Dr. Ludger Schuknecht, former Chief Economist at the German Finance Ministry
By Ludger Schuknecht
History has taught us that international challenges are rarely mastered unilaterally. Indeed, it is the multilateral approach which has served us so well in recent decades.
Against this backdrop, Germany has been honoured to hold the presidency of the G20, the world’s premier forum of international economic cooperation, in 2017.
Under the G20 finance agenda in 2017, we had three key priorities:
- to enhance the resilience of the G20 economies,
- to improve conditions for private investment in Africa through a Compact with Africa, and
- to shape digitalisation in the financial sector.
These three priorities formed the focus of our work with a dedicated conference held for each priority as well as several meetings of the G20 finance ministers and central bank governors and their deputies. Finance track issues were also high on the agenda at the G20 summit of heads of state and government on 7-8 July in Hamburg, where finance ministers met once again over an informal working dinner. In addition, we also staged the G20 high-level symposium “Global Economic Governance in a Multipolar World” as well as the G20 workshop “Helping SMEs go global – Moving forward in SME finance”.
Reflecting on the outcome of our meetings, it is fair to say that the G20 has achieved some crucial results in the finance track to improve global economic and financial governance:
- We reaffirmed our commitment to international economic and financial cooperation and to the objective of strong, sustainable, balanced and inclusive growth. To enhance economic resilience, we adopted a set of principles and developed national actions in line with those principles, which feature in the “G20 Hamburg Action Plan”. We also continued the structural reform agenda started under the Chinese presidency.
- We launched the G20 Compact with Africa (CwA) initiative, recognising our responsibility to work together to tackle some of the most important macro, business and finance challenges facing African countries in attracting private investment.
Ten countries – Benin, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal and Tunisia – have joined this initiative so far. Together with international organisations (in particular, the African Development Bank, the World Bank Group and the International Monetary Fund), interested G20 members and other partners, CwA countries are preparing comprehensive, coordinated and country-specific investment compacts with political backing from the G20.
The driving force behind the individual investment compacts is African ownership, not Western prescriptions. The success of each country’s compact depends on the implementation of measures that the private sector deems necessary to increase investment. To ensure the continuity of the CwA initiative beyond Germany’s G20 Presidency, the Africa Advisory Group will advance the CwA process within the G20, monitor progress in Compact Countries and promote investment opportunities in Compact Countries through an annual investor conference.
- With regard to digitalisation in the financial sector, the G20 looked into the opportunities and risks of digital innovation, including the potential effects on financial stability. Digital tools can make financial services available to a wide range of consumers and enterprises, promoting financial inclusion. As this requires a certain degree of knowledge of financial systems, we discussed suitable education and training measures for enhancing financial literacy. The G20 also explicitly affirmed its commitment to enhancing cyber security in the financial sector and initiated concrete action to this effect.
Beyond our core priorities, we continued established work streams to further develop the global economic and financial order. Here, too, we achieved tangible results:
- The G20 improved the international financial architecture. We adopted the MDBs’ “Hamburg Principles and Ambitions on crowding-in private finance” to mobilise private resources. We continued the Chinese presidency’s work on balance sheet optimisation and boosting infrastructure investment by MDBs. To increase debt sustainability in low-income countries, we agreed to “Operational Guidelines for Sustainable Financing”. In addition, a number of non-OECD G20 members declared their intention to join the OECD Code of Liberalisation of Capital Flows, which promotes an orderly management of these flows. Finally, we established the Eminent Persons Group on Global Financial Governance, which reviews the governance of the international financial architecture and its institutions with a view to making concrete proposals for its improvement.
- As regards financial market regulation, we reaffirmed our determination to finalise the agreed financial sector reforms and to ensure their full, consistent and timely implementation. We made progress on mitigating the systemic risk of asset management and transforming shadow banking into resilient market-based finance, as well as on enhancing the resilience, recovery and resolvability of central counterparties. We agreed on a framework for the post-implementation evaluation of the effects of G20 financial regulatory reforms. Good progress has been made with regard to our goal of improving the measurement and assessment of environmental and climate-related financial risks. Finally, we enhanced the environment for the sharing and accessibility of data for policy use.
- In the field of international taxation, we confirmed the ongoing support of the Base Erosion and Profit Shifting package and its implementation. We made substantial progress on tax transparency, with the first exchanges of financial account information under the Common Reporting Standard commencing in September 2017. We continued our support for building tax capacity in developing countries. Strengthening tax certainty was also an item high on our agenda. We launched a debate on the tax challenges posed by digital economy. And to fight tax evasion as well as terrorist financing, money laundering and corruption, we promoted the international exchange of beneficial ownership information.
- The G20 also tackled other important issues: We worked towards improving the environment for remittances and established a work plan to resolve remaining problems. With respect to the fight against money laundering and terrorist financing, we reaffirmed our commitment to tackle all sources, techniques and channels of terrorist financing and supported the work to strengthen the institutional basis, governance and capacity of the Financial Action Task Force. Furthermore, we made great progress on the financial inclusion agenda. In this regard, the first country self-assessment within the G20 Action Plan on Small and Medium-sized Enterprises’ Financing was one of many achievements.
Germany handed over the G20 presidency to Argentina on 1 December 2017. We will support the Argentinian G20 agenda in the spirit of continuity, close cooperation, mutual trust and multilateral endeavour.