threats to the world economy, development and poverty reduction. To this end, Ministers and Governors reiterated the need for further trade liberalisation in the current WTO Round and called for its early resumption and the achievement of an ambitious outcome.
Aid Commitments and Effectiveness
The G-20 welcomed recent increases in aid and debt relief and emphasised the importance of avoiding a new build-up of unsustainable debt. The Treasurer gave an important presentation to the meeting on the effective use of aid, encouraging the G-20 to use the platform provided by its officials’ discussions this year to push forward with further consideration of this issue next year. All G-20 members have pledged their support for the Paris Declaration on Aid Effectiveness. The meeting agreed that the G-20 will work on aid effectiveness and good governance in the period ahead.
Generating Support for Economic Reform
In an innovation for the G-20, the Treasurer introduced to the agenda a discussion of the political challenges of implementing reform, with a focus on identifying practical ways for governments to implement, and build consensus for, reform. The interesting and stimulating discussion complemented previous G-20 work on the content of reform programs, embodied in particular in the G-20 Accord for Sustained Growth, agreed in 2004.
Australia welcomed the opportunity to work on the G-20 management troika in 2006 with South Africa and China. We will again be working closely with South Africa on the management troika next year, alongside Brazil, whose appointment as the 2008 chair was strongly endorsed.
The meeting communiqué, background papers and the G-20 Accord for Sustained Growth are available on the G-20 website www.g20.org.
Contact: David Alexander (0418 210 601)
1 G-20 members: Argentina, Australia, Brazil, Canada, China, European Union, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States. The IMF and the World Bank are also represented.
2 Mr Charles Goodyear, CEO, BHP Billiton Limited; Mr Leigh Clifford, CEO, Rio Tinto Limited; Dr Ali Al-Naimi, Minister for Petroleum and Mineral Resources of Saudi Arabia and Chairman of Saudi Aramco; Mr Roger Agnelli, Managing President of CVRD; Sir Mark Moody-Stuart, Chairman, Anglo American plc; Mr Ron Brenneman, President and CEO, PetroCanada; and Sir Robert Wilson, Chairman of BG Group.