Yellen-led G20 walkout shows decline of world's premier economic club

The world's premier economic and financial club may be irrevocably broken.

The Group of 20, conceived in the 1990s to bring the biggest developed and emerging markets into a single forum to address key global challenges, failed this week to issue a joint communique following a meeting of its finance ministers and central bank chiefs in Washington.

US Treasury Secretary Janet Yellen also led a partial walkout from a session that featured Russian officials, in protest over their inclusion given Moscow's invasion of Ukraine.

The G-20 has weathered tensions in the past, including the Trump administration's opposition to language over protectionism in previous declarations from the group. But it's no longer clear that the likes of the US, China and Russia share the same fundamental objectives -- raising the risk that it will fail to serve as a coordinating body for tackling problems ranging from looming food and debt crises to climate change.

"Our system of global governance and ability to tackle key global challenges is being disrupted," said Mark Sobel, a former top Treasury Department international-affairs official who's now US chairman for the Official Monetary and Financial Institutions Forum, a think tank.

A confrontation had been brewing since last month, when US President Joe Biden called for the Russians, in the wake of their attack, to be excluded from the G-20. But China and Indonesia, which holds the group's rotating presidency, wouldn't go along.

'Profound Question'

Finance Minister Sri Mulyani Indrawati of Indonesia, in a Wednesday press briefing following the G-20 finance chiefs' meeting, said the group "continues as a premier forum for all of us to continue to discuss and talk about all of the issues," despite the tensions.

But former US Treasury Lawrence Summers, who helped set up the G-20, says it's now a "very profound question" as to whether it retains its original premise of shared interests in mutual economic development and a determination to jointly solve problems to further that endeavor.

"Self evidently, it is not the objective of most of the other members of the G-20 to support Russia's economic flourishing," Summers, a Harvard University professor and paid Bloomberg TV contributor, said on Bloomberg's Stephanomics podcast last week. "It is a substantial question whether we are hoping for the success of the Chinese economy, and whether China is hoping for the success of our economy."

A "variable architecture" could emerge, with different forums featuring participants with more in common but having less reach, and bigger ones where there's less in common but more reach, Summers said.

Photo: Bloomberg

Pivotal Forum

While the G-7 grouping of democratic, advanced-economy nations remains as a long-standing forum for that group, it's not big and broad enough to address issues like food insecurity and climate change, Sobel said. (The body included Russia as the Group of Eight from 1998 until the country's invasion of Crimea in 2014.)

The G-20 was pivotal last year in generating a consensus behind the biggest overhaul in global corporate tax rules in decades -- something the G-7 likely wouldn't have been able to coordinate. Amid the US-China trade war in 2019, it also served as a forum where Presidents Donald Trump and Xi Jinping could at least meet, averting a deeper breakdown in ties.

"It's the only body where you would have Russia, China and India meet face-to-face for days at a time." said Josh Lipsky, director of the GeoEconomics Center at the Atlantic Council. "It was more than just a group for talk, it was a group of action."

While G-20 communiques weren't binding sets of commitments, they could be used to call governments to account if they later failed to live up to pledges made.

Wednesday Dust-up

Formed first as a gathering of finance officials following the emerging-market crises of the 1990s, the G-20 became the pre-eminent forum for steering the world economy after the turmoil of 2008, when its leaders began convening summits. An April 2009 gathering in London was a high point, when countries coordinated action to support the world economy and limit further financial fallout.

Those heights mark a big contrast with Wednesday's dust-up, when US, Canadian, Danish, British and Ukrainian officials walked out of a morning G-20 session in Washington -- conducted in a hybrid in-person and video format -- just as a Russian representative began speaking. Some others participating remotely reportedly turned off their cameras as part of the protest.

The moment didn't stop the proceedings, and Spanish, French and German officials didn't leave the room. A person familiar with the situation said Spain felt compelled to stay, given its status as the current head of an important panel at the International Monetary Fund. Some other European officials opted to remain out of solidarity, the person said on condition of anonymity because of the sensitivity of the matter.

The split over Russia wasn't the only symptom of a breakdown over global economic coordination. While Yellen insisted during a press conference Thursday that the group was continuing to get important work done, she also said she was "deeply disappointed" with efforts to organize a debt-service suspension initiative for developing nations that are now struggling after their borrowing swelled to address the pandemic.

Value Unclear

Yellen also said she "specifically called out China" for needing to step up its participation in debt relief. 

John Kirton, director for the G-20 Research Group at the University of Toronto, said the rift over Russia is harmful in the short run, but not debilitating. Below the level of cabinet ministers, important work will continue among deputies and technical experts, he said. Lipsky agreed.

For that reason, and because of Russia's declining influence, Kirton was even more optimistic. The disruption this week "does have an impact, but not a serious, prolonged or existential one."

An important gauge of the G-20's continuing relevance looms later this year, when members' leaders are scheduled to gather in Bali, Indonesia, for a summit. Indonesia has invited President Vladimir Putin to attend, despite Washington's call for Russia to be ejected.

"The longer-term question of how we have some steering to cope multilaterally with these kinds of global issues is an open question," said Sobel, the former US Treasury official. 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement