By Josh Frydenberg, Heng Swee Keat, Sri Mulyani Indrawati, and Bill Morneau
Since the creation of the Bretton Woods system 75 years ago, countries have been coming together in pursuit of global public goods, giving rise to both the international trading system and a global financial safety net.
It is to this multilateral approach that we owe our shared success. The free flow of trade, investment, and ideas has helped lift more people out of poverty than ever before. And the world’s growing middle classes are now broadening the opportunities for further exchange of goods, services, and innovation.
By underwriting global economic and political security, the multilateral system allows both big and small countries to fulfill their potential. As beneficiaries of this system, we all have a responsibility to safeguard the institutions that have underpinned our economic prosperity. We must now work together to forge a consensus on pressing global challenges.
Rising trade tensions are one such challenge. While we acknowledge that legitimate issues must be addressed, we worry that the risks of collateral damage are growing. Uncertainty over the global outlook is contributing to a slowdown in trade and manufacturing activity. Financial-market volatility and currency instability are on the rise, amid declining capital flows to emerging economies. Deteriorating global trade conditions are affecting investor confidence, business spending, and productivity. Risks remain tilted to the downside, and the World Bank and the International Monetary Fund continue to revise downward their economic growth forecasts.
We need to reverse course, and that requires acting collectively. The first step is to support the rules-based multilateral system. While respecting each country’s domestic priorities, we need to protect free and open markets, because that is what will ensure stronger growth and greater prosperity for all. We should not resort to unilateralism and protectionism. Pursuing confrontation instead of dialogue will only exacerbate risks, erode confidence, and weaken the prospect of global economic recovery. Compromise is key to achieving win-win outcomes and mutual trust.
Multilateralism relies on the core principles of non-discrimination, predictability, and transparency. We abide by these principles because we know they work. In 2008, policymakers from around the world – especially those from the G20 countries – came together to safeguard the global economy. Leaders took decisive and coordinated action that was widely acknowledged to have boosted consumer and business confidence, thereby driving the first stages of the recovery. The G20 then went on to implement reforms aimed at promoting financial stability, through strengthened regulation and coordinated oversight.
More recently, G20 leaders responded to growing concerns about corporate tax avoidance. In November 2015, member states agreed on a strategy to ensure that multinational profits are taxed in the country where economic activity occurs. This consensus demonstrated a commitment to fairness, transparency, and accountability in addressing a complex cross-border challenge. In the current global environment, we need much more of this type of leadership and cooperation.
The G20 is an important forum for world leaders to forge agreement on solutions to our shared problems, because it is small enough to be efficient yet large enough to be representative. But there are legitimate concerns that the multilateral system is struggling to manage the complexity of today’s global economy. We need to take an honest look at our trading system, reform governance of our multilateral institutions, and develop a cooperative agreement on digital taxation.
These are separate issues, but they must be dealt with in the same way: through multilateral dialogue and consensus-building. The overarching goals must be to reduce incentives for unilateral action and build respect for international norms and laws.
Saudi Arabia, Italy, and India, the countries that will hold the G20 presidency over the next three years, have the opportunity – and the responsibility – to set the group’s strategic direction. The G20 must continue to support an open trading system and a global financial safety net that can withstand crises and address challenges such as insufficient infrastructure investment and disaster resilience. The G20 also offers a unique forum for sharing national perspectives on common challenges, including the future of work, women’s economic empowerment, and competition policy.
To restore lost confidence, our multilateral system needs newfound strength to withstand the complexity of our current circumstances. Harking back to its emergence as a global player during the 2008 global financial crisis, the G20 needs to continue to build mutual understanding and cooperation, so that it can uphold and support multilateral problem solving in the event of another economic crisis.
This is not something that one or two countries can do alone. All of us must play a role in restoring the multilateral system that has contributed so much to our shared growth and prosperity over the past 70 years.
Our collective determination and wisdom can return the global economy to a more positive path. As senior ministers, we speak out to affirm that we will use all our energies to encourage cooperation on the global challenges we face together.
Josh Frydenberg is Treasurer of Australia and Deputy Leader of the Liberal Party. Heng Swee Keat is Deputy Prime Minister and Finance Minister of Singapore. Sri Mulyani Indrawati is Finance Minister of Indonesia. Bill Morneau is Finance Minister of Canada. Copyright: Project Syndicate, 2019, published here with permission.