the think 20 journals

THE ROLE OF MEXICO IN THE G20

Lourdes Aranda Bezaury * sre

MATÍAS ROMERO INSTITUTe

G20_OKK inglés:Layout 1 2/6/12 3:12 PM Page 1

seCreTAry oF ForeIGn AFFAIrs

Patricia espinosa Cantellano

HeAd oF THe MATíAs roMero InsTITuTe

Lourdes Aranda Bezaury

dIreCTor GenerAL oF THe MATíAs roMero InsTITuTe

Pablo Macedo riba

dIreCTor oF PuBLICATIons And InTernATIonAL ProGrAMs

Cuauhtémoc Villamar Calderón

Constanza García Colomé, AreA dIreCTor * didya Fong olmos, dePuTy dIreCTor * MaríaCristina Tovar Gómora, dePArTMenT HeAd

The Role of Mexico in the G20 * Lourdes Aranda Bezaury | sre

First edition, 2012Copyright © 2012 by secretaría de relaciones exterioresPlaza Juárez 20, Col. Centro, del. Cuauhtémoc, C.P. 06010, Mexico City

The opinions expressed in this book are those of the authors and do not necessarilyreflect the position of the secretary of Foreign Affairs.

Printed in Mexico

sre337.1Ar662

Aranda Bezaury, Lourdes.

The role of Mexico in the G20 / Translation of Participación mexicana en el G20 /Lourdes Aranda Bezaury. – Mexico: secretary of Foreign Affairs, Matías romeroInstitute, 2012.

36 p. –(G20 Journals; 1).

Contents: v. 1. Mexico.

1. Mexico – Foreign economic relations. 2. Group of Twenty. 3. Internationaleconomic relations. 4. International economic integration. I. Mexico. secretaryof Foreign Affairs. Matías romero Institute. II. Title III. series.


Lourdes Aranda Bezaury *

ConTenTs

InTroduCTIon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

eVoLuTIon oF InForMAL ConsuLTATIons And THe orIGIns oF THe G20 . . . . . . 7

eVoLuTIon oF THe G20 AT THe LeAders LeVeL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

THe G20: sTruCTure And FunCTIon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

THe MexICAn PresIdenCy oF THe G20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

ConCLusIons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

* undersecretary of Foreign Affairs and G20 sherpa: [email protected]

The author thanks david dávila estefan and Catalina López Portillofor their contributions to this project, and Berenice díaz-Ceballos, Am-bassador Gustavo Albín and Mauricio Guerrero for their comments onthe drafts.

THe roLe oF MexICo In THe G20


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Implicit in the institutionalization of the G20 at the leaders’ level is thefact that the axis of international economic power has shifted, becoming moremultipolar as the political weight and influence of the emerging powersincrease in the global economy.1 At the same time, the G20, as an informalforum for discussing and seeking solutions to global issues, reflects theneed for innovative means of cooperation in a world in which the problemsthat transcend national borders, especially the economic and financialones, have become increasingly complex and indispensable, a coordinatedresponse from both developed and developing countries.

The purpose of this essay is to critically review how the G20, sinceit began to meet at the leaders’ level, has evolved into a key forum forinter national economic consultations that can offer an alternative to addressour global challenges. Principally, the essay evaluates the main achieve-ments of the G20 and the progress that its collective action has broughtabout to global economic stability, as well as its most significant challen-ges. It also examines Mexico’s role in this informal forum for internationaldialogue, including its plans for the immediate future. With the June 2012Leaders’ summit in Los Cabos, Mexico will have hosted two large-scalemeetings on global governance in the last decade: The International Con-ference on Financing for development in Monterrey (2002) and the G20summit in Los Cabos (2012). This confirms Mexico’s commitment to mul-tilateralism and to building a balanced, representative and effective in-ternational architecture.

1 Lourdes ArAndA BezAury and BerenICe díAz CeBALLos PArAdA, “México y los cambios en laarquitectura económica internacional,” in Blanca Torres and Gustavo Vega (eds.), Relaciones

Internacionales, Mexico, el Colegio de México (Los Grandes Problemas de México, vol. xII),2010, pp. 651-673, at http://2010.colmex.mx/16tomos/XII.pdf.

InTroduCTIon

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Historically, international economic crises have led to the creation of ad hoc

groups that coordinate collective economic policy responses. The first halfof the 1970s saw the collapse of the Bretton Woods international mone-tary system with the end of the international gold-dollar standard, followedby a global economic recession triggered by higher international oil prices.These events had profound consequences on the organization of the globaleconomy and gave rise to alternative ways of discussing issues betweenthe largest capitalist powers that were direct, efficient and “between equals”,something that was not always possible in the traditional multilateralorganizations during the Cold War. In this way, the Group of seven (G7)emerged in 1975, becoming the G8 in 1998 with the inclusion of the rus-sian Federation.

However, the G8 has gradually become more and more limited in itsability to deal with the global financial and economic challenges that re-quire the participation of the emerging and developing countries. Giventhe increasing globalization and the emergence of new economic poles, theparticipation of emerging countries such as Brazil, China, India and Mexicohas become vital in the search of solutions to the complex problems thathave arisen. Although the G8 tried to broaden its contacts with other coun-tries, mainly through the “expanded dialogue” with emerging countries,2

international organizations, business leaders and civil society organiza-tions, this approach would be eclipsed by the imminent appearance of theG20 leaders’ summits.

