Biden Should Call for an Early G20 Summit

On April 1, 2009, amid the darkest hours of the global financial crisis, the leaders of the Group of 20 (G20) economies came together for their second summit. It was the first trip abroad for the new U.S. president, Barack Obama. The G20 leaders committed themselves to a bold—and ultimately successful—action plan to restart the world economy.

Twelve years later, the world faces a global pandemic and the worst economic disruption since the Great Depression. The G20, largely missing in action in recent years, should revive the spirit of London, this time led by a new U.S. president, Joe Biden. The president-elect should call for an urgent gathering in Rome early in 2021 under the auspices of the Italian G20 presidency.

The first priority is to strengthen the near- and medium-term global economic outlook. Massive macro stimulus has commendably been provided since the outbreak of the Covid-19 crisis. But fiscal support has lacked a common framing, and its effects are beginning to fade.

At the 2009 London Summit, G20 leaders rallied behind a $5 trillion global fiscal stimulus. At their third summit in Pittsburgh that September, leaders looked to the future and the need for a more durable global growth model based on “strong, sustainable, and balanced growth.” Similar vision is needed today.

In the near term, withdrawing fiscal support prematurely would have catastrophic consequences. The United States especially should move forward with more support for the unemployed, state and local governments, and critical medical equipment.

But the pandemic is only at the end of the beginning. The economic recovery is nowhere near as robust as it should be, long-lasting scarring is unavoidable, and extended macroeconomic support will be needed, even if a vaccine is soon found.

A smart medium-term fiscal policy will also be needed to overcome flagging potential growth and secular stagnation. Opportunities for transformational investments abound. Infrastructure investments are needed. Climate change is the greatest existential threat to the planet and must be tackled. Future economic activity will depend heavily on technology, digitalization, and work from home. Government investments can support these societal transformations and workers disrupted by them.

The International Monetary Fund (IMF) should immediately formulate a global fiscal agenda for the G20’s near- and longer-term future, setting forth on a country-by-country basis the fiscal policies that would best help the global economy adjust to the forthcoming new normal.

The G20 should also set up a high-level expert task force, led by the United States and Germany, to recommend a concrete infrastructure and climate plan to transition to a non-carbon future. Washington should help galvanize the G20’s climate push by rejoining the Paris Climate Accord.

Health measures must go hand in hand with economic support. G20 leaders should send a clear message to the world about social distancing and ensuring adequate financing is available to produce a globally available vaccine as quickly as possible. The United States should announce it is remaining in the World Health Organization.

The London Summit prioritized emerging markets (EMs) and low-income countries (LICs), announcing $1.1 trillion in new support. These countries now face lost tourism revenues, commodity proceeds, and remittances. Their social safety spending needs have risen sharply, while revenues are plunging. The G20 needs to step up:

• Its key initiative to date, the Debt Service Suspension Initiative (DSSI) for LICs, is woefully insufficient. To make it effective, private-sector participation in the DSSI should be made mandatory, debt transparency should be strengthened, and Chinese official lending should be fully disclosed and Paris Club principles applied.

• A $600 billion-plus special drawing right (SDR) allocation could usefully back additional social spending for EMs and LICs if linked to non-traditional creditors and private-sector agreement to DSSI reform as described above.

• The G20 should back IMF efforts to raise subsidy resources to triple lending to LICs through its Poverty Reduction and Growth Trust and boost debt relief through its Catastrophe Containment Relief Trust. The United States should offer $1 billion for this purpose. The Fund could also consider generating further LIC resources through limited gold sales.

• Asian and many Latin EMs are in strong positions. But other EMs are on an unsustainable path or will be pushed there by the pandemic; they will need to restructure debts alongside IMF programs, and restructurings should be sufficiently deep to address debt overhangs. Some EMs facing questionable debt sustainability will need IMF programs, which should provide more liquidity support than is the IMF’s traditional bent.

• The World Bank and other multilateral development banks also stepped up at London through large-scale pledges of additional member support. They should do so again.

Trade is another priority for an early G20 summit in 2021. At the first G20 summit in Washington D.C., leaders committed to refrain from raising new barriers to investment or trade, and this commitment was repeatedly underscored. By and large, it constrained beggar-thy-neighbor behavior despite the pressures of the global financial crisis.

In recent years, those commitments have been pushed to the side. New protectionist measures, especially from the United States, have substantially weakened the global trade framework, jeopardizing global growth. The G20 should reaffirm its support for openness and trade. At the same time, it should launch an immediate “blue sky” expert study of reform of the multilateral trading system.

There are other priority issues that require G20 attention, including financial regulatory reform and international taxation. Leaders should lay out plans for dealing with these without getting bogged down in details.

Finally, to reinvigorate G20 cooperation, the United States and China—now the two dominant global economies—will need to find areas where they can positively engage despite continuing tensions in the relationship.

President Biden will have much work at home following his inauguration. But calling for an early G20 summit on pressing economic and health issues will complement those domestic efforts and offer an opportunity to strengthen the United States’ standing overseas. There has never been a more critical time for bold and swift action.

Mark Sobel is U.S. chair of the Official Monetary and Financial Institutions Forum (OMFIF) and a senior adviser (non-resident) at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Matthew P. Goodman is senior vice president for economics and holds the Simon Chair in Political Economy at CSIS.

The proposals discussed in this commentary are fleshed out in more detail in a  paper by Mark Sobel  at OMFIF.org.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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