The G20 needs a grand bargain with the Global South

A revitalised group can act as a counterweight to BRICS

Ricardo STUCKERT/AFP

Brazil's President Luiz Inacio Lula da Silva (R) greets US President Joe Biden before the launch of the Global Alliance against Hunger and Poverty at the G20 summit in Rio de Janeiro, Brazil, on November 18, 2024.

The G20 needs a grand bargain with the Global South

Robert A. Manning

last update on 19 Nov 2024

There’s been plenty of invective and grandiose ambitions at Vladimir Putin’s recent hosting of the BRICS summit in Kazan, Russia. But amid all the noise, is BRICS the future?

Jim O’Neill, the Goldman Sachs analyst who conceived the acronym for the then-emerging markets of Brazil, Russia, India, and China 23 years ago (the “S,” for South Africa, was added in 2010), doesn’t think so. In a Project Syndicate piece headlined “BRICS still doesn’t matter,” he wrote, “It hasn't done anything to effect meaningful organisational or structural change within international institutions. In fact, they have done exactly the opposite.”

Amid fears that the United States is losing the Global South, O’Neill argued, “The fact is that truly global challenges cannot be addressed through narrow groupings like the BRICS (or the G7 for the matter).” If not, how?

One possibility is a G20 reimagined as a more effective, more inclusive global economic governance forum. But is such an order possible, or will unmitigated great power rivalry produce a world increasingly divided into Cold War-style blocs, with a swathe of middle powers and less developed nations hedging in between?

Many in the Global South harbour resentment of the US and Western power—and of Western hypocrisy over issues such as the US role in Gaza compared with that in Ukraine. But that doesn’t mean countries such as India or Brazil want to ditch the idea of a rules-based order altogether—especially if their own interests are better represented and can carry more weight.

AFP — People take part in a demonstration against Israel's military offensive in the Gaza Strip in Sao Paulo, Brazil, on October 22, 2023.

The G20 is an informal group representing some 85% of global GDP, 75% of world trade, and about two-thirds of the world’s population. It has all the ingredients of an inclusive forum that could better enfranchise middle powers and the Global South. Reforms for increased resources and more equitable stakeholding that allow for shared power and responsibility in reshaped institutions would add legitimacy to eroding Bretton Woods institutions and reduce the governance deficit in key areas of economics and the global commons.

Since its creation in 1999 in response to the Asian financial crisis, the G20 has occasionally helped build a consensus between powers by facilitating remedies to financial crises and to debt problems in developing nations. Key middle powers such as India and Brazil seek to use the G20 to catalyse reform of the international financial system.

Yet despite growing calls for major reform of Bretton Woods institutions such as the International Monetary Fund (IMF) and the World Trade Organisation (WTO) as not fit for purpose, G7 adaption to a post-hyperglobalisation world has been halting, overpromising, and underdelivering, which has built disappointment and frustration in the Global South. The G7 nations, with 13% of the world’s population, have 59% of IMF and World Bank voting rights.

So it’s no surprise that the aspirations of much of the Global South appear to be shifting toward BRICS+ (expanded this year to include Argentina, Egypt, Ethiopia, Iran, and the United Arab Emirates) as an alternative to an order dominated by the United States and the G7. Not coincidentally, China now has more trade with the Global South than with the G7 countries combined.

That may be one reason why there is a growing queue of more than 40 countries interested in joining BRICS+. The group represents 45% of the world’s population and some 30% of its GDP. Its mission now is to turn quantity into quality.

AFP — The presidents of Egypt, South Africa, China, Russia, UAE, and Iran, the prime ministers of Ethiopia and India and Brazil's foreign minister pose for a family photo during the BRICS summit in Kazan on October 23, 2024.

Why all this buzz for a group that, to date, is more a trendy, Sino-centric performative display of multipolarity than a financial catalyst or problem-solver? The reasons are varied and complex: Some see BRICS as a hedge, a club boosting its leverage and/or pressure on the West; some are looking for financial help from BRICS’s New Development Bank (NDB) and currency swaps; others want to avoid the ire of Beijing or to curry favour with it because it’s a major creditor.

But China’s economy is larger than all the other BRICS+ countries combined, and it is widely viewed as a leader. Despite numerous failures, Beijing’s Belt and Road Initiative has built up infrastructure and connectivity, with more than $1 tn in investment and loans for more than 200 projects in 155 nations, a largesse that dwarfs the West’s. BRICS+ is awash in problems. The group has become more unwieldy as it has expanded, with a still-amorphous identity and plenty of internal tensions.

Not least, the reality of multi-aligned democracies such as India, Brazil, and South Africa, seeking to lead the Global South, pursue good relations with the United States, and reform current institutions, is at odds with Beijing’s agenda. Delhi, after elevating the G20 summit with its elaborate hosting effort, also welcomed a 123-nation Global South summit in August without inviting China.

Then there is the questionable status of China as a “developing country” when it is upper middle income ($12,500 per capita GDP) and the world’s largest creditor, holding 37% of developing nations’ debt.

Because Russia is a 20% owner, the NDB can’t service its own members since Putin invaded Ukraine, and sanctions have complicated access to capital markets. It also isn’t doing much de-dollarisation—some two-thirds of its $33bn project lending is in US dollars.

While BRICS can posture and complain, a revitalised G20 might better redress financial grievances and development deficits

BRICS+ failures suggest why actors such as India and Brazil, which hope to lead the Global South, are also investing in the G20. While BRICS can posture and complain, a revitalised G20, with all major creditors at the table, might better redress financial grievances and development deficits, though some will have different priorities.

The G20 has had a modest impact in its core foci—global macroeconomic and financial coordination and developing-nation debt management. The G20 played an instrumental role in coordinating the response to the 2008-09 financial crisis. As the danger mounted with the 2009 financial meltdown, it responded with the additional political gravity of a leaders summit.

G20 finance ministers created the Financial Stability Board, adding international oversight and regulation; avoided competitive devaluations; and negotiated several trillion dollars in expanded IMF and multilateral development banks assets to inject liquidity into the system. This avoided financial collapse and catalysed recovery.

But that was at a moment of urgent crisis, one preceding resurgent great power competition and with China playing an important cooperative role it may not take up in the future. At a time of intense rivalry among the two largest economic powers, wars in Ukraine and the Middle East, national securitisation of economic decisions, and fraying global institutions, can the West take action on less urgent but still vital issues such as alleviating least-developed-nation debt crowding out development and preparing for pandemics?

A rare opportunity to shape the future may be missed—even though it could bolster the credibility of US leadership at only modest cost.

There are some promising signs. The G20's Common Framework in 2020 mobilised creditors to suspend loan repayments for less developed states during the COVID pandemic and to restructure their debt. In addition, the G20, with key developing nations and middle powers participating, facilitated World Bank recapitalisation and reformed IMF quotas and governance, albeit not meeting the expectations of Global South nations.

Yet all these G20 efforts were short-term crisis measures to stave off developing-nation defaults, to keep the lights on. Neither the G20, the G7, nor BRICS has more than scratched the surface of the larger structural problems of debt in developing nations or the consequences of surging economic nationalism. IMF data shows 11 debt-distressed nations, 24 at high risk, and 25 at moderate risk. A World Bank report says a majority of the 75 lowest-income nations have yet to recover to pre-COVID levels. Many of these countries are so awash in debt that servicing it crowds out funding for health, education, and investment.

In order for the G20 to rise to the occasion and offer real added value as a sort of economic security council, it needs to do three things: reform Bretton Woods institutions to better enfranchise the Global South; limit its scope to economic coordination and issues of the global commons such as climate change and trade; and transform its own operation.

This will require adding substantial resources to fill the climate and development finance gap and to reverse the slide of the 75 most vulnerable states. The former is an easy choice; the latter, a tall order.

There is no dearth of vision or proposals. The Bridgetown Initiative crystallised ambitious Global South demands for change. Reports by the Independent Experts Group commissioned by India as the 2023 G20 Summit host, co-led by former US Treasury Secretary Larry Summers and his Indian counterpart, N.K. Singh, outlined plans for necessary resources, partnerships with the private sector, and changes in the multilateral institutions. Those reports are more detailed than the Bridgetown Initiative, calling for some $3tn a year by 2030 to fund climate resilient infrastructure and development.

Ludovic MARIN / AFP — France's President Emmanuel Macron (L) and India's Prime Minister Narendra Modi embrace each other during a bilateral meeting on the sidelines of the G20 Summit in Rio de Janeiro, Brazil, on November 18, 2024.

Both the IMF and the World Bank could expand their resources at minimal cost. The IMF can expand its Special Drawing Rights—an international interest-bearing asset based on a basket of major currencies—which would not impact the US budget. It could also end rather than just reduce surcharges imposed on developing nations.

The World Bank has a very conservative debt-to-equity ratio. It can further loosen what is called its gearing ratio, as it did in October (freeing up $3bn for new lending), without harming its credit rating. Such steps, along with a general capital increase, which the World Bank has not had since 2018, would also generate funds to lend the least developed nations. But the United States has opposed it, since paid-in capital would add to the US budget.

Such an agenda, along with rebuilding a consensus on global trade and reforming the WTO, comprises the sorts of issues that a revitalised G20 could have an impact on. There is a rare opportunity to build on India's efforts, as the next three G20 Summits will be chaired by Brazil (in mid-November), South Africa in 2025, and then the United States in 2026.

But no matter who sits in the White House that year, Washington will still embrace economic nationalism, be consumed with wars in Ukraine and the Middle East, and maintain its focus on containing China. The fear is that a rare opportunity to shape the future may be missed—even though it could bolster the credibility of US leadership at only modest cost.

At the Kazan summit, Putin's self-serving call for a BRICS payment system to counter the United States-led financial system elicited mostly yawns. But over time, absent a more farsighted foreign policy and a failure to revamp the global economic system to bridge the North-South gap, such BRICS dreams may have purchase.

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