2 specifically, five emerging countries, Brazil, China, India, Mexico and south Africa, were in-vited by the Group of eight (G8) to participate in the 2005 Gleneagles summit, in acknow-ledgement of the importance of their economies and their regional leadership, and as a wayof urging them to assume new responsibilities regarding transnational issues. The Group ofFive (G5) came together as a result of the repeated invitations these countries received tothe G8+5 expanded dialogue, and its members held leaders’ and sherpa meetings to coordi-nate their positions and to speak with one voice, although it did not address the G8 memberson equal terms.

eVoLuTIon oF InForMAL ConsuLTATIons And THe orIGIns oF THe G20


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As was the case with the economic difficulties experienced in the early1970s, the financial crises in Mexico in 1994-1995, southeast Asia in 1997and Brazil and Argentina in 1999 spread to the rest of the global economy.The unusual degree to which these crises expanded led to the creation of aneconomic forum that was broader and more representative than the G8. TheGroup of 20 thus emerged in 1999 as a forum composed of finance ministersand central bank governors to start discussing the financial policies that im-pacted global economic stability. In addition to the G8 countries and theeuropean union, the G20 included 11 “systemically important”3 countries:Argentina, Australia, Brazil, China, India, Indonesia, Korea, Mexico, saudi Ara-bia, south Africa and Turkey.4 It must be stressed that the G20 representsabout 65 percent of the world’s population and 85 percent of the global eco-nomy.5 Although the G20’s limited membership is debated, it is clearly morerepresentative than the G8 while at the same time its size makes it swift andeffective at making decisions, at unblocking negotiations and at fosteringmechanisms, due to the regional and international leader ship of its membersand their geopolitical and economic attributes.

From the very beginning of the G20, Mexico has promoted the en-hancement of its role as a representative, inclusive and effective forum fortaking and implementing economic and financial decisions in a worldwhere the international economy is increasingly interdependent and mul-tipolar. As John Kirton has suggested, the G20 is “the culmination of an ex-pansion of the center of global governance to include ascending powersalongside advanced ones, and to give each equal, institutionalized involve -ment and influence in the central club.”6 Therefore, the G20 is an achievement

Lourdes ArAndA BezAury

3 This refers to economies that have the ability to impact the stability of the internationaleconomic and financial system as a whole. 4 The most important criteria is the size of the country’s economy in relation to global GnP, butthe extent to which it is connected with the rest of the world, demography and other criteriaare also taken into account. see G8, G7 Statement, June 18, 1999, at http://www.g8.utoronto.

ca/summit/1999koln/g7statement_june18.htm.5 see “What is the G20?” at http://www.g20.org/about_what_is_g20.aspx.6 JoHn KIrTon, “G20, G8 & G5 and the role of Ascending Powers,” speech given as part of theseminar on “The International system and the emerging Powers,” Mexico, Instituto Matíasromero, december 14, 2010, at http://www.g20.utoronto.ca/biblio/kirton-g20-g8-g5.pdf.


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per se in that it brings to the table for discussion and negotiations globaland regional powers, developed and emerging economies alike, that havethe joint capacity to propose and implement decisions that make the globaleconomy viable and benefit all countries and their populations, be theymembers or not. Mexico’s membership in the G20 since its inception at theministerial level in 1999 reflects the weight of its economy (the tenth lar-gest exporter7 and thirteenth largest economy in terms of its participationin the global GnP),8 its open trading regime, its regional leadership and itsmacroeconomic stability.

The Role of Mexico in the G20

7 seCreTAríA de eConoMíA, at http://www.economia.gob.mx/index.php/comunidad-negocios-

padre/estadisticas. 8 THe eConoMIsT, Pocket World in Figure, Edition 2011, London, Profile Books Ltd., 2010.


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The G20’s agenda is directly related to the imbalances that led to the 2008economic and financial crisis and that raised the forum to the leaders’level. When the crisis became global in scope, neither national policies northe international financial institutions were able to respond as quicklyand comprehensively as the situation demanded. In addition, the G8’s limitedmembership meant that emerging economic powers that were key toputting a global solution together were not involved. The G20 filled thisinstitutional “vacuum” by organizing a collective initiative to avoid thepossible collapse of the global economy. The crisis had a very unique charac -teristic: its negative effects were felt immediately and deeply in almostall countries around the world, especially in those that make up the G20.Although the origins of the 2008 financial and economic crisis have beendebated, most of the observers agree that it developed in a complex mannerwith the following key factors:

• A prolonged period of economic growth that created excess li-quidity, an unsustainable expansion of credit and increasinglyrisky behavior by investors, which led to an inflationary “bubble.”

• Lax regulation and supervision of the financial system, based onthe incorrect assumption that the sector was self-regulating.

• The limited capacity of the international financial institutions toeffectively safeguard the health of the global financial system.

Although these conditions had caused previous episodes of financial ins-tability in emerging economies, in 2008 the epicenter was located in thefinancial system with the most weight at the global level: the united states.on september 13, 2008, after Treasury secretary Henry Paulson refusedto bail out Lehman Brothers, it was clear that the united states’ financialsystem was not in any condition to absorb the bankruptcy of one of theoldest and most important institutions in the global market. The collapse

eVoLuTIon oF THe G20 AT THe LeAders LeVeL


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of Lehman Brothers and the quasi-liquidation of American InternationalGroup (AIG) triggered the beginning of the most severe financial crisissince 1929.

That same week, several of the most important banking institu-tions in the united states became unable to insure the deposits of theircreditors. days after Lehman Brothers collapsed, secretary Paulson an-nounced that the u.s. Congress was being sent a 700 billion dollar bankrescue package to “restore stability to the system, halt the crisis of con-fidence and protect the taxpayer.”9

But the u.s. bank rescue was not enough to defuse a global crisisin confidence and liquidity. What began in August 2007 as turbulence inthe u.s. mortgage market became the origin the biggest crisis since the1929 Great depression. Countries that did not seem to be immediatelyaffected by the collapse of Lehman Brothers in september 2008 wereimpacted later through their export markets.10 To mention just a fewstatistics, the crisis caused the global GnP to contract by 0.5 percent andglobal trade to fall by about nine percent.11 Mexico’s GnP fell by 6.1 andabout 700,000 jobs were lost because of the crisis.12

Given the dire circumstances, President George W. Bush convenedthe first G20 Leaders’ summit in october 2008 in Washington d.C., in


