A coordinated fiscal stimulus across the G20 economies should improve upon the 2008-2009 experience through focussing more on the composition of fiscal spending with greater priority accorded to human capital development, most notably healthcare. Apart from targeting short-term exigencies, the stimulus should also address longer term vulnerabilities, including the undersupply of healthcare services on a global scale.
On Thursday, March 26, the G20 leaders will convene for an unprecedented virtual summit to discuss the coronavirus pandemics and measures to counter the global recession that it may trigger. The ways of countering the global economic slowdown through coordinated measures have been discussed in the expert community recently, but now it is high time to take the issue to the top level. As part of the T20, the G20 engagement group bringing together the world’s premier think tanks, the Valdai Club proposed earlier this year to explore the modalities of a coordinated fiscal stimulus across the largest G20 economies as a key measure to surmount the global economic slowdown.
A synchronized downturn calls for a synchronized response. Limiting the coordinated fiscal response solely to the country level significantly restricts the scale of resources that may be devoted to fiscal stimulus at the global level. There is an urgent need for a mechanism that allows for a coordinated response across all layers of the Global Financial Safety Net and the use of an entire array of reserves and resources to deliver the stimulus.
The first time a coordinated attempt at delivering a fiscal stimulus across countries was undertaken to counter the effects of the 2008-2009 financial crisis. While the results of the stimulus are generally viewed positively, there is sizeable potential to further improve on the delivery of the stimulus and its impact on global growth. This time around this coordinated stimulus exercise should improve upon the previous effort through focussing more on the composition of fiscal spending with greater priority accorded to human capital development, most notably healthcare. Apart from targeting short-term exigencies, the stimulus should also address longer term vulnerabilities, including the undersupply of healthcare services on a global scale. Another important aspect of the economic stimulus is the possibility of amplifying the effects of fiscal spending at the national level with added momentum coming from the regional development banks and other regional institutions that need to work closely with global organizations such as the World Bank, WTO and the World Health Organization.
An important part of a superior anti-crisis framework across the globe is a transparent, rules-based and pre-established mechanism for a coordinated stimulus rather than an ad hoc mechanism that is undertaken by a relatively narrow group of heavy-weights in the midst of a downturn.
The creation of an anti-crisis mechanism at the global level should become part of a broader task that targets the reconstruction of the global economic architecture through the incorporation of a regional layer of global governance. This in turn may be pursued via the creation of a platform for regional integration arrangements and regional institutions with a coordinating role performed by the G20, an idea put forward by the Valdai Club during the 2019 Japanese presidency.
Regional Trade Blocs as Supporting Structures in Global Governance
What is missing in the current system of global governance is a global coordination mechanism among the largest regional integration arrangements from both the Global North and the Global South. The G20 is probably the best forum to launch discussions on the creation of such a platform. The set of regional alliances within such a platform could include those regional integration blocs in which the respective G20 members are leading economic powers. The resulting grouping that may be designated as R20 (“Regional 20”) would bring together some of the largest regional trading blocs in the world economy.
Such a platform may promote horizontal coordination across regional institutions as well as vertical cooperation with global multilateral organizations – Regional Financing Arrangements with the IMF, regional development banks with the World bank and the regional integration arrangements with the WTO.