G20 Shift Welcome but Not Enough

Much more must be done before Asia's
role in finance, energy and climate change is fully recognized

The decision by world leaders meeting in Pittsburgh under the aegis of
the Group of 20 last week to make the expanded body of large nations
the primary global economic forum was the right decision. It has been
widely hailed as a step forward in recognizing the clout of emerging
economies like Indonesia, China, India and South Korea and the need for
them to be fully represented in global economic policy.

In short, the Western club, the G8, has outlived its usefulness in a fundamentally changed world.

The
shift in power is welcome, especially as the world begins to emerge
from the worst economic crisis since the Great Depression. It is hoped
that a larger group of major powers will exercise some wisdom and
restraint in the future that may avoid the hubris of the recent past
when Wall Street seemed to run roughshod over the entire financial
system. But that may just be wishful thinking.

The real
breakthrough will come when the growing economic power of the
developing countries adds up to controlling more than half the voting
power in the World Bank and the IMF, and when the G20 can spearhead the
social as well as economic changes the world needs, especially on
climate and energy policy.

The Pittsburgh deal is that the
West has agreed to increase the developing country, or "Southern",
share quotas and voting powers in the IMF and the World Bank by 5
percent and 3 percent respectively.

This means in the case of
the IMF that the West (including Japan) will still control 52 percent
of the votes while the developing countries will control 48 percent.

Right
now, the G20 controls 85 percent of the world economy (by Gross
Domestic Product) and emerging economies, including China, India and
Brazil, are responsible for some 50 per cent of global production,
hence the logic of giving the G20 an expanded role.

But several problems remain:

First,
how long will it take the South to catch up with the West in terms of
its share of world GDP, earning the right to an equal share of votes in
international economic institutions?

Second, how do we to
avoid a situation in which the non-G20 countries, the great majority of
members in the United Nations, do not feel marginalized, just as many
of the G20 states felt previously? Who will help represent these
smaller nations, many of them in a floundering Africa, on big economic
issues when the UN seems to be increasingly marginalized when it comes
to real clout?

Third, being a member of the G20 will mean
policy obligations as well as a seat at the table on world economic
decisions. For example, the 100-point Pittsburg communiqué included a
commitment to phase out subsidies on fossil fuels "in the medium term."
Will this really be palatable in a place like Indonesia, where fuel
subsidies are a potent domestic issue?

Of course, fuel
subsidies create market distortions, especially in Indonesia, which
subsidizes fossil fuel and electricity. This is unsustainable. The
result is that 35 percent of Indonesians have no access to grid power
while the subsidies discourage renewable energy and energy efficiency
and subsidize petrol and diesel fuel for the rich.

Bharat
Jhunjhunwala, commenting on the upcoming US-India deal on uranium
supplies and the peaceful uses of nuclear energy, concluded that the
need for at least partial globalization of policies on energy and
climate is now clear. Indian Prime Minister Manmohan Singh told the
Indian Planning Commission that India imports over 70 percent of its
petroleum energy and is now caught between the large scale use of coal
and hydropower or a much bigger civil nuclear program generating
radioactive waste.

The same dilemma exists for China, Indonesia and many Asian countries.

All
of the big Asian states (and many smaller ones) will have to go heavily
nuclear, including Indonesia, unless there can be a revolution through
the massive adoption of new and renewable energy and energy efficiency.

The ending of fossil fuel subsidies is a small but essential
part of the revolutionary change that is needed, but the truth is most
political leaders don`t think that the state, the private sector and
society can change fast enough.

Unless there is a much more
profound and radical social consensus on clean energy and climate
change, and very determined political leadership, then large-scale
nuclear energy is the only clear answer left on the table, alongside
clean coal.

Not exactly the green heaven that many
environmentalists were hoping for, but another consequence of rapid
economic take-off and joining a G20 that is preparing for a change in
the structure of global economic power. But it hardly opens the way for
the social revolution on energy generation and consumption that is
really needed.

Terry Lacey is a development
economist who writes from Jakarta on modernization in the Muslim world,
investment and trade relations with the EU and Islamic banking.

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