9 seCreTAry oF THe TreAsury, “Text of draft Proposal for Bailout Plan. Legislative Proposalfor Treasury Authority to Purchase Mortgage-related Assets,” New York Times, september20, 2008, at http://www.nytimes.com/2008/09/21/business/21draftcnd.html.10 PAoLA suBACCHI and PAuL JenKIns, Preventing Crises and Promoting Economic Growth: A

Framework for International Policy Cooperation, London, Centre for International GovernanceInnovation (CIGI)/Chatham House, 2011, available at http://www.chathamhouse.org/sites/

default/files/public/Research/International%20Economics/r0411_ipc.pdf.11 BAnCo de MéxICo, 2010 Annual report, April 2011, at http://www.banxico.org.mx/

publicaciones-y-discursos/publicaciones/informes-periodicos/anual/%7B4DD504A9-510A-

F0DC-76B2-D028BE9FB374%7D.pdf.12 Idem.; and ernesTo Cordero Arroyo and JAVIer LozAno ALArCón, Statements of the Secre-

taries of Finance and Public Credit and Labor and Social Security, Ernesto Cordero Arroyo

and Javier Lozano Alarcón, respectively, at the press conference they offered on the employ-

ment situation in Mexico, January 4, 2011, at http://www.shcp.gob.mx/SALAPRENSA/

doc_discurso_funcionarios/secretario/SHCP/eca_jla_conferencia_empleo_04012011.pdf (acces-sed september 26, 2011).


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order to design a global response to the crisis and agree on an agenda tomaintain the stability of the international economy. since the Washingtonsummit, there have been six Leaders’ summits: in London (March 2009);Pittsburgh (october 2009); Toronto (June 2010); seoul (november 2010)and Cannes (november 2011).

What follows is a brief description of how the G20 has evolved sinceit began meeting at the leaders’ level, and of Mexico’s role in the group.

Stability and the Framework for Strong, Sustainable and Balanced Growth

The G20 has gradually moved from its initial focus on heading off a crisisto preventive, long-term macroeconomic cooperation. When the leadersmet for the first time in november 2008 in Washington, their main goalwas to reach an understanding on the causes of the global crisis and toassess appropriate policies to deal with it. Given the critical global eco-nomic situation, the G20 countries began to cooperate closely on macro-economic policy in order to restore growth and contain the spread of thecrisis to the most vulnerable economies. The strongest response to the crisiscame at the London summit in March 2009 when the leaders agreed ona two-year, five billion dollar coordinated fiscal and monetary stimuluspackage. six months later, the leaders noted that this package was thelargest in economic history and that it effectively accomplished its goalof avoiding the collapse of global economic activity, stabilizing the marketsand restoring trade.13 Without a doubt, this swift coordination of stimulusmeasures demonstrated the G20´s ability to reach agreements that bene -fited the world economy and enhanced its status as a credible participantin world governance.

Thanks to their deeper understanding of the global imbalancesthat contributed to the 2008 financial debacle, the leaders drew up a Frame -


13 G20, The Pittsburgh Summit 2009 Leaders’ Statement, preamble, paragraph 6, athttp://www.g20.org/ documents/pittsburgh_summit_leaders_statement_250909.pdf.


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work for Strong, Sustainable and Balanced Growth to ensure that the fis-cal, monetary, trade and structural policies of the member countrieswere consistent at the global level. The framework is an ambitious effort tocoordinate policies with the goal of stimulating sustainable and balancedgrowth; accelerating job creation; and reducing the risks to economicstability throughout the world. In very broad terms, the framework triesto eliminate the most fundamental causes of the crisis, principally thecomplex combination of high levels of public and private debt combinedwith significant fiscal and trade imbalances in some of the most advan-ced economies. As a result, the framework proposes that the deficit eco-nomies move towards fiscal equilibrium by cutting their deficit by halfin 2013, reducing public debt, encouraging domestic savings and makingtheir exports more competitive.

At the other extreme, the economies that are running a surplus,which over the years leading up to the crisis showed dynamic growth drivenby external demand, should put reforms in place that reduce their relianceon foreign markets, develop sources of domestic growth and implementmore flexible exchange rate policies in order to strengthen domestic con-sumption and welfare. Furthermore, all of the G20 economies shouldimplement structural reforms that encourage growth, demand and jobcrea tion. Given the wide variety of national circumstances in the G20 andan economic situation that is continually evolving, it was agreed at theToronto Leaders’ summit that the circumstances of each country woulddetermine the degree to which they implemented the framework.

Although negotiating the framework’s progress has been complexand not entirely free of disagreements, one big advantage has emerged:it has led to closer coordination and dialogue between emerging and de-veloped economies, allowing them to set goals and assess the implemen-tation of agreements on issues that just a few years ago would have beenimpossible to discuss, such as the global consequences of monetary andexchange policies. Therefore, it has become a very novel instrument forcooperation that has gradually opened the door to a macroeconomic dia-logue between developed and emerging countries.

As many observers have noted, preventing future crises, reducingvolatility and stabilizing the global economy will depend on effective



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international economic cooperation.14 The challenge for the G20 and theFramework is to achieve a global understanding of the fact that it is inthe national interest of all countries to manage the risks and global im-balances within an effective multilateral cooperation framework. This,of course, is related to another key issue on the G20 agenda: reform ofthe international financial institutions.

Reforming the International Financial Institutions

This is, without a doubt, one of the areas where the G20 has accomplishedits goals remarkably, and in a very short period of time. The reform hascome about mainly to satisfy the institutions’ need for sufficient capitali -zation to help countries in financial difficulties, as well as their need to adjusttheir decision-making processes to reflect the structural change wroughtby the new weight of the emerging and developing economies in contem -porary economic relations.

