Swift implementation of G20 consensus can avert global meltdown

Swift implementation of G20 consensus can avert global meltdown

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King Salman speaks via video link during a virtual G20 summit on coronavirus (COVID-19), in Riyadh, Saudi Arabia, on March 26, 2020. (SPA)

Last Thursday’s G20 leaders’ summit was held as despair set in around the world about the coronavirus’s rapid spread and the failure of several rich countries to stem the tide. Desperate measures such as lockdowns, curfews and social distancing have helped slow the exponential growth in infections and deaths, but also deepened the global recession, pushing many countries to the edge of meltdown.

Swift implementation of the consensus so carefully reached at the G20 summit is necessary to avert a potential global health and economic catastrophe.

The final communique issued at the end of the summit, which was hosted virtually in Riyadh, Saudi Arabia, gave a glimmer of hope. So did the reassuring words of several leaders delivered during the videoconference. King Salman, who presided over the summit, said that the world had pinned its hopes on this meeting and the G20’s pivotal role. He called for unity among the group’s nations and a coordinated response to the disease, as well as a coordinated approach to ensuring the undisrupted flow of goods and services. King Salman urged the group to come up with new initiatives to fulfill hopes of defeating the pandemic and restore confidence in the world economy.

The communique reflected a fairly unified approach on both the health and economic challenges, which was remarkable considering the trade and media wars between the group’s two largest economies, China and the US — tensions that intensified after the disease was discovered in China late last year and its fast spread around the world. One impetus for the summit was a genuine frustration about the lack of real cooperation in exchanging expertise, equipment and supplies. 

The summit’s statement outlined seven tracks for international cooperation, including fighting the epidemic and protecting lives; coordinating public health and financial measures to fight the disease; safeguarding people’s jobs and incomes; restoring confidence, preserving financial stability and reviving economic growth; minimizing disruptions to trade and global supply chains; and providing help to countries in need.

One of the most tangible deliverables from the summit was the commitment to inject “over $5 trillion into the global economy, as part of targeted fiscal policy, economic measures, and guarantee schemes to counteract the social, economic and financial impacts of the pandemic.” That amounts to about 6 percent of global gross domestic product (GDP). 

The leaders also urged their central banks to continue with “extraordinary measures” to “support the flow of credit to households and businesses, promote financial stability, and enhance liquidity in global markets.” 

The G20 club of super-rich countries, which account for 90 percent of the world’s GDP and 80 percent of its trade, is capable of mitigating both the health and economic repercussions of the coronavirus, if its members deliver on the promises made last week.

There are reasons for cautious optimism, as China and the US appear to be trying to reduce their bilateral tensions. Prior to the summit, Beijing had called for greater cooperation in fighting the disease and specifically suggested that the G20 play a greater role, citing the group’s previous role in dealing successfully with the 2008 global financial crisis. 

At the summit, Chinese President Xi Jinping called on the international community, especially the G20 nations, to “strengthen confidence, act with unity and work together in a collective response.” Clearly aware of the criticism directed at China by the US, he then presented four specific proposals to fight the disease in a collective approach. Xi also stressed the need to support international organizations in fighting the disease and coordinate macroeconomic policies aimed at dealing with the economic crisis.

The US was among the first to adopt a very far-reaching stimulus package valued at $2.2 trillion, more than 10 percent of the country’s GDP — far exceeding the goal set by the G20 summit. 

In living up to the spirit of the G20 summit, President Donald Trump changed his tone about China overnight. The morning after the meeting, he tweeted: “Just finished a very good conversation with President Xi of China. Discussed in great detail the coronavirus that is ravaging large parts of our planet. China has been through much & has developed a strong understanding of the virus. We are working closely together. Much respect!” That spirit of cooperation between the two economic superpowers is probably the main indicator of the summit’s success. 

The G20 professionals need to build on this, so far verbal, transformation of China-US attitudes toward each other. Other G20 members, with less acrimony between them, are also expressing a new sense of global cooperation. This new spirit should be translated into concrete steps for sharing best practices about combating the disease, as well as steps to avert an economic catastrophe that could eclipse previous crises. 

The G20 club of super-rich countries is capable of mitigating both the health and economic repercussions of the coronavirus.

Abdel Aziz Aluwaisheg

The danger signs of an economic disaster are already there. A new study prepared by the Washington-based Institute of International Finance (IIF) shows that businesses are in much worse shape now than they were in 2008. Corporate debt among non-banks has exploded to more than $75 trillion, up from $48 trillion at the end of 2009. As the coronavirus spreads and economic activity shrinks, it is likely that many companies, including those working in the energy, hospitality and auto sectors, may not be able to meet their debt payment obligations. 

The IIF study suggests that corporate debt worth $19 trillion from eight countries — China, the US, Japan, the UK, France, Spain, Italy and Germany — is at risk of default. That would be 40 percent of all corporate debt.

If not averted by the kind of solutions suggested by the G20 summit, such defaults would trigger a chain reaction all over the world, destabilize financial markets and compound the economic shock made by the disease and the related global curtailment of economic activity.

  • Abdel Aziz Aluwaisheg is the Gulf Cooperation Council’s assistant secretary-general for political affairs and negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent those of the GCC. Twitter: @abuhamad1
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