Bali and Cairo: A Challenging Set of Global issues Meets the Climate Emergency
posted by Karim Pakravan on November 14, 2022 - 5:47pm
The G20 was established in 1999 as a global network of finance ministers and central bankers of the major advanced and emerging market economies, as well as the major multilateral financial institutions such as the IMF and the World Bank. The organization has promoted itself as a major forum for global policy coordination, with regular gatherings involving key policymakers and heads of state. The latest G20 Summit is currently being held in Bali, Indonesia. While the organization has often fallen short of its declared goal, it is still providing a useful high-level platform for highlighting major issues facing the global economy. The UN Climate Conference, COP27, is coincidentally meeting in Cairo.
The Bali Summit is occurring at a time of intensifying challenges facing the global economy. First, the post-COVID global recovery is stalling, with major advanced economies slouching towards recession, provoked in part by the sharp tightening of monetary policies and raising of interest rates by major central bank. Second, the global rules-based global economic order is continuing to fray, disrupting trade and investment flows. Third, the whole world, and in particular low-income countries have been adversely affected by the disruptions in the global energy and commodity markets caused by the Ukraine war. Finally, the coincidence of the Cairo COP27 and the Bali G20 summits underscores the intersection between challenging climate and global economic issues.
However, there are some positive signs in the generally bleak global environment. First, oil markets seem to have stabilized. Oil prices are down from their mid-year high, stabilizing in the $85-95 range in the past few weeks. Global food prices have started falling with the resumption of grain and fertilizer exports from the Ukraine war zone and Russia. The largest emerging markets seem to be holding, and could avoid a recession. The monetary tightening in the United Sates seems to be in its last stage. The results of the U.S. mid-term elections have eased a major global political risk. These developments provide some breathing space to the policy makers, the question is whether it not it will be used strategically.
The G20 will have to address the plight of the low-income economies (LIC), collectively known as the distressed debt economies by the IMF. While the major emerging market economies are likely to remain solvent, the LICs face a much more difficult environment. The problems of limited access to global financial flows, food insecurity and poverty, unsustainable levels of external debt and political instability are amplified by the economic destruction brought about by extreme climate change. Droughts and floods destroy the agricultural base, forcing countries to increase food imports, leading to a vicious circle of widening external deficits, unsustainable domestic and external debt burdens and ultimately default. Meeting the external obligations and/or implementing austerity measures imposed by bilateral and multilateral finance sources exacerbate poverty and political instability. The previous G20 meetings had agreed on financial assistance to the LICs, as well as increased resources for multilateral financial institutions, resources directed at debt relief and additional finance for LICs.
At the same time, COP27cmeeting is dealing with the issue of losses and damage caused by global warming. A new North-South fault line is emerging, as demands by the “South” for compensatory finance from the “North” countries, that are most at fault for carbon emissions, as well as demands for fulfilling the financial commitment of COP26, are in fact different facets of the same problem. The coincidence of the COP27 and the G20 summits underscores the close correlation between increasingly challenging climate and global economic issues. Moreover, both in Bali and Cairo, the G20 countries are discussing changes in the global financial architecture that would make the multilateral financial organizations more attuned to climate change.
Progress on these thorny issues and ambitious agendas is likely to be slow and bumpy and the gains will be modest, but each step is one in the right direction.