Capitalization of the International Financial Institutions

The first efforts of the G20 with regard to the international financial ins-titutions focused on making sure there was a stable flow of capital fromthem to the countries that were experiencing difficulties. At the Londonsummit, the G20 therefore agreed to a capitalization of 850 billion dollarsfor these institutions to support emerging and developing economies totake countercyclical measures, capitalize their banks, invest in infrastruc-ture and assist with the balance of payments and social programs.15

In order to immediately assist its member countries, the resourcesof the International Monetary Fund were doubled to 500 billion dollars


14 P. suBACCHI and P. JenKIns, op. cit.15 G20, Declaration on Delivering Resources Through the International Financial Institutions,April 2009, at http://www.g20.org/Documents/Fin_Deps_IFI_Annex_Draft_02_04_09_1615_

Clean.pdf.


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through the new Arrangements to Borrow (nAB) credit line, and an ad-ditional 100 billion dollars was provided to the multilateral developmentbanks, specifically for loans to the lowest-income countries. At the 2010Toronto summit, the leaders noted that the IMF’s capitalization now total -ed 750 billion dollars, and that of the multilateral development bankstotaled 235 billion dollars, surpassing the financing goals that had beenset in Pittsburgh. Mobilization of these resources played a decisive rolein stabilizing the markets and laying the foundation for a recovery. Basedon that progress, the leaders decided at the Toronto summit to authorizeadditional resources totaling 850 million dollars to the international fi-nancial institutions so that they could continue supporting emerging anddeveloping countries.16

It should be noted that, at the London summit, the G20 encouragedthe oMF to create a Flexible Credit Line (FCL) to ensure that its recapita-lization translate into effective and timely loans. The FCL represents animportant step forward because it allows member countries with soundmacroeconomic policies such as Mexico access to preventive loansshould they face balance of payment problems or abrupt capital flight.In a similar manner, at the seoul summit, the leaders announced thelaunch of the Precautionary Credit Line (PCL) for countries which, becauseof their size or role in the system, are more vulnerable and need precau-tionary liquidity.

Reform of the Quotas, Voice and Representation of the International Financial Institutions

In addition to addressing the capitalization of the international financialinstitutions, at the Washington summit the G20 committed to promotingreform of the quotas so that the Bretton Woods institutions more ade-quately reflect the changes in the global economy, specifically the greaterrelative weight of the emerging and developing countries. With this in


16 G20, The G-20 Toronto Summit Declaration, June 2010, paragraphs 23-25, at http://

www.g20.org/Documents/ g20_declaration_en.pdf.


mind, between the Washington and seoul summits, the G20 urged a reformto the IFM that involved shifting six percent of the quota shares of theoverrepresented countries to those that were underrepresented anddoubling the quotas of all of IFM member countries. This is clearly veryimportant progress: it significantly strengthens the IFM’s capitalizationand its ability to assist its members. Furthermore, in seoul, the leadersagreed to reduce european overrepresentation in the IFM executiveBoard, taking two seats from that region. There have been similar effortsin the World Bank, including a redistribution of at least 4.59 percent of itsquotas towards developing countries.

Global Financial Safety Nets and the International Monetary System

To the extent that the global economy has evolved towards complex in-terdependence, financial volatility has become a fundamental source ofinstability that has affected even countries with sound macroeconomicfoundations. The creation of financial safety nets responds to the needto help the most vulnerable countries face the financial fluctuations as-sociated with abrupt changes in capital flows and with excess reserveaccumulation. Based on the agreements reached at the G20 summits inToronto and seoul, the leaders have committed to continuing to work onthis issue to better prevent and manage future crises and, in general, tomake the international monetary system stronger and more stable. Al -though the international monetary system has supported the expansionof the world economy, the tensions and weaknesses are increasingly evi-dent.17 For this reason, the G20 created a working group coordinated byMexico and Germany to debate possible measures and alternatives formaking the international monetary system more stable and for strength -ening the role of the IFM in this process.

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17 PALAIs royALe InITIATIVe, Reform of the International Monetary System: A Cooperative

Approach for the Twenty First Century, January 2011, at http://www.elysee.fr/president/root/

bank_objects/Camdessus-english.pdf.



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Reforming Financial Regulation and Supervision

Irresponsible practices and a high level of risk in the financial system,along with regulatory and supervisory flaws were “at the root” of the 2008crisis.18 While regulation is the responsibility of each national jurisdic-tion and its authorities, the 2008 crisis threw into sharp relief the globalnature of the financial markets and their high degree of interconnection.For this reason, at the first summit in Washington, the leaders decidedto begin a process of broad reforms to the financial sector and to inten-sify international cooperation on implementing new regulatory stan-dards. They agreed that the guidelines for reforming the sector wouldbe transparency and accountability for the banks, solid financial regula-tion, the integrity of the financial markets and improving the capabilitiesof the relevant international financial institutions.19

one of the most important contributions of the G20 in this areawas the creation at the London summit of the Financial stability Board(FsB), which replaced the Financial stability Forum (FsF), whose member -ship had been limited to the G8 and spain, the netherlands, switzerlandand singapore. The FsB is charged with the international coordination ofthe regulatory and supervisory authorities of all of the G20 countries, incollaboration with the Basel Committee on Banking supervision,20 andthe International Monetary Fund, to promote the implementation of effec -tive regulatory and supervisory policies.


18 G20, The G20 Seoul Summit Leaders’ Declaration, november 2010, paragraph 27, athttp://www.g20.org/Documents2010/11/seoulsummit_declaration.pdf.19 G20, Summit on Financial Markets and The World Economy Declaration, november 2008,at http://ww.g2.org/Documents/g20_summit_declaration.pdf.20 The Basel Committee on Banking supervision is a forum for cooperation on bank super-visory policies. Its goal is to facilitate an understanding on issues that are key to improving thequality of supervision around the world. The oversight authorities from the following ju-risdictions participate: Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany,Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, netherlands, russia,saudi Arabia, singapore, south Africa, spain, sweden, switzerland, Turkey, united Kingdom,and united states. Its secretariat is headquartered at the Bank for International settlementsin Basel, switzerland.


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At the Toronto summit, the G20 devised a plan for financial reformthat was based on four pillars: a stronger regulatory system; more ef-fective supervision; the development of a resolution mechanism to ad-dress the bankruptcy of systemically important financial institutions(sIFIs);21 and transparent international assessment and peer review ofcompliance with the new standards. After the leaders repeatedly voicedtheir support for the new “Basel III” rules22 presented at the seoul sum-mit, all members have committed to making the necessary changes totheir national legislation in order to implement the new measures be-ginning in January 2013, with a critical route that concludes in 2019.This incremental process is to ensure that the new rules are not imple-mented abruptly, inhibiting access to financing and increasing costs ata period of time in which it is vitally important to continue the flow ofcredit to the economy in order to consolidate recovery. However, thenew standards reduce the incentives for excessive risk-taking and irres-ponsibility, lessening the probability of a new crisis at the same time thatit strengthens the sector in support of economic growth.


21 The collapse of banking institutions such as Lehman Brothers in 2008 which, becauseof its size, complexity and interconnections with the rest of the global financial system, hadconsequences for the rest of the world, demonstrated the need for clear rules to minimizethe damage caused by the lack of a procedural framework for bankruptcies and other pro-blems. In november 2010, the Financial stability Board (FsB) established a new proceduralframework so that the breakdown of this type of institution would not affect the rest ofthe system. Currently, the FsB is working on a methodology to identify the sIFIs. It estimatesthat it will conclude its work in september 2011. 22 Basel III is a set of proposals for reforming the international capital and liquidity require-ments for banks and some areas of bank supervision. Its name comes from the fact that it isthe third version of the international rules for capital and liquidity of the 1988 Basel Agree-ment. Basel II was adopted in 1992. The Basel Committee has urged that the capital rules bebased on the supposition that the level of capital should depend on the level of risk associatedwith the bank’s assets. since capital exists to protect the bank from risk, a logical consequenceis that more capital is needed when the bank decides to take on more risk.


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An Open Global Economy

At the Washington summit, the leaders acknowledged that global tradedrives prosperity and growth, and they highlighted the importance of avoidingprotectionism. However, at the London summit, they noted that protec-tionist measures and the contraction in trade financing were exacerbating thedecline in global demand for goods and services. Therefore, they decidedto redouble their efforts to avoid the creation of new barriers to the tradein goods and services and to take all necessary steps to restore financ ingto the sector by ensuring 250 billion dollars of support for trade financeover two years.23 In addition, at each of the leaders’ summits, the G20 hasreite rated its support for a swift conclusion to the World Trade organization’sdoha round. However, it is in this area that the limits to what the G20 can doare most clearly seen. A spirit of protectionism has prevailed to the detrimentof greater global growth and wellbeing.

Non-financial Issues and the G20

Because the G20 was able to facilitate consensus decision-making to managethe 2008 crisis, expectations are now high that this forum will address otherimportant multilateral issues that, because of their complexity and the manydiverging opinions about them, have languished for a long time. While thereis consensus that the G20 should concentrate on the financial and economicagenda that gave rise to its creation, there is also a belief that the group canserve as a forum for discussion of global issues related to financial develop-ment. For example, World Bank President robert zoellick has suggested thatthe G20 promote “responsible globalization” that links sustainable growthto financial stability, development and climate change.24


23 G20, Declaration on Delivering Resources…, paragraph 22.24 roBerT zoeLLICK, Democratizing Development Economics, conference, Washington, d.C., Geor ge -town university, september 29, 2010, at http://web.worldbank.org/WB-SITE/EXTER NAL/

EXTABOUTUS/ORGANIZATION/EXTPRESIDENT2007/0,,contentMDK:22716997~menuPK:

64822279~pagePK:64821878~piPK:64821912~theSite PK:3916065,00.html (accessed september26, 2011).


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Development

Various observers have noted that, by including the issue of developmenton its agenda, the G20 has signaled the beginning of a new stage in itsevolution. It certainly reflects the impact of the developing countries onthe forum and the fact that their agenda has gained legitimacy, and com-mitted the G20 more clearly to the less-developed countries and sectors.The group has the potential and the political leadership to give impetus tohigher levels of development thanks to the impact of its economic poli-cies. In fact, the G20 could play an important role in promoting the Mi-llennium development Goals despite the restrictions currently faced bythe international economy.

Climate Change

Without a doubt, the global response to the problem of climate changeis intrinsically related to the international economy. Climate change pre-sents us with clear challenges but it also represents opportunities for theglobal economy. The challenges derive from the need to limit greenhousegas emissions through the development of greener industrial technologies.The transition to the use of low-carbon technologies and production chainscreates new business and investment opportunities that are linked togrowth and jobs. Therefore, the G20, as the most important forum for inter -national economic cooperation, cannot remain detached from the fightagainst climate change.

The negotiations on climate change and its financing have beenaddressed by the G20 leaders in their declarations. However, the G20does not intend to become the main platform for climate change coopera-tion, but rather to simply support and promote the process as it evolveswithin the united nations framework.


Energy

In response to the increasing energy price volatility and its impact oneconomic activity, the G20 became involved in this area beginning at thePittsburgh summit in order to address several challenges in this sector.In addition to laying the foundation for dealing with the price volatility, theG20 seeks to contribute to reducing subsidies for fossil fuels that damagethe environment and to facilitating the exchange of best practices in cleanenergy and energy efficiency.

Agriculture

The G20 agriculture ministers meet during the preparations for the sum-mits to share opinions and seek solutions to problems that impact thestability of the global economy such as food security and agriculturalprice volatility. over the past months, these problems have worsenedconsiderably, which has had serious consequences in some regions ofthe world such as the Horn of Africa.

The Fight against Corruption

In recognition of the serious implications of corruption on economicgrowth, such as increased transaction costs and market distortion, at theG20 Toronto summit in June 2010, an Anti-Corruption Working Groupwas created. This group seeks to promote the main united nations andthe organization for economic Cooperation and development (oeCd) in-ternational anti-corruption instruments; avoid access by corrupt officialsto the financial system; combat money laundering and tax havens;strengthen agreements on mutual assistance, extradition and the confis-cation of assets; improve protection for whistleblowers, and to exchangebest practices. To date, significant steps have been taken towards the im-plementation of the group’s Anti-Corruption Action Plan, and a progressreport was submitted at the Cannes summit. Mexico has participated

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* 22 *

actively in the Working Group and will co-chair it with the united King-dom in 2012.

Employment

The G20 leaders have repeatedly stated that job creation must be at thecenter of the global economic recovery. To this end, the G20 labor mi-nisters meet periodically to discuss strategy and to exchange best prac-tices in order to respond to the social consequences of the economic andfinancial instability. At the september 2011 meeting of labor ministersin Paris, it was agreed to create a task force to facilitate the developmentof job creation strategies, especially for youth.

The agenda briefly described above shows that the G20 is pivotalin promoting non-financial global issues closely linked to economic de-velopment, such as the fight against corruption as well as developmentitself, in which its leadership can make a difference.



* 23 *

Although it is true that the G20 is an informal forum for discussion, with -out its own headquarters or administrative structure, it exists and func-tions based on a complex network of consultations and communicationbetween various areas and levels of government of its 19 member coun-tries and the european union. of course, the leaders are the highestautho rity. It is they who provide the political capital and give impetus tothe negotia tions at the summits.

It is worth mentioning that the G20—whose main value added vis-

à-vis other international organizations is precisely the political capital andthe level of dialogue made possible by the presence of the leaders—orga-nizes its agenda along two lines. There is a “finance channel” managed bythe central bank governors and the finance ministers of all of the membercountries with technical assistance from the main international financialinstitutions. In Mexico, this channel is the direct responsibility of the Mi-nistry of Finance and Public Credit (sHCP) and the Banco de México. Basedon the analyses and recommendations of the finance leaders, the goal isfor the leaders to promote coordination of economic and financial policiesat the international and national level in order to achieve a more prospe-rous, balanced and sustainable order in all regions of the world.

In addition to the “finance channel,” the “sherpa channel” coordina-tes the non-financial issues. The sherpas are the leaders’ personal repre-sentatives. The term refers to the guides that lead climbers on expeditionsto scale the Himalayas. This channel addresses issues such as the fightagainst corruption, the development plan adopted in seoul, energy effi-ciency and food security. The sherpas are also responsible, of course, forthe group’s internal coordination and outreach to third-party actors.

The rotating presidency of the summit is supported by a group ofadvisors that each government appoints according to its own specific cir-cumstances. one way of providing continuity from one summit to the nexthas been the creation of a G20 “Troika,” made up of the past, present andfuture summit chairs. Working in an advisory capacity, the Troika ensuresa certain continuity and consistency to all of the summits without incurring

THe G20: sTruCTure And FunCTIon


* 24 *

in the high administrative costs that would come with creating a secre-tariat. nor does it take away from the G20’s flexibility, which is based ona direct dialogue between its main participants. It is also important topoint out that the G20 works without a formal secretariat because the in-ternational financial institutions with a universal and permanent mem-bership such as the IMF provide it with the human and technical resourcesit needs for its decision-making process. Before debating whether or notit should create a more formal institutional structure for itself, the G20should demonstrate that it has successfully fulfilled the terms of its agre-ements. For this very reason, the G20 focuses its efforts on fulfilling itsoriginal commitments and limits its engagement with other issues.

Lastly, regarding the growing debate about the role of the G20 andthe formal multilateral organizations, it is important to stress that theG20 is a complementary forum for cooperation that does not intend toreplace the existing institutional arrangements. The nature and functionof the G20 are frequently misconstrued, as are its comparative advanta-ges and strategic relationship vis-à-vis, for example, the united nations.on some issues, such as development, coordination between the G20 andthe united nations is key to contribute to fulfilling the Millennium deve-lopment Goals.

In addition, in response to the legitimate concerns of the impact ofthe G20’s decisions on other countries and actors, the leaders committedat the seoul summit to increasing the group’s consultations and outreachprograms in a systematic fashion, based on the G20’s relations with theinternational financial institutions, the united nations, regional organi-zations, civil society and academia.25 The goal is to establish connectionsand synergies between the various organizations and actors instead ofjuxtaposing agendas.


25 G20, The G20 Seoul Summit…, paragraph 73.


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The role of Mexico in the G20

Mexico actively participates in the process of strengthening the G20 asthe main forum for international economic cooperation and discussionbetween developed and developing countries. In addition, the G20 alsoprovides an opportunity for Mexico to increase its interactions with coun-tries that are particularly important for its foreign policy, because theyare important trading partners, foreign investors or because we sharecommon positions in international forums.

As a general strategy, Mexico seeks to take advantage of its situationas a country that bridges regions, benefiting from its geopolitical and geo -strategic position between north America, Central America and southAmerica; as a country of both the Atlantic and the Pacific; and from itshistoric ties with europe. In addition to the above, Mexico is able to bridgethe gap between developed countries (oeCd members) and developingcountries, with which it shares concerns related to economic growth, foodsecurity, the fight against poverty and climate change, international tradeand reforms of the organizations involved with global governance. Thesecharacteristics make Mexico a natural facilitator in international negotia-tions, able to reconcile varying positions on the most pressing economicand financial challenges we face today. That said, Mexico does not encou-rage the creation of groups within the G20 so as not to alter its currentcomposition as a forum in which each member country participates onequal terms.

Mexico’s role in the G20 summits

Global Economic Stability

Mexico’s role in the G20 has been consistent with its macroeconomic po-licy, which seeks to maintain fiscal stability by increasing tax collectionand maintaining low levels of public debt and a moderate deficit. soundmanagement of Mexico’s economy led to a growth rate of 5.5 percent in



2010 after a contraction in 2009.26 When the severity of the crisis led tothe first G20 summit in Washington, Mexico favored adopting countercy-clical policies as the first line of defense. However, Mexico has also stressedthat plans to restore a fiscal balance should be compatible with growth,as this is a condition for economic development in the future. In addition,Mexico has confirmed its commitment to the Framework for Strong, Sus-

tainable and Balanced Growth as the way to achieve a full recovery thathas progressed in very different ways among the world’s countries andregions and has not been strong enough to create new jobs. Mexico be-lieves that the ultimate solution is the establishment of macroeconomicpolicies that are much more responsible and that do not manipulate va-riables such as the exchange and interest rates, given that one of the mostimportant causes of the 2008 crisis were macroeconomic imbalances.27

Although the Framework itself is clearly a step in the right direction, thereis a long road ahead on the way to correcting the imbalances, whichmakes it important to overcome the resistance to acknowledge the pro-blem and begin a serious discussion on how to continue to make progressin the near future.

Reforming the International Financial Institutions

Mexico has actively supported reforms to the most important financialinstitutions that enable emerging countries such as our own to participatein a more balanced fashion and according to their weight in structuringsolutions to the international economic challenges. With this goal in mind,Mexico has supported increasing the capital of the International Monetary

* 26 *


26 BAnCo de MéxICo, op. cit., p. 16.27 sre, Report on the participation of the President of the United Mexican States, Felipe Cal-

derón Hinojosa, at the 5th G20 Leaders’ Summit and the 18th Summit of Economic Leaders

of the Asia-Pacific Economic Cooperation (APEC) Forum, Mexico, 2010, p. 5, available athttp://sil.gobernacion.gob.mx/Archivos/Documentos/2010/12/asun_ 2725043_20101214_1292

343974.pdf.


* 27 *

Fund and the World Bank, and has promoted reforms that strengthen thevoice of the developing countries in the decision-making process. specifi-cally, the role of Mexico in London and Pittsburgh was very important inarriving at the agreements that created new instruments for flexible creditlines to developing countries to improve their access to resources in difficulttimes.28At the seoul summit, Mexico highlighted the importance of the IMF

reform that will enable emerging countries such as ours to increase theirparticipation on its governing bodies and will substantially improve theassistance we can receive if faced with difficult circumstances.29

Reform of the Financial System

The Mexican Government proposed a detailed review of the regulatoryweaknesses of the financial systems, both in the developed and emergingcountries, stressing the problem created by excluding emerging countriesfrom the main forums for discussion of financial policies. In this context,Mexico played an important role in the G20’s decision at the London sum-mit to expand the membership of the Financial stability Board to includeemerging countries.30 In addition, Mexico has urged G20 members to avoidintroducing regulations that could make access to credit more costly, suchas overly strict capital requirements. Mexico has also backed the effortsof the Basel Committee on Banking supervision and the Financial stabilityBoard to draft new standards and rules to mitigate the risks in the sectorand agrees on the need to strengthen both the international coordinationbetween supervisors and the scope of the regulations of the financial ins-truments, entities and markets that have inherent systemic risks.


28 sre, Report on the State Visit of the President of the United Mexican States, Felipe de Jesús

Calderón Hinojosa, to the United Kingdom of Great Britain and Northern Ireland, and his

participation in the Second G20 Leaders’ Summit from March 29-April 2, 2009, México,2009.29 sre, Report on the participation…30 sre, Report on the State Visit…


* 28 *

Preventing a New Era of Protectionism

Given the export-oriented nature of the Mexican economy, our countryhas spoken out strongly against a resurgence of protectionism and in creasedtariffs. In addition, President Calderón has stated repeatedly that Mexicois committed to concluding the doha round negotiations. However, giventhe lack of progress with the World Trade organization negotiations, ourcountry has said that it is in favor of eliminating the trade barriers erectedby the industrialized countries because their slow recovery is affect ing theprospects of the export sector of the developing countries.31

other Issues

Encouraging a Green Global Recovery

In Pittsburgh, President Calderón introduced climate change as one of thesummit’s central issues. His explanation of the Green Fund was receivedwith interest, and the shared but different responsibility of countries tofinance the problems of mitigation, adaptation and technological changecaused by climate change were acknowledged.32 In addition, Mexico hasstrongly promoted eliminating subsidies for inefficient fossil fuels whileat the same time acknowledging the varied circumstances of each of theG20 members. our country has affirmed its political will to comply with


31 sre , Report on the participation in the 4th G20 Leaders’ Summit of the President of the

United Mexican States, Felipe Calderón Hinojosa, Toronto, Canada, June 26-27, 2010, page 6,available at http://sil.gobernacion.gob.mx/Archivos/Documentos/2010/08/asun_2674247_

20100825_1282746206.pdf.32 sre, Report on the working visit of the President of the United Mexican States, Felipe Cal-

derón Hinojosa, to New York and his participation in the Summit of Heads of State and Go-

vernment of the United Nations Security Council and in the 3rd G20 Leaders’ Summit in

New York and Pittsburgh, United States, september 23-25, 2009, at http://sil.gobernacion.

gob.mx/Archivos/Documentos/2010/07/asun_2670291_20100714_1279117757.pdf.


* 29 *

this commitment through an action plan that gradually eliminates subsi-dies to fossil fuels that damage the environment.33

Climate Change

Although the forum to address climate change is the united nations Fra-mework Convention on Climate Change and therefore the issue is not partof the G20 agenda, one of Mexico’s most important goals at the G20 sum-mit in seoul was to contribute to creating a political environment that ledto success at the CoP16 in november 2010.34 The information session onthe state of the negotiations led by President Calderón no doubt had a po-sitive impact on the process.

Development

In seoul and Toronto, Mexico supported the creation of a working groupon this issue in the belief that the G20 should promote sustainable develop -ment on a global scale and that it would help fulfill the Millennium deve-lopment Goals. In addition, Mexico upholds the commitment to contributingto the Multi-year Action Plan adopted in seoul to eliminate barriers togrowth and to help move towards a more sustainable economy and jobcreation.


33 sHCP, “Las acciones coordinadas pueden asegurar un futuro más próspero para los ciu-dadanos de todo el mundo: G20,” Informe Semanal del Vocero, november 8-12, 2010, p. 2,at http://www.shcp.gob.mx/SALAPRENSA/doc_informe_vocero/2010/vocero_ 46_2010.pdf

(accesed october 5, 2011).34 sre, Report on the participation…


* 30 *

The G20 Today and Priorities for the Mexican Presidency

Three years after the financial debacle that pushed the world’s economyto the brink of collapse, it cannot be denied that the G20’s first line of de-fense was successful in avoiding a deeper and more prolonged recessionand in saving millions of jobs, although unemployment continues to becritically high in some economies. Given the magnitude of the crisis andthe risk inherent in failing to coordinate policies, it was easy for the G20to reach agreements that made it an important player on the global stage.However, there are several areas in which its original commitments haveyet to be fulfilled. Among these are the goal of creating the conditions forstrong, sustainable and balanced growth throughout the world that leadsto jobs and wellbeing for all.

In 2011, the outlook for the world’s economy is uncertain, perhapsmoreso than in 2008. While the markets reacted skeptically to the fiscalplans of the advanced economies in the second half of 2011, the emergingeconomies are concerned with the risk that their economies will overheatand create new financial bubbles.35 However, faced with an increasinglycomplex situation and the risk of a new financial debacle, the G20 has notbeen able to find a way to promote consultations and collective action asit did in 2008. While differing views persist on how to address the globalimbalances, the term “currency war” was used by several participants andobservers at the seoul summit to refer to the tensions created as part ofthe debate over international monetary policy. The Mexican Governmenthas openly criticized the inconsistency of various G20 countries that havespoken against protectionism at each G20 summit only to then implementprotectionist measures at home.

The possibility that the current complex international economic si-tuation leads to a recession and that the G20 has worn out its ability tofacilitate agreements could put the entire world at great risk. Another re-


35 InTernATIonAL MoneTAry Fund, World Economic Outlook September 2011, Slowing Growth,

Rising Risks, Washington, d.C., International Monetary Fund, 2011, at http://www.imf.org/ external/

pubs/ft/weo/2011/02/pdf/text.pdf (accesed october 5, 2011).


* 31 *

cession that could affect growth, employment and welfare to an even gre-ater degree than in 2008-2009 makes it imperative for the leaders to actresponsibly and decisively. Therefore, the G20 must maintain the spiritof cooperation that led to its creation at the leaders’ level in 2008. TheG20 must overcome its differences regarding approaches to the economyto focus on the current situation. Another global economic crisis is not inthe interest of any nation. There is no place for purely national interestsin this scenario. The G20 must find its long-term vision again. If we losesight of the original reason for our cooperation, the G20’s role as the mostimportant forum for economic cooperation could soon be history.



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Mexico will host the seventh G20 Leaders’ summit at a very critical anduncertain time for the international economy. It will promote a substan-tive agenda that will address the most pressing global economic challen-ges. In light of the complex global economic environment, the G20’s rolein coordinating macroeconomic policies that give certainty to the mar-kets, ensure liquidity and strengthen the recovery of the global economybecomes crucially important. Given the recent episodes of financial ins-tability in europe and the united states, it is important for the G20 tomake progress in fulfilling the commitments it has already adopted andthat must be met so that economic growth can recover. Therefore, PresidentCalderón has said that one priority will be to follow up on issues such aseconomic stability in order to re-start growth, boost international tradeand improve financial regulation.

In addition, Mexico will promote specific issues of interest for emerg -ing and developed countries to which the Mexican presidency can bringvalue added. some that have been proposed have to do with food securityand green growth.

We are committed to organizing a process of consultations and anexpanded and transparent dialogue with the united nations, non-membercountries, regional organizations and all of the relevant participants in theprocess of finding solutions to the complex economic and financial problemsthat the international community as a whole faces today.

THe MexICAn PresIdenCy oF THe G20


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The G20’s presence on the world stage opens a window of opportunity forachieving a more effective system of global economic governance. The G20has proven to be indispensible in times of economic and financial crisis.But it can also play a key role in non-crisis situations by laying the founda-tion for a more prosperous, secure and balanced global economy. For thisreason the group must remain united and retain its spirit of cooperation.

one of the most distinctive characteristics of the G20 is its inclusionof the interests and priorities of both emerging and developing countriesin the governance of the international economy. This clearly reflects the re-ality of our multipolar and interdependent world. Its role in global econo-mic governance should be to promote clear rules that are acceptable to allcountries and that lead to a more stable and prosperous world economy.

despite successfully managing the international financial crisis in2008 and 2009 and its important contributions to reforming the interna-tional economic architecture, the economic picture remains complex andthe G20 must be on guard. Its creation stems from the awareness that allof its members, both the developed and the emerging economies, mustshare the responsibility of putting collective action before national inte-rests. This is the only way to achieve economic growth and stability andbetter employment rates and wellbeing on the entire planet.

up until now, the G20 has made a difference. Mexico’s presidency willundoubtedly be an opportunity to move forward and to take further stepsthat benefit global economic stability.

ConCLusIons


Instituto Matías romerosecretaría de relaciones exteriores

república de el salvador no. 43 and 47 Col. Centro * CuauhtémocC. P. 06080 * Mexico CityTel. (55) 36865100 * exts. 8246 and [email protected]/imr/

responsible for the publication and electronic version:María Cristina Tovar GómoraGabriel López López

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Book design:uli stehlik

Composition:susana Guzmán de Blas

Translation:Brett duel

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